President Trump is good for gold, or ins’t he?
Since US President Donald J. Trump was voted into office on 3 November 2016, the price of gold has increased by 52 per cent, the S&P 500 stock market index by 66 per cent, while the US dollar exchange rate fell by around 6 per cent. But the question is: Does it make sense at all to suggest that President Trump is directly responsible for financial market developments and commodity prices? Is this a reasonable question at all?
Well, in a sense it is – as any US President certainly has had an impact on the economic and financial conditions of his country and thus asset prices. In the case of President Trump, he was voted into office to make a real difference. A majority of US voters went for Trump because he promised them to change their economic and social affairs for the better – as epitomised by President Trump’s campaign slogan “Make America great again”.
President Trump promised big changes indeed: to “drain the swamp”, to push back “the deep state”, to bring troops home, and to put an end to the actions of the ‘globalist political elite’ that had other plans in mind than the well-being of the average American citizen. At the same time, however, the inhibiting factors President Trump’s political agenda is confronted with remain colossal. No doubt about that.
Not only comes fierce resistance from political opponents. There is also, first and foremost, an unbacked paper money system in place that effectively and severely limits the room for manoeuvring in a republican system. The decade long issue of new US dollars, created out of thin air, has facilitated an out-ofproportion growth of the state, with the state expanding towards a “maximum state”.
Potent special interest groups such as big business and big banking have developed a vital economic and financial interest in keeping the unbacked paper money system going, and in particular in building an all-powerful state. For it is the state that allows them to influence politics (taxation, regulation, etc.) in their favour; this phenomenon is well known in economics, it is called ‘rentseeking’.
What is more, the economic and financial system has become addicted to evergreater injections of unbacked money. Once the inflow of new credit and money dries up, the artificial boom turns into bust – which would come at a very high economic and social price. This is why in the politically dictated lock down crisis, the Trump administration decided to go “all in”, to rescue the reeling unbacked paper money system at all costs.
In times of acute emergency, this is an understandable political decision. However, it would be naïve to believe that it would ever be possible to push back the state without ending the state’s money production monopoly. “He who rides a tiger is afraid to dismount”. And indeed, it would take superhuman efforts on the part of those who govern as well as the governed to put a deliberate end to the unbacked paper money system and happily accept its horrors.
The longer the unbacked paper money system is kept alive, the larger the economic and financial disequilibria will be, and the more severe will be the final bust. To keep such a system going is like “kicking the can down the road”. But at some point, the kicking must end. It cannot go on forever. This is what sound money tells us. Fortunately, important changes are on their way, which could change things for the better.
In recent years, various US States – Arizona, Idaho, Texas, and Utah, for example – have been restoring gold and silver as money. They have exempted gold and silver from VAT and capital gains taxes so that they can compete with the US dollar when it comes to making payments and keeping savings. Gold and silver coins that are issued by the US are recognised as money. People have the freedom to make their payments with US dollars or gold and silver coins.
This is a development that should by no means be underestimated by those holding or considering buying gold and silver. If the unbacked paper money system is allowed to live on (by the Trump administration or any other administration), the prices for gold and silver will likely continue to trend upwards – as the purchasing power of the Greenback will be eroded, and consequently the demand for gold and silver, and thus their prices will rise.
And if the unbacked paper money system were to come crashing down – as a result of an ‘accident’ or deliberate political efforts –, there would be just one money left, and that is precious metal money in the form of gold and/or silver. In such a scenario, gold and silver can also be expected to gain in purchasing power very strongly and presumably also quite rapidly.
“President Trump is good for gold, or isn’t he?” Well, I guess the answer is yes. In case the Trump administration keeps doing everything needed to uphold the unbacked paper money system, the consequence should be an ongoing boost to the price of the yellow metal, for this requires the issue of ever-greater new money balances, the suppression of market interest rates, and further accumulation of ever more debt.
And in the case the US President, in his second term, becomes serious about “deconstructing the administrative state”, the price of gold would presumably also benefit. For then some kind of limit to money printing and strangulation of free market forces has to be imposed, and the effect would for sure be an economic and financial crisis, which would be potentially lethal to the unbacked paper money system. Again, this would be positive for the gold price.
The question is: Is holding gold a win-win? Well, investors with a long-term horizon certainly have, if it comes to structure their liquid means portfolio, good reasons to put their trust in ‘gold money’ rather than unbacked paper currencies such as US dollar, euro & co.