Gold Could Hit $2,000 An Ounce
Election Day proved to Wall Street once again that trying to predict the stock market and the future of the U.S. economy is nothing more than a guessing game at times. When the dust had settled, Donald Trump stood victorious as the president-elect, which is the opposite of what essentially every poll had suggested leading up to Nov. 8. It also, temporarily, gave global most stock markets indigestion.
Physical gold, however, could be one of premier beneficiaries of a Trump presidency.
Right now as of September 12th, 2017, Gold is at #1,328.00 an ounce
Gold could hit $2,000 Under Trump — here’s how
Physical gold is already up more than $210 per ounce year to date and has benefited in recent years from historically low lending rates.
Physical gold is strongly influenced by the trade-off between interest-based asset yields, such as bank CDs, and the opportunity of generating bigger gains by owning gold, which has no yield.
This opportunity cost of forgoing the guaranteed gains in interest-based assets has remained low and has positively influenced gold prices.
In fact, most interest-based assets aren’t earning more than the current inflation rate, which can lead to nominal gains but real money losses.
Trump’s tax plan involves reducing the individual income tax schedule to just three brackets — 12%, 25%, and 33% — from the current tax schedule of seven progressive brackets. With both houses of Congress firmly Republican, and the House of Representatives originally crafting the three-bracket proposal that Trump is now advocating, it’s quite possible it, or some similar version of this plan, could become law.
However, various analyses of Trump’s key tax proposals suggests that the annual federal deficit could expand, thus increasing the national debt at a faster pace than in previous years. According to estimates from the Tax Foundation, Trump’s plan would lead to a 10-year reduction in revenue of $3 trillion. More debt means more money that has to be set aside to service interest payments and potentially less money for other projects to grow the U.S. economy.
Gold could be a prime beneficiary if the national debt becomes a hindrance to growth and forces Trump to rethink his tax plan. Weaker than expected GDP growth could also send investors scurrying for gold.
Infrastructure spending could be an ancillary benefit
Third, physical gold could see ancillary benefits from Trump’s audacious infrastructure spending plan. Though both presidential candidates rightly recognized that America’s infrastructure is aging and needs upgrades, Trump’s proposed $1 trillion in spending over the next 10 years completely dwarfed the proposed $275 billion in spending over the next five years from Hillary Clinton.
History suggests time and time again that GOLD will do well
The last factor is somewhat psychological. According to CNBC, gold tends to outperform when Republicans are in the White House. Keep in mind that history is no guarantee of future results, but it’s not out of the question to assume that investors will position themselves in physical gold and gold stocks in advance of Trump taking office given this historical correlation.
Could gold prove even more lustrous under Trump’s presidency than it was under President’s Bush or Obama? Only time will tell, but the initial signs suggest it’s quite possible.
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