When Donald Trump completed his Brexit-style upset over Hillary Clinton in the 2016 presidential race, the reverberations of the decision were felt near and far – and in more ways than one. Interestingly, the Trump victory led to an immediate surge in gold buying all over the world. But why?
Trump’s Effect on Gold Prices
Prior to Election Day, all signs indicated that a Clinton victory was imminent. Most noted that there was some narrow path to victory, but it was just that – narrow. So when it was announced that Trump had secured the nomination to become the 45th President of the United States, uncertainty abounded. How did it happen? What does this mean for the future? And naturally, questions like these lead to speculation in the financial markets, including gold.
Matt Egan of CNNMoney was one of the first to anticipate what a Trump victory could potentially do to the gold market. Just hours before the polls closed on the east coast, Egan wrote, “The idea of a Donald Trump presidency might make the stock market nervous, but not gold bugs.”
He pointed out that gold prices were moving rather closely with Trump’s political prospects in the weeks leading up to Election Day. Gold rallied when it was announced that Clinton’s email investigation was going to be reviewed once again, and dipped when the FBI cleared her for the final time.
“In other words, gold tends to rise when Trump’s poll numbers go up,” Egan noted. “And it’s got nothing to do with the billionaire’s affinity for gold in his penthouses, or his hotels and casinos.” Gold has historically been seen as the safest possible asset to turn to in a time of financial stress and the looming unpredictability of a Trump presidency has many on the edge of their seat. Egan predicted a 10 percent surge in gold spot prices to $1,400 per ounce if Trump were to be elected.
When it was all said and done and Trump awoke the next morning as President-elect, the surge wasn’t as high as Egan had suggested it would be, but there was definitely a positive correlation between the Trump victory and gold prices. Prices increased roughly five percent and rose to a six-week high of $1,377.40. Chris Howard, director of bullion at the United Kingdom’s Royal Mint, called the November 8 numbers “some of the best on record.”
From London to New York
Interestingly enough, it was London where gold buying perhaps surged the most in the wake of the Trump victory. Many people actually traveled to London to buy and store their gold – with one local dealer running out of bars and coins. In order to meet the demand, Sharps Pixley Ltd. (which is just a brief walk from Buckingham Palace) scheduled an emergency import of Britannia coins and kilogram bars.
While shockwaves in the U.S. actually found most markets somewhat stagnant in the hours after the news of Trump’s victory, major markets like New York saw some immediate surges.
The Long Term Impact
While gold prices saw an immediate kick in the days after Trump’s win, prices have actually dropped considerably over the past few weeks and are currently below $1,200 per ounce. This marks the lowest price point since February 2016.
It’s unclear the exact cause for diminishing prices, but it could be the fact that many are becoming more comfortable with the idea of a Trump presidency and no longer see it as the enormous risk that they thought it would be weeks ago. The Dow Jones and S&P 500 continue to rise, which further solidifies this theory of hopefulness and stability. But what the future holds is anyone’s guess.
By Larry Alton