Surprising moves in the markets since the Trump victory have weighed on gold. The markets are focused entirely on the potentially positive impact that tax cuts and infrastructure spending will have on the economy. As a result, we have seen strength in the dollar, base metals, and the stock market, and selloffs in bonds, emerging markets, and gold.

Market moves in interest rates have given the Federal Reserve ample headroom to increase rates in December. Markets are pricing in expectations for strong GDP growth and normalization of interest rates, while ignoring the risks and unintended consequences of Trump’s policies.

These include:

1.  Unbridled expansion of the budget deficit, driving sovereign debt to (even more) dangerous levels.

2.  In a rising rate environment, the cost of government debt service would likely become overwhelming.

3.  Rising rates could snuff out the weak growth that has characterized the post crisis economy.

4.  Increasing protectionism would likely create a drag on the global economy.

5.  Immigration plans that will likely be costly and difficult to implement.

6.  Rising rates and a strong dollar would starve the struggling global economy of needed capital.

Gold Price, November 2016

Source: Bloomberg

About the Author:

Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.