Economic Optimism is Causing Gold Skepticism
With Trump’s recent victory in the election, the appeal of gold may be decreasing. This is because the U.S economy is experiencing fresh optimism, which is why you should carefully consider buying or holding gold for the time being.
How a Thriving Economy Impacts Gold
Historically times of economic confidence have caused interest rates to rise, and under a Trump administration this becomes a real possibility. Trump is well known for having pro-business and economic-friendly policies which are expected to foster economic growth. This could lead to increased expectations of inflation, but this wouldn’t be the type of inflation that follows an economic crisis like in 2008 and 2020. Those events weren’t triggered by economic confidence, but rather by economic scandals and disasters leading to distrust in the economy and spiking unemployment rates, causing people to turn to gold as a safe haven. The inflation we would experience this time would not be from an economic disaster, but from a thriving economy, therefore this inflation would not cause interest rate cuts.
Congratulations to Trump. Coincidentally our gold model flipped to sell, which was unexpected. Trade responsibly.
— Chaim David Merkur 🇮🇱 (@chaim_d_m) November 6, 2024
Higher Interest Rates and Gold’s diminishing Appeal
Considering that interest rates will remain high, this can adversely affect the demand for gold. Investors, eager to take advantage of the high interest rates will invest in high yielding assets rather than gold, especially given that they can invest in high yielding risk free assets such as bonds. The position of gold is further worsened because the rising rates will strengthen the U.S dollar, and generally when the dollar is doing well gold takes a hit.
Gold Status as a Safe Haven Becomes Less Appealing
All these factors in combination; the market optimism, rising interest rates, and a strong dollar, could significantly diminish the attractiveness of gold. Gold is highly sought after as a safe haven during times of economic uncertainty, but as investors gain confidence due to a Trump victory, investors could start to sell off their gold in favor of more lucrative assets.
Does Gold have a Future in a Trump Economy?
Does this spell the end of gold as a safe haven, or will this just be a temporary decline in its demand. While Trump’s victory may make a significant dent in gold’s appeal, this outcome is certain to be temporary as markets constantly cycle through certain and uncertain phases. If there is anything you can be sure of about gold it is its time tested historic value, which shows that in the long run gold will increase in value.
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