Survey Shows Gold is the Best Trade under Trump, Not Dollar

Gold emerges as the preferred portfolio hedge in the event of a potential reelection of Donald Trump, as indicated by the latest Bloomberg Markets Live Pulse survey.

In the survey, supporters of gold as a safe haven investment in case of Trump’s return to office outnumbered those opting for the US dollar by a two-to-one margin among the 480 respondents. More than 60% of those surveyed anticipate the US dollar weakening if the Republican candidate secures another term as president.

Historical trends align with this sentiment. During Trump’s previous four-year term, a Bloomberg gauge of the dollar declined by over 10%, while the spot price of gold surged by more than 50%.

Insights suggest that Trump’s economic strategies, such as tax cuts, tariffs, and reduced regulation, are perceived as inflationary on Wall Street. These policies could potentially compel the Federal Reserve to consider raising interest rates once again. Furthermore, a scenario of Republican dominance in Congress post the November election, granting Trump more flexibility in implementing broad economic measures, could further stimulate the demand for gold as its prices stay near record levels.

Gregory Shearer, an analyst at JPMorgan Chase & Co., emphasizes that gold is poised for a significant rally. Factors like geopolitical tensions, the increasing US deficit, central bank diversification, and inflation hedging have collectively propelled the price of gold higher. These factors are anticipated to persist regardless of the election outcome but may be amplified under a potential ‘Trump 2.0’ or a scenario of a ‘red wave’ Congress, as stated in his analysis on July 24.

Many survey participants expressed concerns about market disruptions, trade instability, and rapid escalation of the US national debt in the event of a Trump reelection.

The surge in gold prices during Trump’s presidency was in part driven by investors seeking refuge during the Covid-19 pandemic and amidst near-zero federal funds rates. Gold, known for not generating interest, hit a then-record high in August 2020 during the global lockdown uncertainty.

Notably, previous presidents like George W. Bush and Jimmy Carter witnessed larger surges in gold returns within the last fifty years.

Presently, the macroeconomic conditions continue to favor gold as an asset. The expectation of the Fed initiating interest rate cuts in September coupled with aggressive gold acquisitions by central banks aiming to diversify away from the dollar since 2022 further highlight the attractiveness of gold.

A significant portion of survey respondents anticipate a Trump victory to potentially undermine the US dollar’s role as the global reserve currency.

Kathryn Rooney Vera, the chief market strategist at StoneX Group, points out that a second term for Trump might intensify the shift away from the dollar as both central banks and the private sector pivot towards alternative assets like gold.

She underscored the supportive factors like technical, structural, and fundamental elements aligning in favor of gold, contributing to the current positive sentiment towards the metal.

However, predicting a weakening dollar under a Trump administration remains a point of debate. Top economists on Wall Street suggest that a second term for Trump could strengthen, rather than weaken, the currency due to his inclination towards imposing tougher tariffs on US trade partners and implementing deficit-increasing fiscal policies that might hinder anticipated Fed rate cuts.

Views among MLIV Pulse respondents vary regarding the potential impact of Trump’s economic agenda on the US dollar. Some foresee a weaker dollar regardless of the election outcome, citing sustained high deficits and lower interest rates as catalysts for de-dollarization and a possible sovereign debt crisis.

While the US dollar and Treasuries are traditionally considered safe-haven assets during global uncertainty, the survey responses suggest that domestic political upheaval might not necessarily benefit the greenback.

Kathleen Brooks, the research director at XTB, highlights the current political and economic uncertainties, courtesy of a potentially chaotic election and the fiscal impact of a Trump presidency, which raise concerns about the dollar’s stability in the near future.

The survey conducted from July 22 to July 26 included insights from Bloomberg News terminal and online readers globally, ranging from portfolio managers to retail investors. The respondents, representing a diverse set of perspectives, collectively shed light on the intricate dynamics shaping the market sentiment towards gold as a potential hedge in the face of a Trump reelection.

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