In the two months leading up to the US election, the gold price rose almost 9% in dollar terms, buoyed by uncertainty over the outcome. Since then, gold has climbed even higher, despite a brief dip immediately after the election when uncertainty disappeared. But with the world now facing four more years of a Trump administration, there will undoubtedly be unexpected actions and consequences, especially for the global economy. So, what could this mean for gold?
Market Volatility
Gold is a safe-haven asset. Its immutability and rarity mean it often holds its value during times of volatility, especially when other assets, like stock markets, come under pressure. Right now, though, markets are on a tear. Over the past five years – even with the unprecedented impact of the global pandemic – US and international stock markets have more than doubled. But this market growth belies an underlying uncertainty about the global economy.
The incoming Trump administration is widely viewed as a positive driver of US markets, underpinned by pro-business regulation and a US-first approach to trade. But four years is a long time. The current bull market is two years old, and while there may yet be more growth to come, gold has had its own heyday. It has nearly doubled in value over the last five years and continues to serve as a hedge against unexpected policy decisions, global economic health, and the simple fact that no one really knows what the future holds.
Geopolitical Uncertainty
Gold’s safe-haven role becomes particularly prominent during geopolitical crises. Cases in point include the Russia-Ukraine war, escalating tensions in the Middle East, and the Brexit referendum – all of which correlated with rises in gold prices due to increased safe-haven buying.
Over the next four years, Trump’s “America First” stance may strain alliances and international agreements, leading to unpredictable geopolitical dynamics. Trump’s pledge to “end the Russia-Ukraine war” could bring the conflict back into the geopolitical spotlight. However, his methods and their outcomes remain impossible to predict, adding to volatility and investor unease.
The Trump administration cannot control every flashpoint around the world. Unexpected conflicts are a constant in global geopolitics, and this is exactly why gold is bought as a safe-haven asset: uncertainty is inevitable, and volatility is unavoidable.
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Inflation
The world is only just emerging from a severe inflation shock that pushed price rises to 40-year highs. While higher interest rates have managed to temper inflation, Donald Trump’s tariff pledges could reignite it. Specifically, Trump plans to impose tariffs of up to 20% on goods from most countries and 60% on Chinese imports. He argues that tariffs will create US jobs, punish unfair trade practices, and increase federal revenue to address the US deficit.
However, much of the cost of tariffs will fall on US citizens. In Trump’s first term, tariffs led to higher domestic prices, and this time around, the scale could be far greater. Companies facing higher import costs will likely pass these expenses on to consumers.
With inflation still fresh in the minds of shoppers, further price rises would be deeply unpopular and economically destabilising.
Gold has long been used as an inflation hedge because its value tends to rise alongside inflation. If Trump implements his tariff plans as promised, gold buyers may need to consider this protection. Fiscal stimulus policies could further drive inflation by overheating the economy, leading to higher inflation rates overall.
Foreign Policy
The incoming Republican administration has already outlined a major shift in trade relations through its tariff pledges. Trump’s emboldened second presidency is expected to go further and deeper than his first, and this will have significant ramifications for foreign policy and diplomatic relations.
Global trade dynamics will likely suffer, even under the “least-worst” scenario where tariffs are implemented slowly and incrementally. Research by Allianz estimates that a “renewed but contained trade war” could cost global trade growth 0.6 percentage points by 2026, while a full-blown trade war could slash growth by up to 2.4 percentage points.
The administration’s approach to diplomacy with allies and adversaries will also shape global political and economic landscapes, creating volatility that markets will inevitably react to. In an environment of strained relations and economic uncertainty, gold’s role as a hedge will become increasingly relevant.
he Role of Gold in an Uncertain Future
Faced with four years of uncharted trade and foreign policy, potential market volatility, and the return of inflation, gold offers both protection and opportunity. Often rising when other markets fall – and, more recently, even alongside market growth – physical gold remains a reliable safe haven for any investment portfolio.
As the global economy navigates four more years of Trump’s presidency, gold’s role as a hedge against uncertainty and inflation has never been clearer.
