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Trump's potential comeback: Impact on precious metals markets

Trump's potential comeback

Many analysts believe that a significant "comeback" of former President Donald Trump is brewing in the United States. This potential return to the political forefront has generated considerable discussion and debate across various media outlets and among political commentators. Trump's polarizing figure continues to evoke strong emotions from both supporters and critics. His base sees him as a champion of conservative values and a disruptor of the political status quo, while his detractors view him as a divisive and controversial leader whose policies and rhetoric have often been contentious.

The anticipation of his possible re-entry into the presidential race has led to numerous speculations about the impact it could have on various sectors, including the economy, international relations, and the political landscape in general. Whether one likes him or not, one thing is certain – he is a candidate this year who cannot be ignored in the race for the presidential seat. His influence on the Republican Party and American politics at large remains strong, and his presence in the race is expected to bring significant media attention and public discourse.

Assuming for a moment that Trump becomes president – how will this affect the prices of precious metals? This question has intrigued economists, investors, and market analysts who are trying to forecast the potential economic outcomes of his possible second term. Precious metals like gold and silver are often seen as safe-haven assets during times of economic uncertainty and geopolitical instability. The policies and actions of a Trump administration could potentially create such conditions, prompting investors to flock to these metals as a hedge against market volatility. The previous administration's economic policies, which included tax cuts, deregulation, and trade wars, had a mixed impact on the markets, and similar approaches in a second term could have far-reaching consequences for the global economy and commodity prices.

Although the candidates for the U.S. presidential election have not yet been officially named, it currently looks like a race between the incumbent Joe Biden and his Republican rival Donald Trump. The political dynamics leading up to the election are complex, with various factions within both parties pushing for different candidates. Despite recent reports of a possible alternative to Joe Biden, it seems highly likely that the Republicans will send Donald Trump into the race.

The Democratic Party faces its own set of challenges, including addressing concerns about Biden's age and political stance while unifying the party's progressive and moderate wings. The Republican Party, on the other hand, is grappling with internal divisions between traditional conservatives and the more populist, Trump-aligned faction. The outcome of the primaries and the strategies adopted by both parties will significantly shape the election's narrative and voter turnout.

Assuming there are no major surprises – if Trump were to win the election, it would have consequences for the precious metals market, or at least that's what experts from Heraeus state in their latest "Precious Metals Report." The Heraeus report highlights several scenarios in which a Trump victory could lead to increased demand for gold and other precious metals. Investors might anticipate higher inflation, market instability, and geopolitical tensions, all of which typically drive up the prices of these commodities. Trump's unpredictable approach to governance and his focus on America-first policies could result in economic measures that disrupt global trade and investment flows, thereby increasing the allure of precious metals as a stable store of value.

Experts in precious metals believe that the economic policies of a second Trump administration could push global investors towards gold. They specifically point to possible economic measures Trump might take following an election victory, which could lead to significant market shocks, geopolitical risks, and increased inflation. These policies could include aggressive tax cuts, protectionist trade measures, and deregulation, which might initially boost economic growth but also create long-term uncertainties. In particular, Trump's stance on trade and his previous actions, such as imposing tariffs on Chinese goods, suggest that renewed trade conflicts could be on the horizon. Such conflicts often lead to market turbulence, prompting investors to seek refuge in gold and other precious metals.

In this context, Heraeus primarily mentions the risk of renewed trade wars, which could escalate tensions between the U.S. and China, simultaneously harming both the American and global economies. Trade wars typically involve the imposition of tariffs and other trade barriers, which can lead to higher costs for consumers and businesses, supply chain disruptions, and reduced economic growth.

The previous trade war between the U.S. and China during Trump's first term resulted in significant economic strain for both countries and contributed to global market volatility. If similar measures were to be implemented again, the repercussions could be widespread, affecting not just the U.S. and China but also other economies interconnected through global trade networks.

Trump has already announced specific steps: if he wins the election, he plans to introduce a permanent 10% tariff on all imports, and even aims to impose a 60% import duty on imports from China. These measures are intended to protect American industries and reduce the trade deficit, but they could also provoke retaliation from trading partners, leading to a cycle of escalating tariffs.

The impact on global trade could be profound, with businesses facing increased costs and consumers dealing with higher prices for imported goods. Such an environment of economic protectionism and trade barriers would likely lead to increased uncertainty and risk, further driving investors towards safe-haven assets like gold.

These measures alone could cause a 1.8% drop in the U.S. GDP – if the Chinese were to implement retaliatory tariffs, the negative impact on the U.S. economy would be even greater. Retaliatory tariffs could target key U.S. exports, affecting industries such as agriculture, manufacturing, and technology. The resulting economic slowdown could lead to job losses, reduced consumer spending, and lower investment levels. However, this would be positive news for the price of gold, as experts note from recent history. During periods of economic and geopolitical uncertainty, gold prices tend to rise as investors seek to protect their wealth from potential losses in other asset classes.

The U.S.-China trade war from 2018 to 2020 coincided with rising gold prices. Historical data shows that during this period, gold prices experienced significant appreciation as market participants responded to the uncertainty and risks associated with the trade conflict. The prolonged negotiations, tariff impositions, and escalating tensions between the two largest economies in the world created an environment where gold's status as a safe-haven asset was reinforced. Investors, wary of potential market downturns and economic instability, increased their allocations to gold, driving up its price.

"The price of gold rose sharply during this period, as prolonged negotiations combined with tariffs and geopolitical escalation led investors to seek gold as a safe haven despite the environment of interest rate hikes until mid-2019. The appreciation of gold was closely correlated with tariff hikes, which serve as a significant indicator of U.S.-China tensions," writes Heraeus in its latest report. The correlation between gold prices and geopolitical tensions underscores the metal's role as a hedge against uncertainty.

As investors brace for potential economic disruptions, gold offers a means of preserving value and mitigating risk. The Heraeus report suggests that similar dynamics could play out if Trump were to win the election, with his policies potentially triggering a new wave of economic and geopolitical challenges that boost the demand for precious metals.

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