We’ve seen some market strategists recommend owning gold in the event that Trump causes World War III. Unlike potassium iodide, gold isn’t an antidote to radiation exposure. But it might provide great protection from a number of lesser calamities that Trump’s detractors believe he might cause, including a global trade war or a domestic civil war.
The price of gold is down 4.3% since Election Day, but seems to have firmed up during the first two weeks of the Trump administration (Fig. 13). Our new president has hit the ground running, but there’s probably more mud than he expected.
Gold might rally if he stumbles badly. Or else it might rally because Trump’s policies boost economic growth, as he promised. If so, the rebound in commodity prices that started at the end of 2015 may continue. As we’ve shown before, the price of gold tends to follow the underlying trend of industrial commodity prices (Fig. 14).
Since Election Day, the 10-year expected inflation rate embodied in the yield spread between the 10-year US Treasury bond and the comparable TIPS has risen from 1.73% to 2.05% on expectations that Trump’s policies will be stimulative. In recent years, that spread has been highly correlated with both the CRB raw industrials spot price index and the price of gold (Fig. 15 and Fig. 16).
If we see gold soaring while other commodity prices are crashing, then we’ll start to worry about the end of the world as we know it. If they both rise in a leisurely fashion, we’ll stay bullish on the future.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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