Trump's rise to power could prompt investors to turn to gold, which will benefit from the trade war

Forex PlatformAccording to precious metals analysts, the prospect of a Trump victory in November could drive global investors towards gold, which would benefit from tariffs and trade disputes.

In its latest precious metals report, Heraeus said the economic policies of Trump's second administration could push global investors towards gold. "The upcoming November 5 presidential election will set the United States on two very different paths, depending on the outcome," the analysts wrote. "Trump, the more unpredictable former president and current Republican nominee, could introduce some economic policies that could lead to major market shocks, geopolitical risks and rising inflation. Trump currently maintains a 46.9% to 45.0% advantage over Biden in the polls."

Heraeus pointed out that if a trade war breaks out again, it could exacerbate tensions between the United States and Asian powers, and could harm the U.S. and global economies.

"While the Biden administration has kept many of Trump's tariffs on Asian powers and raised tariffs on only a small subset of the country's clean-tech imports, a second Trump administration could escalate the trade war like never before," they said. "Trump has laid out two important trade policy agendas: an across-the-board 10 percent tariff on all imports from all countries and a 60 percent tariff or higher on all imports from Asian powers. While the legal feasibility of these measures remains in doubt, Trump's first administration demonstrated that it was possible to launch a trade war against Asian powers by invoking loophole provisions in the old statute (the Trade Act of 1974). A Peterson Institute paper found that the proposed tariffs could result in economic losses of 1.8 per cent of US GDP and significantly raise inflation. This assessment does not take into account the retaliatory tariffs that Asian powers and others will almost certainly impose. "

Analysts noted that the 2018-2020 trade war coincided with a rally in gold prices. "Gold prices have surged during this period as protracted negotiations, coupled with tariffs and geopolitical escalation, have prompted investors to seek gold as a safe-haven asset, despite a rate hike environment leading up to mid-2019," they said. "Gold's appreciation is closely tied to tariff hikes, which are a meaningful indicator of tensions between the two countries." Global ETF holdings increased from 71 million ounces at the end of 2017 to 86 million ounces at the end of 2019, and U.S. ETF holdings increased from 37 million ounces to 44 million ounces.

Heraeus is concerned that Trump's public attack on Federal Reserve Chairperson Jerome Powell's rate hike policy in his first term could undermine the independence of the Federal Reserve.

"The Trump campaign's unofficial proposals include steps to weaken the Fed's independence and possibly remove Powell prematurely," they said. "Trump may replace Powell with a dovish candidate at the end of his term in 2026. In addition, Trump may appoint multiple FOMC directors who support easy monetary policy."

"A more dovish FOMC would accelerate rate cuts and loosen controls on inflation, thereby weakening the dollar and increasing investor demand for gold," they noted. "Any move to override the Fed in executive power could shake confidence in US monetary policy and push gold prices higher."

As for precious metals markets in Asia, analysts pointed out that Indian demand for gold remained strong. "India's gold imports remained strong in May at around 44.5 tonnes, indicating above-average levels of gold purchases," they said. "While May imports were slightly lower than last year's 58.5 tonnes, which was a particularly high year for Indian gold consumption, high gold imports around mid-year usually translate into strong jewellery production needed for the festive season in the third quarter."

Analysts pointed to India's jewellery demand of 95.5 tonnes in Quarter 1 2024, growing at an annual rate of 4 per cent. "This is only half of the 184.2 tonnes consumed by the Asian powerhouse over the same period (down 6 per cent year-on-year)," they wrote. "India's jewellery consumption accounts for 20 per cent of the world total and is the second largest consumer market for gold. Year-to-date resilience demand partially offsets the decline in jewellery demand in the Asian powerhouse."