Gold prices have had a good start to 2017 and has made gains in the majority of currencies, building on the strong gains seen in 2016. So far in 2017, gold is 3.5% higher in dollars, 2.3% higher in euros and 4% higher in sterling.
Increasing nerves regarding the Trump Presidency likely account for some of the gains. Although the fundamentals of the gold market remain strong even were Trump not becoming President of the United State of America.
A backdrop of financial repression and global currency debasement involving ultra loose monetary policies and near negative interest rates, a push for cashless society, a still massively indebted U.S. and global economy and still very fragile banking systems all bodes well for gold prices in the coming years – not too mention positive supply demand fundamental that is peak gold.
Trump is icing on the cake in this regard. While it is always best to fade short term noise about breaking news and the latest market developments, ignoring Trump in the White House as an investor is very much a case of trying to ignore a giant white elephant in a very small room.
We should indeed ignore the short term noise of the Trump inauguration next week – although it is set to be compelling box office viewing! However, it would be imprudent to ignore the likely impact of four years of the Trump Presidency on markets and particularly the gold market. On Wednesday past, we had just a little taste of this when his press conference led to turmoil and massive volatility in markets and gold rising on safe haven demand to over $1,200 per ounce.
Trump’s extraordinary press conference this week highlighted the risks facing markets. Geo-political risk in terms of his ongoing war with U.S. intelligence agencies, increasing tensions with Russia, China, the EU, Mexico and other nations and the real risk of trade, currency and actual wars.
Warnings about the likely impact of the Trump Presidency on markets should be considered carefully – especially in the light of the “irrational exuberance” that continues to be seen on U.S. markets with ‘Dow 20,000’ a breadth away and valuations suggesting another massive bubble with all the risks that entails to pensions and investments.
Indeed, there is a strong argument for becoming more cautious and conservative and reducing allocations to risk assets such as stocks and bonds and increasing allocations to gold.
We believe that gold is likely to perform as well in the first four years of the Trump Presidency as it did in the first four years of the Obama Presidency. Past performance is no guarantee of future returns and all the usual caveats that apply in this regard. However, we believe that the over used “perfect storm” is brewing for gold and it will likely outperform risk assets in the coming years.
So how did gold prices perform during the first four years of Obama’s Presidency?
It is hard to believe but President Obama took his oath of office and made his inauguration address 8 years ago next week – on January 20th, 2009.
Gold prices closed on Obama’s inauguration day at $857.25 per ounce (and silver at $11.34 per ounce). Sentiment towards gold was poor as gold prices had “peaked” at near $1,000 per ounce in March 2008.
Subsequently gold had fallen as low as near $700 per ounce in late 2008, correcting lower after the very strong gains seen in the previous years and especially in 2007 and early 2008, at the outset of the global financial crisis.
In dollar terms, gold had risen by 20% in 2005, by 23% in 2006 and by 31% in 2007. It began 2008 with further gains – rising from just below $900 per ounce to near $1,000 per ounce in early 2008, prior to the period of correction and consolidation in the rest of 2008.
So gold had risen relentlessly and had more than doubled in value from near $450 per ounce at the start of 2005 to near $1,000 per ounce in March 2008. Most “experts” including Nouriel Roubini and Paul Krugman were out in force at this time, simplistically declaring gold a risky ‘bubble’ and discouraging investors from diversifying their portfolios and having an allocation to safe haven gold.
There was also a consensus and great ‘hope’ that Obama would clean up Wall Street and put the heavily indebted U.S. economy on a more sustainable financial and economic path – something which never happened.
It was against this backdrop that Obama came to power. Gold was unloved and derided by Wall Street and the financial pundits and languished at $857 per ounce (see chart).
Gold in US Dollars – January 2009 to January 2010 (Bloomberg)
One month later, gold had risen to $992.90/oz and silver to $14.44/oz. Thus, in just the 30 days subsequent to Obama’s inauguration, gold surged nearly 16% and silver surged by over 27%.
Exactly 12 months later on January 20th, 2010, gold had risen to $1,111.05/oz for a gain of nearly 30% in the first year after Obama’s inauguration. In the following 12 months, silver had risen to $17.88/oz for a gain of 57.6% in the first year after President Obama’s inauguration.
A similar performance in the coming month would see gold rise from $1,200/oz to $1,392/oz.
A similar performance in the coming year would see gold rise from $1,200/oz to $1,555/oz.
We caution that these returns subsequent to Obama’s first inauguration are interesting statistics and should not be used as a trading tool. In and of themselves solely they are somewhat meaningless.
Past performance is no guarantee of future returns – especially over short time horizons. However, over the long term, history including market history does tend to, to paraphrase Marc Twain, if not repeat then at least rhyme. This is the case with monetary history – every single fiat currency has ultimately collapsed as have the economies using those fiat currencies.
Given the fact that the U.S. monetary and fiscal position is much worse now than it was 8 years ago – the taboo (for now) U.S. national debt has grown massively – it seems very likely that we will see similar gains for gold in the coming months and years.
On January 20, 2009, when Obama was sworn in, the debt was $10.626 trillion. Today it’s about to reach $20 trillion – at $19.957 trillion. Obama added an incredible $9 trillion to the national debt, more than any other President. Another inconvenient truth ignored by the same experts that continue to either ignore gold or not cover it in a balanced, fact, evidence based manner.
We have long stated that we believe gold will reach a record inflation adjusted high over $2,500/oz and we see that as likely during the first four years of the Trump Presidency.
However, gold’s primary function is as a diversification, financial insurance and a hedge against geo-political, systemic and of course monetary risks – all of which abound as we head into the Trump years.
KNOWLEDGE IS POWER
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Gold and Silver Bullion – News and Commentary
Gold Prices (LBMA AM)
13 Jan: USD 1,196.35, GBP 978.85 & EUR 1,123.25 per ounce
12 Jan: USD 1,206.65, GBP 984.39 & EUR 1,135.82 per ounce
11 Jan: USD 1,187.55, GBP 979.25 & EUR 1,128.41 per ounce
10 Jan: USD 1,183.20, GBP 974.60 & EUR 1,118.12 per ounce
09 Jan: USD 1,176.10, GBP 968.75 & EUR 1,118.59 per ounce
06 Jan: USD 1,178.00, GBP 951.35 & EUR 1,112.27 per ounce
05 Jan: USD 1,173.05, GBP 953.55 & EUR 1,116.16 per ounce
04 Jan: USD 1,165.90, GBP 949.98 & EUR 1,117.40 per ounce
03 Jan: USD 1,148.65, GBP 935.12 & EUR 1,103.28 per ounce
Silver Prices (LBMA)
13 Jan: USD 16.76, GBP 13.76 & EUR 15.74 per ounce
12 Jan: USD 16.91, GBP 13.77 & EUR 15.87 per ounce
11 Jan: USD 16.79, GBP 13.84 & EUR 15.96 per ounce
10 Jan: USD 16.66, GBP 13.73 & EUR 15.76 per ounce
09 Jan: USD 16.52, GBP 13.57 & EUR 15.69 per ounce
06 Jan: USD 16.45, GBP 13.30 & EUR 15.54 per ounce
05 Jan: USD 16.59, GBP 13.47 & EUR 15.80 per ounce
04 Jan: USD 16.42, GBP 13.36 & EUR 15.74 per ounce
03 Jan: USD 15.95, GBP 12.97 & EUR 15.34 per ounce
Recent Market Updates
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