Why A Trump Win Could Be A Headwind For Gold

Why Gold Could Decline Under Trump 

Conventional wisdom holds that fiscal expansion will continue under Trump, fueling further inflation and extending the record rally in precious metals. That could very well happen. But there are a few proposed Trump policies that could be deflationary: 

• Tariffs. Critics call this a tax on American consumers. To the extent that it is a tax, it would be deflationary, by causing consumers to spend less. 
• Deportations. If Trump actually deports millions of illegal aliens, that would be deflationary, for two reasons. First, we’d have fewer people competing for the same housing and other resources. And second, it would reduce the enormous government spending that subsidizes housing and other costs for these aliens. 
• Drilling. Expanding domestic energy production, as Trump has promised to do, would, all else equal, be deflationary. 
• Peace. If Trump succeeds in his goals of ending the Ukraine and Mideast wars, that should lower the costs of energy and other commodities. And if the peace deal is accompanied by a removal of sanctions, that would increase the supply of energy too. Peace would also lower the geopolitical risk premium component of gold’s current price. 

Hedging Against A Drop In Gold 

If you’re long gold, one thing you can do to lower your risk of a drop in gold is to take some profits.

We did that ourselves recently. We sold half of our calls on IAMGOLD Corporation IAG, for a 100% gain.

Another thing you can do to lower your risk, is to buy optimal puts on SPDR Gold Shares GLD. For example, as of Tuesday’s close, these were the optimal puts to hedge against a >9% decline in GLD over the next 6 months. 

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