Financial, Political Uncertainty Ramps Up Yet Again

In a rerun of the immediate shock felt when the United Kingdom voted to leave the European Union, gold prices rose nearly 5 percent the day after Donald J. Trump scored his stunning victory in the United States election. Indeed, it was gold’s biggest single-day gain since the “Brexit” on June 24, 2016, when it rose almost 8 percent. With the fallout yet to be determined (and will take years to fully appreciate) from the upheaval across the ocean, Americans now face the same sense of uncertainty for the future here at home. But, as you can read below in “The Take-Away”, this uncertainty will eventually turn to an unfortunate certainty that investors must be prepared to face.

Another Delay on Interest Rates?

The Trump victory is viewed by many as a catalyst for global economic uncertainty, which would surely play into the discussions of the United States Federal Reserve next month on whether to produce a long-anticipated interest rate hike. The immediate turmoil on world markets and currencies led to immediate speculation that the Fed would be forced to hold the line until things settled down a bit. The chances of an increase decreased to 36%.

But the greenback rebounded from a 2 percent decrease in early trading the morning after the election, presumably after getting over the surprise and re-evaluating campaign promises that were thought virtually unlikely to see the light of day. Those include greater deficit spending on infrastructure and tax cuts, which could bolster the U.S. dollar in the medium term. Should these policies be re-affirmed by the president-elect or actually come into effect, there would undoubtedly be upward pressure on inflation that would lead to a more precipitous interest rate hike.

50 Shades of Uncertainty

Mr. Trump’s hand on the levers of power is strengthened by Republican control of both houses of Congress. Or is it? The president-elect has vowed to tear up existing trade deals such as NAFTA and impose trade sanctions against other countries. But Congressional Republicans are widely known as pro-trade. As outgoing president Barack Obama can attest, what the Oval Office wants and what it gets from the other levels of government are often very different. Add this to the list of factors combining to create political uncertainty.

The market ruckus caused by the election result, the so-called “Trump hump”, eased after the president-elect’s speech which, after nearly 2 years of negative doom and gloom, sounded uncharacteristically upbeat about prospects for the future. The question remains: what will or can Donald Trump do to revive a struggling U.S. economy?

The Take-Away

The United States government’s present debt is approaching 20 trillion dollars. The new Trump administration taking office in January is committed to tax cuts and new spending that total an additional (estimated) 11 to 12 trillion dollars over ten years. Plus interest. These are conservative figures. Board member Egon von Greyerz calls this financial system unsustainable, and increasingly so. One of the only certainties in these uncertain times is that gold is the only real money in an era of phony “paper wealth.” Its present value and fractional shifts thereof reacting to the news of the day are miniscule, compared to what its future value will be. Mr. von Greyerz sees the possibility of system collapse within the next decade and there’s nothing in the Trump victory (love it or hate it) that will change that.