LAWRIE WILLIAMS: Gold – thriving on uncertainty
A probably apocryphal ancient Chinese curse is: ‘May you live in interesting times.’ And seldom have there been such ‘interesting times’ as the first few days of the Donald Trump Presidency. So far his utterances, often via Twitter, and his spate of executive orders, have been seen as being ‘unpredictable’ perhaps only in the sense that they have perhaps been ‘wholly predictable’ in that most of them had been stated as policy in his campaign rhetoric. Since when beforehand has a politician actually kept to their campaign promises come hell or high water!? Donald Trump is certainly no conventional politician and he seems not to have been diverted so far from his campaign utterances by practicalities or reason. The uncertainty now has to be can he follow through with the rest of his campaign rhetoric, particularly with respect to foreign policy – let alone actually stimulate the U.S. domestic economy as quickly as, and to the extent that, his followers will be anticipating.
Gold, that bellwether of uncertainty, seems to be thriving despite attempts by who knows who to mitigate any rise. However to set against this the VIX index, which measures market volatility, remains relatively subdued, while equities markets remain fairly positive – so far. After an initial sharp dip below the dollar index level of 100, the greenback too has seen a small recovery. At the time of writing it is back at 100.5. The interesting fact here is that a rising dollar is usually accompanied by falling gold but in this case gold has also been holding up well. Both gold and the dollar are seen by perhaps different sections of the market as safe haven investments. It will be interesting as to which comes out on top.
Perhaps the U. S. Federal appeals court judgement due today on the legality, or otherwise, of the President’s Executive Order on immigration will be the trigger which will decide on which safe haven looks to be the better. If the courts reinstate the ban on immigration from seven mainly Muslim countries then the dollar may be the winner, but if not it could well be gold which benefits at the expense of the dollar as other Trump policies and orders are seen as open to challenge. Already some Trump proposals such as the replacement of Obamacare are running into problems as may be the proposed repeal of the Dodd-Frank legislation, and there is the probable Senate challenge to the appointment of Judge Neil Gorsuch to the Supreme Court. A rejection is possible given the previous Republican blocking of proposed Obama appointees to top judiciary positions. True the Republicans have a majority in the Senate, but it is a very slim one, effectively of four, so it is possible the Trump selection could be overturned, although perhaps unlikely as Gorsuch, although seen as right wing, does not appear to be rabidly so as his track record on judgements in the appellate division is seen as fairly balanced.
But, all the above boils down to whether President Trump is seen as largely invincible and he succeeds in pushing his agenda through relatively unscathed, or is vulnerable and is blocked by Democrats and anti-Trump Republicans in Congress from keeping his campaign promises intact. We suspect somewhere between the two, but which policies he will manage push through and on which he will have to give ground is where the uncertainty comes in. Given he appears to favour a weaker dollar – and that’s not necessarily a politically divisive approach – we think the balance could well favour gold, although this could be seen as the tail wagging the dog!
As readers will know, this writer is largely gold-positive, although not obsessively so. There is so much uncertainty in the world at the moment, exacerbated by President Trump’s unpredictable predictability - or is it vice versa - (I’m beginning to sound like Donald Rumsfeld with his ‘known knowns’ etc. quote heaven forfend) – that being gold-positive strikes me as wholly logical in the long term at least. Indeed with the Trump Presidency the long term is morphing into the short and medium term in my personal view.
Interesting times indeed!