The widely unexpected – or widely expected – victory of Donald Trump in the presidential election has led to a swift reaction in the financial markets, with the U.S. dollar and bond yields surging as investors anticipate a mix of tax cuts, deregulation, and infrastructure spending.
The promise of fiscal stimulus has pushed bond yields higher as markets price in potential inflation and growth under the Trump administration.
This rally in the dollar and yields has put pressure on gold, which traditionally falls as real interest rates rise, reflecting reduced demand for safe-haven assets in the short term.
However, from a longer-term, macro perspective, the future is ‘as good as gold’.
Trump is unashamedly a protectionist and wants to Make America Great Again (MAGA). A cornerstone of the MAGA tenet is reducing trade deficits.
Trump has previously used tariffs on imports to leverage countries’ behaviour or compliance with his stance. ‘Unfair’ or sudden increases in tariffs placed on countries can quickly escalate to trade wars, which occur when those countries retaliate with their own tariffs.
This leads to increased costs on imports and exports. If such policies are enacted, they could disrupt global trade and slow economic growth as businesses face higher costs and uncertainty. This disruption would likely be negative for financial markets, as companies could see lower profits and investors might pull back due to the increased risk. Trade wars can hit and disrupt financial markets in a far more sudden and unexpected manner than physical wars.
In the longer term, the landscape could shift depending on how effectively these policies are implemented and their broader economic impacts. Persistent deficit expansion or trade tensions could introduce volatility to the dollar, possibly leading investors back to gold and other assets as hedges against economic uncertainty.
Additionally, bitcoin has reached record highs, a response to speculative demand and its appeal as a decentralized asset immune to political shifts. Trump’s pledge to make America ‘the crypto capital of the planet’ is also likely to have buoyed the asset. The rise of BTC highlights a growing interest in alternative assets amid shifting economic policies and market responses, positioning it as a potential hedge if inflation and dollar volatility increase over the long run.
