Trump's Second Term: What It Means for Gold Prices and Economic Stability

Gold prices are currently at $2,625 an ounce today, down from $2,752 at the beginning of last week before the presidential election and FOMC interest rate meeting.

Last week, Donald J. Trump won the election to become the 47th President of the United States. Before the weekend, On Thursday afternoon, the Federal Reserve (FOMC) lowered the federal funds rate, which determines what banks charge each other for overnight lending, to a target range of 4.5% to 4.75%.

Republicans also won the Senate and are currently projected to retain a narrow margin of seats to control Congress. This trifecta of Republicans controlling the Presidency, Senate, and House would mark the first time since Trump's first term in 2017 and 2018 when he signed into law dozens of bills, including a $1.5 trillion tax cut.

There were record gains in the stock markets on Thursday and Friday last week in reaction to Donald J. Trump's victory. Trump's presidential track record and policy for the next term indicate a pro-business and pro-U.S. manufacturing agenda with fewer regulation constraints.

Traders this week are still pricing in a 70 percent chance of a 25 basis point interest rate cut at the Fed's December meeting, according to CME FedWatch, but have an equally strong chance of no interest rate cuts in January 2025. Donald J. Trump will start his 2nd term on January 20th.

The biggest question is how Trump's 2nd term will affect inflation and the economy after the United States experienced record-high inflation under the Biden presidency.

Tariffs are crucial in Trump's strategy to strengthen domestic manufacturing and directly impact the cost of goods and services. In his first term, Trump imposed tariffs on various imports, particularly from countries like China, to level the playing field for American businesses. The immediate effect of these tariffs is to make imported goods more expensive, which can lead to higher consumer prices on certain items. The goal behind these tariffs is to encourage companies to bring manufacturing back to the U.S. When tariffs make it more expensive to produce goods overseas, many businesses start looking at domestic production as a more viable, cost-effective option.

By design, this cycle of increasing offshore operating costs incentivizes companies to invest in American facilities, create American jobs, and reduce our reliance on imported goods. During Trump's first term, we saw this impact in sectors like steel, aluminum, and electronics manufacturing, where companies responded to tariffs by opening or expanding operations in the U.S. This not only helps create jobs but can also increase wages, given the higher labor standards in the U.S.

As more manufacturing returns, the economy benefits from a more resilient supply chain and is less vulnerable to international disruptions or pricing pressures.

Trump's tax plan leans heavily on cuts and credits for domestic corporations. For instance, we might see renewed reductions in corporate tax rates and further incentives for companies that bring jobs back to U.S. soil or establish new operations domestically.

President Biden focused on increasing corporate tax rates and closing certain tax breaks, particularly for more giant corporations to try and increase tax revenue. By lowering corporate taxes and offering incentives for U.S.-based operations, Trump's policies aim to make it economically favorable for businesses to invest here.  

Over time, it will be interesting to see how all of these factors work together to impact the overall economic landscape, particularly the precious metals market. The upside? No matter what uncertainty lies ahead, gold remains a safe-haven asset that is reliable and can add security to any investment portfolio.