Gold Rush in the Trump Era: Investors Seek Haven Amid Uncertainty
In April, Kenneth Pack made his first-ever investment in gold to protect himself from what he perceived as the potential chaos of a new Trump administration, a period of 'chaotic trading' that seems to be only heating up.
Even after the U.S. stock market recovered from the initial Trump-era jitters and reached new highs, investors like Pack continued to pour money into the precious metal. The Nevada retiree plans to continue holding precious metals and related stocks, which make up 17% of his investment portfolio.
His rationale includes the Trump administration's on-again, off-again policy rollouts, with tariff changes sometimes occurring multiple times in a single day. "Strange seems to be the new normal," Pack said.
A modern-day gold rush is unfolding, from Costco aisles to London's underground vaults to Wall Street's shimmering screens.
According to Dow Jones Market Data, gold's value has surged 39% this year, putting it on track for an annual price increase that could surpass levels seen during the COVID-19 pandemic or the depths of the 2007-09 recession. Not since 1979, when a global energy crisis triggered an inflationary shock that hammered the world economy, have gold futures prices risen so much in a single year.
Today, it's not a financial meltdown drawing people to this most primal of safe havens. The recent record-setting rise in gold prices stems, in part, from the White House, as investors big and small scramble to protect themselves from the uncertain outlook for the U.S. economy and its role in the world.
President Trump's attempts to reshape global trade have fueled inflation and scrambled economic forecasts. In addition, the White House's pressure campaign on the Federal Reserve threatens the independence of one of the financial system's bulwarks. By one measure, the U.S. dollar experienced its weakest first half in more than five decades.
Most importantly, Trump has made little headway in ending conflicts in Ukraine and elsewhere, geopolitical events which have periodically roiled the markets.
"America has Trump, Russia has Putin, and a lot of people are thinking: Can things get any worse?" said Sean Hoey, managing director of IBV International Vaults in London.
The company, located steps from Hyde Park in a Victorian mansion, has recently seen a surge in wealthy clients looking to stash gold in the reinforced concrete vaults below. Hoey said IBV's in-house trading department purchases gold from the Royal Mint and other accredited sources, allowing clients to both own and sell the metal without leaving the building.
"Most people are now buying and think it's going to go up more, rather than selling," he said. IBV plans to nearly double the number of safe-deposit boxes it offers next year to meet demand.
The rise of gold began nearly three years ago, fueled by heavy purchases of gold bullion by central banks and Chinese investors.
But Western investors have contributed to this increase this year by pouring into exchange-traded funds, or ETFs. According to Morningstar, net assets in U.S.-listed ETFs tied to physical gold have soared 43% since January, with March and April among the three months with the largest monthly inflows since 2014.
Gold prices rose again in August after Federal Reserve Chairman Powell signaled that the Fed would begin cutting interest rates at this week’s meeting. Speculators piled in.
In the short term, lower interest rates may make gold, which pays no interest, more attractive relative to safe government bonds.
By early September, hedge funds had allocated 47% of their net commodity positions to gold, said Ole Hansen, head of commodity strategy at Saxo Bank.
Lower interest rates may drive the precious metal in another way. Analysts warn that cutting rates in an economy with low unemployment and inflation above target could also lead to longer-term price pressures, which would erode profits and push up borrowing costs.
The ultimate fear for investors is a mix of high inflation and sluggish growth, similar to the scenario that drove gold prices skyward in 1979. "The risk of 'stagflation' has increased," said Aakash Doshi, head of gold strategy at State Street Global Advisors. "That's a perfect environment for gold."
A resurgence of confidence in U.S. growth and the dollar’s role as a reserve currency could dull this rally. But Doshi said that, given trade tensions and the U.S. withdrawal from the world stage, "that seems very fragile."
In that new world, investors haven’t lost their appetite for risk, even as the U.S. stock market is at record highs, they are hedging their bets by investing in assets denominated in something other than the weakening dollar. "Trump is good for gold," Doshi added.
Among ordinary people, surveys show deteriorating consumer sentiment, and more Americans are now taking their gold to jewelry stores or repair shops to be melted down and sold.
"The value is not in the craftsmanship," said Lark E. Mason Jr., an appraiser based in Texas and New York. "It is in the material itself."
Even the Trump family has joined in. Donald Trump Jr. has in recent months appeared in online ads for a company that helps clients convert their retirement accounts into gold, his father having redecorated the Oval Office with gold-tinged décor.
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