Opinion

Gold and Oil Investments under Trump: What to Expect


Thinking hard about investing in gold or in an oil ETF? Then the first thing to consider is the new administration in town. Trump has thrown a new level of uncertainty into the markets, so no one is really sure what to expect. Keeping up with what the Trump administration is planning will be important when considering whether to put your money in black gold or actual gold investments in the future.

Gold Sees New Revival after Trump

In November last year, the price of gold soared the moment Donald Trump was declared President of the United States. Trump ran on an obscure and quite shocking economic platform. As a candidate, he railed against free trade, threatened to name China a currency manipulator and promised to pull out of the North American Free Trade Agreement (NAFTA). Plus, his hard stance on immigration would deliver quite an economic shock to America if each is carried out exactly as promised. Because Trump meant a possible recession following the blow up of free trade deals, gold prices climbed to expected heights.

However, prices have stabilized since then. The Trump administration doesn't seem immediately poised to make radical, anti-free trade policies as initially feared. Quite recently, chairperson of the U.S. Federal Reserve, Janet Yellen, hinted at an interest rate hike during congressional testimony. As a result, prices of spot gold fell by 0.14 percent to $1,226.44 per ounce. Gold prices had been inching higher since Trump became president. But in the face of a rate hike, the confidence in the dollar has been reinvigorated.

And yet, the long-term prospects for gold look good under a Trump administration. Richard Xu, the fund manager at China's biggest gold ETF, told Reuters that "gold will pick up momentum in the second half of the year." Trump has yet to reveal his China plans. He backed out of the “One China” policy fight and agreed to stick by the stance of his predecessors. However, he has yet to decide whether he is really going to impose tariffs or sanctions on China. Tariffs will lead to higher consumer inflation in the U.S., which means gold prices will rise.

Complicated Future for Oil Prices

Donald Trump is unabashedly pro-oil. He has called for American oil independence, and one of his first executive actions as president was to approve the Dakota Access pipeline. He has appointed former head of Exxon Mobile, Rex Tillerson, as his Secretary of State. Under Tillerson, U.S. and Russia could begin producing oil. It's widely believed that domestic oil production would soar under Trump as well.

This poses a complicated future for oil ETFs. Oil production is already oversupplied driving prices down. If U.S. produces surplus oil it begins to export, that will definitely keep the price of oil per barrel at lower than $50. Meanwhile, the OPEC countries are planning to drive up oil prices by limiting production. But oil experts are very skeptical of the ability of the 14 countries to stick to the plan and not cheat.

What to Expect

It's important to note that Trump has not made any of his economic policies explicit, so investors still have to sit and wait for the details. In the meantime, early available information indicated gold ETFs will be more lucrative in the long term than oil. But, it's possible that the administration may draw up plans to keep the oil prices from dipping too low.



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