How Donald Trump Could Boost the Price of Gold — Or Crush It Just the Same

Though there’s been little focus on it lately, President Trump has vowed to increase spending on U.S. infrastructure, rebuilding bridges, strengthening the energy grid against cyber attacks and more, in an effort to spur economic growth.

Deficit Growth

President Obama did something similar during his first term as president, with the American Recovery & Reinvestment Act. However, it wound up adding $840 billion to the federal deficit, according to the Congressional Budget Office, a nonpartisan federal agency that conducts analysis of budgets.

With Trump talking about a package that could surpass $1 trillion, there are some thoughts among investors that adding that level of debt to the U.S. balance sheet would only further increase the demand for safe havens — gold and silver chief among them.

“To the extent we have a large amount of debt that’s yielding 0 or close to 0, it could continue to make precious metals attractive,” said Andrew Chanin, CEO of PureFunds, which has over $1 billion in assets under management.

Both gold and silver appear to be anticipating some sort of deficit enhancement, be it from the oft-talked about tax reform or the increased infrastructure spending. Since the start of 2017, the price of gold and silver have rallied nearly 8% and 12%, respectively, according to BullionVault.com.

Precious Metal Investing

As Washington’s fiscal policy continues to perplex investors, Chanin noted investors are starting once again to take a large interest in precious metals in their portfolios.

“[Stanley] Druckenmiller reversed course on gold — people are realizing precious metals have been under-owned or unowned and maybe they’re missing that allocation which could cause an increase in demand for precious metals,” Chanin added.

In February, Druckenmiller, the highly successful billionaire investor, revealed he bought gold in late December and January, after selling it on election night in November.

“I wanted to own some currency and no country wants its currency to strengthen,” Druckenmiller said in an interview with Bloomberg. “Gold was down a lot, so I bought it.” Druckenmiller did not not add how he bought gold, but investors can buy several ETFs that have exposure to the yellow metal, including the SPDR Gold Trust ETF (GLD) .

Gold has been primarily a monetary store of value for thousands of years, dating back to the Roman Empire. Silver has that quality as well, but it’s also used in industrial cases, such as batteries, semiconductors and solar panels, leading Chanin to highlight its scarcity.

“Few people realize how rare silver is,” Chanin said, who helps run the PureFunds ISE Junior Silver ETF (SILJ) . “Two-thirds of all silver is going towards industrial uses, so the amount used for investment is much less than it was. That’s why we’re seeing an increase of demand.”

Silver, which is used in everything from your iPhone to the fillings in your teeth, has historically traded at a ratio of 70 to 1 in relation to gold, though that’s down to around 14 to 1 currently. Through the SILJ ETF, which Chanin noted has exposure to higher-beta (read: riskier) companies, investors have been able to capture the sharp appreciation in the price of silver in recent months, as it was the best performing non-levered ETF in the world in 2016

With the new head of the Environmental Protection Agency Scott Pruitt looking to ease regulations, there’s a bias among investment professionals that it will benefit the coal and mining industries — environmental concerns be damned.

“We could see approvals happen sooner than later or ones that might not have been approved [under the Obama administration] get approved now,” Chanin added.

There are geo-political implications as well for owning precious metals, especially in light of recent events from North Korea and Kim Jong-Un, who recently fired a rocket into Japanese waters, seen by most diplomatic experts as a test of Japan’s powers.

“If we see more instability around the world, like we’re seeing in small pockets, it wouldn’t be surprising to see more people move into precious metals,” Chain said. “These metals have stood the test of thousands of years and I think that’s likely to continue.”