The Midas Touch: Why Trump Is Good For Gold

Maybe there’s an investment message behind President Trump’s installation of gold curtains in the Oval Office. In the turbulent Trump Era, you probably can expect the emergence of “gold mania” among increasingly anxious investors.

Now could be the time to hedge your portfolio with the yellow metal. Below, I examine two smart gold plays.

On Wednesday, the price of gold closed at $1,209.34 per ounce. Over the past 30 days, it has risen 5.10%. James Steel, a widely followed gold analyst at HSBC, predicts that the price of gold could hit levels as high as $1,575 per ounce by the end of this year. That would make gold not just a proven way to protect your portfolio, but a profit-making move as well.

In the words of Jim Fink, chief investment strategist of Options For Income and Velocity Trader: “Every portfolio deserves a gold hedge.”

That’s especially true today, as Trump’s executive orders, acrimony on Capitol Hill, and rising geopolitical tensions put investors in a skittish mood.

However, the time to make a move like this isn’t when the rest of the investment herd already is piling in. In the words of Jim Pearce, chief investment strategist of Personal Finance: “Don’t wait to hear someone on the radio preaching to buy gold when prices hit $3,000 an ounce.”

Consider the SPDR Gold Shares ETF (NYSE: GLD). With net assets of $30.63 billion, GLD is the largest gold exchange-traded fund backed by physical holdings of bullion. Year to date, GLD has generated a total return of 8.03%.

Also consider a new sister fund, SPDR Long Dollar Gold Trust (NYSE: GLDW), which made its market debut Monday. This is the first physically backed gold ETF with a currency hedge against a strong U.S. dollar.

GLDW gains when gold prices spike and the value of the dollar increases. Historically, a stronger dollar has been a drag on gold prices. But if both gold and the greenback rise together, as analysts expected to happen this year, GLDW’s investors win both ways.

Buying ETFs provides a simple, cost-effective way to invest in gold. ETFs are liquid and trade like stocks, whereas acquiring and storing physical bullion can be an expensive hassle.

Smoot-Hawley Redux?

In his 1993 debate with billionaire Ross Perot about the North American Free Trade Agreement (NAFTA), Al Gore held up a photo of Sen. Reed Smoot and Rep. Willis Hawley. Gore then asserted (in a rather patronizing way, as if speaking to fifth graders) that the Smoot-Hawley Tariff Act of 1930 caused the Great Depression.

It’s debatable whether Smoot-Hawley actually caused the worst economic downturn in U.S. history, but it sure didn’t help. As a new and possibly devastating trade war looms on the horizon, it’s worth remembering that during the 1930s, retaliatory tariffs imposed by America’s trading partners helped reduce our country’s exports and imports by more than half. It’s precisely these global threats that make gold a smart investment choice now.

The topic of trade is generating plenty of passionate debate, as reflected in the emails that I’ve received since yesterday’s newsletter (“Man the Barricades! How a Trade War Could Affect Your Portfolio.”) Here are two:

“The Trans-Pacific Partnership was a raw deal for the USA, but sweetheart for multinationals. The better approach would have been to make changes to TPP. Any trade deal going forward and the USA loses.

To get companies to create jobs and manufacturing in USA, impose NO tax on profits of exported items designed, engineered, manufactured in USA with only USA citizens. That is how Germany operates.

Trouble with Trump is the issues he raises are valid, BUT the way he goes about changing them is wrong.” — Keith J.

Keith, it’s true that mercantile countries such as China have not always followed the letter (or even the spirit) of global trade law. But the real question is, what’s the most pragmatic way to solve the problem? The American business community is deeply divided on this question.

And then there’s the following five-word email from this reader, who succinctly suggests that my story about a possible trade war is the work of a hand-wringing alarmist:

“The sky must be falling!!” — Randy C.

Randy, I disdain the investing world’s “Chicken Littles” just as much as you do. And I fervently hope you’re right that fears of a trade war are overblown. But consider this: Not only is Trump withdrawing the U.S. from the TPP, but he also promises to re-negotiate or terminate NAFTA and to ignore rulings of the World Trade Organization (WTO).

Growing protectionism already is impacting world trade. In September, the WTO cut its trade growth forecast for the year to just 1.7%, the slowest rate since the 2008 financial crisis.

While investors nervously wait to see how all of this pans out, remember our advice: hedge your portfolio with gold. The rule of thumb is 5%-10% of assets.

What’s your opinion of trade policy and how it affects investments? I want to keep the dialogue going, so feel free to send me a message: — John Persinos

Dialing for dollars…

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What about Silver?

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