The month was marked by Donald Trump’s victory in the US presidential election. Gold experienced two spectacular corrections – the first just after the election, the second near the end of the month. What led to this situation?
Just before the election, the price of gold hit a new record of $2790 per ounce. In Polish Zloty, this was 11,206 PLN at the beginning of November, but this record was broken on Friday, November 22, when an ounce was valued at 11,328 PLN. This was due to a sharp decline in the Polish Zloty, which resulted from several factors. However, all these can be condensed into a single, paramount one – the global outflow of capital to the dollar.
The victory of Donald Trump has resulted in what is referred to as the “Trump Trade“, a combination of great optimism with a risk appetite – more on that in a moment.
At the same time, Joe Biden, who was saying farewell to the office, took two actions that impacted the markets to a greater or lesser extent. The first was approving the use of Western weapons against targets within the Russian Federation. In response, Russia launched an attack using a ballistic missile capable of carrying nuclear weapons on the Ukrainian Dnieper. It also updated its nuclear doctrine to reserve the right to launch a nuclear strike on a non-nuclear armed state (Ukraine) if it is backed by a state that possesses such weapons.
These events caused growing anxiety which, coupled with the “Trump Trade” in the US, shifted capital towards the dollar, significantly weakening the Zloty.
The second action by Joe Biden was facilitating a ceasefire between Israel and Lebanon, which also created some optimism in the markets. Whether this optimism is warranted, we will have the opportunity to find out later.
Trump’s Victory and Trump Trade
Donald Trump won the US presidential election, assuming office for the second time.
This presidency comes with both hopes and fears. Market reactions show that vast hopes lie where there is huge capital. Thus on Wall Street, amongst large companies which anticipate tax cuts and privileges associated with the America First policy.
American companies, and thus the American economy, are to get a justification for their optimism. Donald Trump is going to wage trade wars and impose tariffs – mainly on China – but also on Europe (to a lesser extent). He has also promised colossal tariffs to any who attempt to dethrone the dollar, namely the BRICS countries.
Donald Trump is also supposed to ensure peace in Ukraine, which currently generates considerable scepticism. It is suggested that Russia wants not so much peace, but a ceasefire. Preferably one resembling that which has reigned between North and South Korea since 1953, that is, for a whole 71 years.
A cease-fire would result in the consolidation of Ukraine in a state that would preclude, for instance, the joining of NATO or European Union, as well as normal economic development. Putin would achieve his goals without further devastating the Russian demography and economy.
And while it is highly probable that such a rotten compromise can be achieved, it is not to say that it will be straightforward, as each side would prefer to have more bargaining chips. We should expect that before any potential negotiations (no sooner than January 20, when Donald Trump officially assumes office), the conflict will furthermore escalate.
The policies of high tariffs and limiting immigration – which was also one of the main election promises – will however hit the poorest. They will feel Trump’s presidency in the rise in prices of goods and services. Therefore, we should expect a rise in inflation, and consequently – appropriate actions on the part of the Fed.
Inflation and Interest Rates in Poland
Inflation in October was at 5% in comparison to 4.9% in September, which means that – in line with expectations – the Monetary Policy Council kept interest rates unchanged in November. It is almost certain that discussions about cuts could begin latest by March, when a new inflation projection appears, and when we have passed the peak of inflation. The chances of a cut are also increasing thanks to the government’s decision to freeze electricity prices.
Author: Michał Tekliński – Goldsaver.pl gold market expert, Goldenmark Group
Source: https://managerplus.pl/zloto-w-opalach-jak-wygrana-trumpa-i-napiecia-geopolityczne-zmienily-rynki-w-listopadzie-71723
