Gold, that great barometer risk, hasn’t exactly soared away as the Trump presidency has bedded down. On the contrary, in the context of the ever-strengthening US dollar, the price has been relatively muted. The current price of US$1,205 per ounce represents something of a recovery on recent weeks, and it’s not clear, as the Fed continues to signal further rate rises, that the US$1,200 mark is sustainable long-term.
Still, there are significant challenges to the Trump regime ahead, not least the mid-term elections, which are now just two months away. Several polls are predicting a bad outcome for Mr Trump, though needless to say he himself doesn’t see it that way and, what’s more, in recent years the accuracy of polling itself has been called into question.
So, there’s everything to play for, and it’s perhaps not surprising to see Mr Trump burying a few hatchets with Republican critics and rivals like Ted Cruz as he faces his first real test at the polls.
Whether a Democratic victory is really something that would be desired by markets is another matter. ING released analysis this week citing the mid-terms as a serious consideration for turning bearish on the dollar.
“Time to ditch the dollar?” wrote ING, arguing that uncertainty around the mid-terms will be compounded by a renewed focus on ballooning US deficits, by trade and tariff considerations, and potentially by the idea that the current boom in the US economy will be as good as it gets.
If indeed it’s only downside from here on in, then the political risks are one of the great unknowns that markets will face. How will Mr Trump, who inherited a recovering economy from his predecessor, seek to justify to the US electorate, and in particular his base, a declining economy?
On past form, he will seek to identify culprits to shoulder the blame and to move it away from him. That in turn will unsettle markets and the political class alike. We’ve already seen Mr Trump tilting at the Fed and at his own Attorney General. And these are the good times. What happens when it turns bad?
Not that Mr Trump ought to bear the blame for any potential slowdown in US growth. His tax policies have provided a certain stimulus, at least according to conservative economists, and his general laissez-faire approach to business has been welcomed.
The broad idea that he’s brought to government has been that the US state ought to “butt out” of business. This approach has cut red tape and allowed miners and industry in particular to be more confident of investing. That in turn can be cited as a factor in the increased growth the US has enjoyed since Mr Trump was elected, and has certainly been music to the ears of his base.
But if growth does slow, it’s likely that growth in the industrial heartlands will slow too, and if it reaches a pinch point, it’s unclear whether foreign economies will bear the brunt of the blame, with their “unfair” trade practices, or whether Mr Trump will look closer to home for a scapegoat such as the “deep state.”
If the deep state ends up being implicated then it’s conceivable that US institutions themselves may come under threat, and that more than harsh words will be directed at the likes of the Attorney General and the Board of the Federal Reserve.
Mr Trump, like his Republican colleagues, professes great respect for the US constitution, and there is no question that he would actively seek to subvert it.
Nevertheless, his previous attacks on the free press and on some of the country’s great institutions do raise questions in the minds of market participants. And the resultant is more conducive to a stronger gold price than it is to economic growth.