Don't Sell Your Gold Just Yet

A Closer Look at Trump's Return, Gold-Wise

I’ve mentioned before that Trump’s presidency will be a boon for gold, but I never got around to unpacking the details. So, let’s get into that today.

Make no mistake—this is a pertinent topic. When gold prices dropped on the day Trump was elected, many people thought, “Well, now that he’s in office, I’m not worried anymore. Maybe I’ll invest less in gold, or even sell some.”

As someone plugged into online chatter, I’ve seen this sentiment come up time and time again. Heck, I’ve even had people share similar views with me in person.

But there's a dangerous naivety to this thinking. The machinery of government spending and inflation doesn't simply grind to a halt with a change in administration. And if anything, Trump's economic vision points to even more aggressive fiscal policies.

Now, I realize some of you might bristle at that assertion, but hear me out.

Let's start with the obvious.

Low Rates Are Coming Back

As a heavily leveraged real estate tycoon, Trump is unabashedly a "low interest rate guy." He repeatedly lambasted Fed Chair Jerome Powell for not slashing rates during his first term. And he’s already promised a return to lower rates in Term Two.

The problem is, returning to “lower rates” means that the Fed would have to create a mountain of freshly printed cash. But that might not be a dealbreaker for Trump. In fact, some of his closest advisors, like former trade chief Robert Lighthizer, have suggested that dollar devaluation could be a key focus in a second Trump administration.

Even if Fed chair Jerome Powell refuses to play ball, his term ends in 2026, at which point Trump will probably pick a Fed chair who’s more on his side when it comes to monetary policy. But with the federal government already paying as much on interest as it does on military spending—and debt payments continuing to soar—Trump might get his way long before that. Powell can downplay it all he wants, but he knows the government's credit card is maxed out (as well as those of consumers).

Just think about it: if interest rates were, say, 1%, the government's annual interest bill would be “only” $360 billion, instead of the $1.2 trillion it currently pays. That’s quite a strong incentive to do what I’m predicting, wouldn’t you say?

The bottom line is, when people look ahead to a Trump administration, it's important to understand that we’re likely looking at a continuation of low interest rates. The Fed slashing rates all the way back down to zero—or even negative—is a real possibility.

And of course, that’s great news for gold.

The Tariffs Will Bite U.S. Consumers

Trump’s gung-ho stance on tariffs is another big pro-gold factor. Make no mistake – the measures he's suggesting are inflationary through and through.

The Trump camp is, of course, quick to point out that U.S. inflation barely budged during his tariff spree. Even as Trump slapped duties on imports left and right, consumer prices only rose by 1.9% in 2018, 2.3% in 2019, and 1.4% in 2020. They also like to emphasize that Biden and Harris kept most of Trump's tariffs in place, despite VP Harris's criticisms about Trump’s plans to ramp them up even further.

Fair enough. But here’s the thing: the sheer scale of Trump’s new tariff proposals completely upends the equation. His ideas include:

• A blanket 10% tariff on all imports to boost domestic production and reduce reliance on foreign goods.

• A minimum – yes, minimum – 60% tariff on Chinese imports.

• A 200% (not a typo) duty on Mexican cars.

• A 100% tax on vehicles made outside the U.S.

• Tit-for-tat tariffs on any nation that imposes them on American goods.

All told, we're talking potential tariffs on more than $3 trillion in imported goods. That's a full order of magnitude above the roughly $300 billion in mostly China-centric tariffs Trump imposed in 2018-19.

Now, you may agree with tariffs to punish China and other countries for “unfair” trade practices. But, ultimately, tariffs are a tax on us.

When U.S. importers get hit with a tariff, most simply raise prices to pass those costs along to consumers.

So right out of the gate, you've got higher prices. But it gets worse, because tariffs also have a knock-on effect. By making foreign goods more expensive, they reduce competitive pressure, allowing U.S. producers to charge more.

In other words, tariffs are a double-barreled inflation accelerant.

Now, it's entirely possible that Trump is just using sky-high tariffs as a negotiating ploy, and that actual tariffs will wind up being much lower when the dust settles.

But if these steep levies do materialize, we're going to feel it in our wallets.

According to the National Retail Federation, slapping tariffs on categories like apparel, toys, furniture, appliances, footwear and travel items would gouge American consumers to the tune of $46 billion annually. And that's just a small slice of the total tariff pie.

Now, apart from being punitive, Trump's tariffs are designed to encourage foreign companies to bring manufacturing and jobs back to the U.S.

But historically, my read is that tariffs have only had a modest "reshoring" impact, and mostly during a bygone era of much smaller government.

Think about it: Back in the late 1800s and early 1900s, federal spending amounted to just 5% of GDP. Today, it's hovering around 50%. That enormous gulf reflects a staggering increase in red tape, bureaucracy, and regulatory hurdles.

Against that backdrop, how many companies will be chomping at the bit to drop a billion bucks on a U.S. factory – one that might not produce a single widget for a decade – purely based on tariffs that could disappear the minute Trump leaves office? My hunch is, not many.

What About DOGE?

You’re probably wondering, “But hasn’t Trump also promised to make the government more efficient and cut waste?

He has. On November 12, he made it official, appointing Elon Musk and entrepreneur Vivek Ramaswamy to lead a new "Department of Government Efficiency," or DOGE. Trump wrote that it "will become, potentially, 'The Manhattan Project' of our time."

Aside from the somewhat goofy name, a nod to Dogecoin, the cryptocurrency Musk has famously backed, the goal of DOGE is admirable: to identify and eliminate inefficiencies across the federal government. Musk has boldly claimed that he could cut $2 trillion in annual spending through this initiative.

This is a colossal figure—almost a third of current spending. It’s also almost twice the combined budgets of the Departments of Defense (around $900 billion) and Homeland Security (about $103 billion).

It also happens to be the exact amount needed to balance the budget today. And since Musk hasn't offered any details on how he'd actually achieve those savings, my guess is that he probably chose that number for effect.

Now, I’d be as happy as anyone to see a smaller government, a reduced deficit, and a less confrontational (and less expensive) foreign policy. Actually, it's probably a necessity at this point given the U.S. government's increasingly decrepit financials.

But what many people don't realize is that DOGE is not actually a government department at all, but rather a Federal Advisory Committee. This means that it has no real authority or power to implement changes directly. It can only provide recommendations and advice to the President (and agencies).

Well, can’t Elon and Vivek already do that?

Moreover, the reality is that Washington is engineered to resist efficiency initiatives like DOGE. History has shown us that. The Grace Commission under the Reagan administration, a similar effort in the 1980s to identify government waste, produced a 47-volume report with 2,478 recommendations. In the end, only a handful were implemented, and the savings were a fraction of what was promised.

Remember, the Reagan Revolution was all about making the government smaller. You can read about how this admirable effort was derailed by the Washington political process in less than half a year in a book called The Triumph of Politics by David Stockman, who was the director of the Office of Management and Budget in the Reagan administration. I strongly recommend it.

The upshot is that any recommendation from the DOGE Commission, if it ever sees daylight, will land on the desk of a bureaucrat whose budget it targets. Their first response will be a memo—ten times longer than the original proposal—arguing why it’s absurd, harmful, and impractical. Then it becomes mired in legal challenges, with cases bouncing between courts for years. The legal back-and-forth is endless, and while the White House may occasionally win, each legal battle is an isolated case and requires enormous effort.

It’s a system that doesn’t scale. Plain and simple.

And while cutting government bloat is a noble goal, it’s unlikely to make much of a dent in inflation, anyway. Even if DOGE were a huge success—which, again, is a big if—it would likely lead to a one-time reduction in spending, not a lasting decrease in the money supply's growth.

Regards,

Lau Vegys

P.S. Now, you can hope that Trump’s policies don’t make rampant consumer prices even worse. You can also hope that Musk and Vivek’s cost-cutting moves somehow rein in inflation. But hope, while eternal, makes for a poor investment advisor. A better approach is to count on gold’s proven resilience through political and economic cycles—if only as insurance. Its track record speaks for itself, which is why Doug always recommends keeping gold in your long-term portfolio, no matter who’s in office. And if you’re after bigger returns, Doug suggests adding gold stocks to the mix. In fact, we recently recommended one in the latest Crisis Investing issue.