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What’s in store for gold, oil and industrial commodities under President Trump
Published: Nov 18, 2016 3:22 p.m. ET

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U.S. Global Investors’ Frank Holmes talks about key commodities
AFP/Getty Images
What does the future hold for key commodities once Trump takes office?
But Trump’s call for hefty tariffs on Chinese imports and his threat to place trade sanctions on China for its currency policy could lead to “massive inflation in America,” which could boost gold demand but hurt oil consumption, said Holmes, who’s a well-known fund manager and a natural-resources and emerging-markets expert. The San Antonio-based boutique investment firm had $946 million in assets under management as of Sept. 30.

Trump has been “very critical of international trade deals, threatening to pull out of Nafta (the North American Free Trade Agreement) and levy huge tariffs on Chinese-made goods,” said Holmes. “This could lead to another inflationary period…and could trigger another recession, all of which would be constructive for the price of gold.”
Gold

Gold prices were generally expected to climb if Trump won the election because of the amount of uncertainty surrounding his policies and impact on the economy, but prices have instead fallen by more than 5% since the outcome of the election.

Before election day, Holmes didn’t think gold was going to collapse, but he also “didn’t think it was going to take off” when the outcome was known.

It wasn’t about who won the election, as much as it was about the winner’s “economic policies that [would] drive the price of gold,” he said.

If Trump follows through on his proposal of sanctions on China, that would lead to substantial consumer inflation in the U.S., said Holmes.

Higher inflation should keep real interest rates low and that tends to support gold prices.

Still, Holmes said that gold trading is likely to be “sloppy” until the December Federal Reserve meeting, during which the central bank is expected to raise interest rates, and until the current carry trade has been unwound.

In a carry trade strategy, investors borrow money at a low interest rate and use the money to invest in an asset that’s expected to provide a higher return.

“That money, when it’s borrowed, [is] always in short-term investments, like gold and emerging-market currencies,” Holmes said.

So short term, gold will probably “be challenged.” Then, going into next year, some of Trump’s policies will likely prove inflationary, he said. “If we get back to negative interest rates, which I think will happen, we’ll see gold rebound to $1,300” an ounce.

http://www.marketwatch.com/story/wh...-commodities-under-president-trump-2016-11-18