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The level of production in Europe has declined and so has consumer confidence, it wrote Han de Jong in his recent column. U.S. economic data paints a more mixed picture. The country is awaiting the election and may get a second term under Donald Trump. What is the prospect for gold prices if Trump is re-elected president?
Han de Jong kicks off his column with the NEVI's purchasing managers' index, which indicates how optimistic or pessimistic buyers are about the economy. Buyers are asked, among other things, about the number of new orders, production levels and stocks, after which an index figure is published. A value above 50 indicates an increase in economic activity, while a value below 50 indicates a decrease. The NEVI index stood at 50.7 for the month of June, compared to 52.5 in May. The purchasing index also fell in other European countries. Buyers are therefore less optimistic about economic activity.
Production was lower than one year previously. For example, output in the Dutch manufacturing industry was more than 3 percent lower in May than in 2023. In Germany, the production level is even 6.7 percent lower. Although the German automotive industry rebounded slightly after the huge dip following the increased energy prices, the increase in production will stall in 2024, as can be seen in the following chart.
Source: Crystalcleareconomics
In southern Europe, the increase in the number of tourists is a ray of hope. Spain received 13.6 percent more tourists in the first five months. Since foreign tourists contribute 12 percent to GDP, the increase in the number of tourism in Spain means a GDP growth of 1.5 percent. But the fact that the rest of the European economy is not yet running at full speed is evident from the Bank Lending Survey, a quarterly survey of commercial banks conducted by the ECB. The following graph shows that credit applications have been declining for quite some time. Although the decline is narrowing, the index has been below zero for some time.
Source: Crystalcleareconomics
Things are better in America. The US manufacturing industry is currently producing 1.6 percent more than last year. This figure is positive when compared to European production figures. While many economists, such as Jack Highland At the beginning of this year, we have been expecting a crisis in America for a long time, but for the time being it has not materialized.
On the other hand, several indicators in America are not yet too optimistic about the future. For example, the confidence index of housebuilders has fallen to its lowest level this year. Unemployment has risen but is still relatively low compared to previous periods. Consumer confidence has also declined, probably due to stubborn inflation, which still stands at three percent. It is therefore no wonder that inflation is a main theme of the upcoming elections in America, according to de Jong.
Source: Crystalcleareconomics
If Trump is re-elected, we are likely to face a new round America First waiting, he wrote Elsevier in response to the presented party program of the Republicans. The programme includes substantial investments in defence, restricting immigration and stopping the Green Deal, while boosting oil and gas production to bring down energy prices. In addition, the corporate tax rate will be reduced from 21 to 15 percent. If Trump succeeds in taming inflation, for example by pushing down energy prices, the US economy would receive a huge stimulus. This not only has consequences for the dollar, but also for the price of gold
If Biden hadn't withdrawn and been elected to a second term, then the gold market would have been more predictable. After all, the market can reasonably assess how Biden will proceed and what the policy will be. However, the price of gold is much harder to predict under a second Trump term, as Trump's measures are more unconventional, Naeem Aslam wrote in an op-ed Kitco.com. Should Trump be re-elected, his policies are likely to lead to a stronger dollar. This may also have consequences for the gold price. When the dollar strengthens against other currencies, gold becomes more expensive in other currencies. This can reduce the demand for gold, causing the Gold price Drops.
Also Bloomberg reported that Trump's policies are likely to lead to a stronger dollar. The sanctions make foreign products less attractive to Americans. Even if other countries also introduce tariffs, this will lead to a stronger dollar, according to analysts. Trump, on the other hand, has expressed a preference for a weaker dollar. According to the presidential candidate, the strong dollar has hampered the U.S. economy. But according to Deutsche Bank analysts, it would take trillions of dollars to intervene, or massive U.S. capital outflows would have to be encouraged to lower the dollar's rate.
Still, the opinion piece on Kitco mainly points to the uncertainty under a Trump term. One example is the reduction of corporate tax. On the one hand, it is possible that a more favourable tax climate will lead to more companies relocating to America and that economic growth will be boosted as a result. That would lead to a stronger dollar, but it could also lead to a lower gold price. On the other hand, it is also possible that other countries will also reduce taxes in response. This can actually shake financial stability and therefore lead to a higher gold price.
The geopolitical situation is also uncertain if Trump is re-elected. The Republicans' party program does not specifically mention Ukraine by name, but it does indicate that they want to restore peace in Europe and in the Middle East. Should the conflicts in Europe and the Middle East end, this will in all likelihood lead to a lower gold price, as the geopolitical uncertainty of recent years has led to a higher gold price. But whether Republican rule will indeed lead to peace in Ukraine is uncertain. The former president has been critical of the support for Ukraine, but what exactly Trump will do if he is re-elected remains uncertain. In addition, Trump is likely to continue to stand by Israel, which may in turn stand in the way of peace in the Middle East.
It is therefore very uncertain what will happen in the near future. It is therefore important to keep an eye on indicators such as the purchasing managers' index and production levels. The outcome of the US elections will also be decisive. However, it is a fact that Trump's chances during the election are certainly not small. Should Trump be re-elected, it remains to be seen what effect his policies will have.
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
