Trump 2.0 and Gold: Catalyst for Fear or Love Trade?

Maslow’s Hierarchy of Needs was a groundbreaking concept when it was first introduced to the public in 1943. American psychologist Abraham Maslow believed that certain basic needs – food, water, shelter, etc. – must be met before a person can advance to higher levels of self-worth and self-actualization.

Security is another important, basic human need that I believe played an important role in last week’s election results. People want to feel safe, both physically and financially. They want to feel safe and protected in their homes and communities. When this is not the case, they express their outrage or dissatisfaction at the ballot box.

I wrote about this a little over a year ago. At the time, I was convinced that the record number of illegal immigrants pouring across the southern border would damage President Joe Biden’s electoral candidacy.

It seems that exactly on the basis of the theory of the wisdom of crowds this happened. When Kamala Harris was named the Democratic presidential candidate in August, she failed to convince voters that this problem would be solved. Meanwhile, President-elect Donald Trump has aggressively campaigned on illegal immigration and border security and emerged victorious.

Looking back, this catastrophe had been inevitable for a long time. A Gallup poll conducted in February found that immigration is Americans’ top concern. More than a quarter of people (28%) cited immigration as the country’s biggest problem, ahead of other issues such as government (20%), the economy (12%) and even inflation (11%).

The feeling of security shapes spending and politics

I am aware of the many studies that show that immigrants are less likely to commit crimes than U.S. citizens. But as we all know, political perception is, and the prevailing perception is, that American cities have become less safe because of the influx of unvetted, undocumented migrants.

This perception has become so strong that it influences people’s spending habits. When I jog around my neighborhood early in the morning, I notice that more and more families are putting up fences, indicating an increased sense of insecurity.

Voters are also telling elected officials that they are tired of being nice to sides who are criminals. Last week, California voters approved a measure that would impose tougher penalties for theft and drug trafficking, a shift away from “woke” criminal justice policies that appear to whitewash criminals.

“America First” policy to support domestic corporations

There are some areas that I think could see additional momentum under a second Trump term.

As in his first term, Trump is likely to pursue business-friendly policies that will particularly benefit companies that generate most of their sales domestically. Small and medium-sized companies in particular could benefit from lower taxes and relaxed regulations and find themselves in an advantageous position.

A look at Trump’s first term in office shows that small businesses and their managers were very optimistic back then. The National Federation of Independent Business (NFIB) Optimism Index remained at historically high levels at a monthly average of 103.4 – even during the pandemic.

By comparison, under Biden’s presidency, the index averaged about 10 points lower, indicating that business owners had less confidence in the economic climate. Currently, the NFIB reports that uncertainty among small business owners is at an all-time high, largely due to the upcoming elections.

The truth about tariffs

But what about tariffs? During the election campaign, Trump repeatedly emphasized how beneficial tariffs would be for the economy. He argued they could reduce the budget deficit and protect domestic industry from cheap imports.

However, many economists warn that higher tariffs could fuel inflation again. Because it is US importers who pay these taxes – not foreign exporters, as is often claimed. On the other hand, if we look back, Trump already imposed tariffs on billions of dollars in goods during his first term in office, and yet inflation remained low.

Bitcoin should now benefit

It was briefly clear that Trump had won the election, reaching a new all-time high on hopes that the new president would make good on his promise to make the US the world’s “Bitcoin superpower.” As I write these lines, the world’s largest digital asset is trading at just under $90,000.

Senator Cynthia Lummis of Wyoming, perhaps the most vocal Bitcoin proponent in the Senate, stated on According to Lummis’ plan, the US will gradually purchase up to 1 million BTC, which is about 5% of the total supply.

At today’s prices, that’s about $82 billion. For comparison, the value of the country’s gold reserves was over $540 billion at the end of last year.

It is thought that if the US ends up establishing a Bitcoin reserve, it could encourage other nations to follow suit in a fit of FOMO (fear of missing out).

On the investment side, iShares Bitcoin Trust is now larger than its gold ETF (iShares Trust). IBIT, which launched in early 2024, had assets of over $34 billion as of Thursday, while IAU is around $33 billion. USD. The IBIT was launched earlier this year, while the IAU launched almost 20 years ago (2005).

Gold – the love and fear trade

Gold fell more than 3% the day after the election, while the USD rose 1.6%, likely its biggest single-day rise in the last two years. During Trump’s first inauguration, the yellow metal gained 55.4%, underperforming the S&P 500, which rose 83.8% over the same period.

Remember that the gold industry can be divided into the fear trade and the love trade:

Love Trade: This side of the market describes the demand for gold for cultural and economic reasons, particularly in India and China, where gold is often purchased for celebratory occasions and for appreciation.

Fear Trade: This page refers to the demand for gold as a hedge against risks such as inflation, rising interest rates, poor fiscal policy and general uncertainties.

Will the Trump 2.0 era trigger the “Fear Trade” or the “Love Trade”? Time will tell. However, for the sake of balance, I always recommend a 10% weighting in gold – 5% in physical gold bars and the other 5% in gold stocks and ETFs. Don’t forget to check your weightings at least once a year and adjust them if necessary!