America’s President, Donald Trump has not had nice things to say about the dollar. A strong dollar will interfere with his grand plan of making America great. Trump has been very vocal about the dollar and as an American president, what he says and does is highly influential on the dollar’s performance.
Right off the bat, Trump launched a trade war with China and to mitigate the damage the U.S made, the Chinese responded by devaluing their own currency. The trade deficit with China is incredibly high, could the trade war trigger the dollar’s ultimate downfall? Trump’s words and actions could be signalling that the best time to buy gold is now before a weakening dollar pushes the price of gold up.
What is Trump’s game plan here? Is he planning to make America great by driving the dollar down?
The American president actually controls the exchange stabilisation fund, which he could use to drive the value of the dollar down. All he would need to do is to give the order. However, some analysts believe that Trump’s rhetoric about gold has an effect on the currency markets. The Trump administration covertly tries to undermine the strength of the dollar. However. After his victory in 2016, the dollar actually rose to a 13 – year high as markets expected the economy to strengthen effectively messing with his plans to cut the trade deficit.
The Trump administration has been trying to negate the dollar’s status as a global reserve currency. To suppress the currency’s value Trump has boosted spending during a period when the economy was really doing well. This is something you don’t expect to happen. It suggests that the administration is covertly trying to steer investors from Treasury bonds. In addition to that Trump’s unpredictability furthermore undermines the dollar and may continue to do so in the future.
But why should Trump or the government be concerned about a strong dollar? A strong dollar automatically makes U.S goods more expensive to export making the currency less competitive in the global economy. This increases the trade deficit, which is what Trump promised he would reduce. As long as the dollar continues to be the world’s reserve currency the U.S will always have to deal with a high trade deficit
The problem for Trump is not just the dollar alone. To stave what a strong dollar is doing to the trade deficit Trump can consider a couple of options:
1. Use protectionist trade policies, which Trump has started with China.
2. Convert the IMF to a global central bank that issues paper reserves.
3. Create a modern gold standard.
These are far-fetched ideas. In fact, the idea of an international gold standard has been the subject of debate for a while now and it has a lot of supporters. Trump loves gold, he even mused about how great a gold standard would be. Rumour has it that he owns between $100,000 and $200,000 in gold bullion. He has holding in go!d securities worth about $90 million. He is not averse to accepting physical gold as payment in his organisation.
The dollar might be strong right now, but analysts believe that this won’t last for long. While the dollar is still relatively strong now, experts are predicting its fall. This is because of the trade war and other macroeconomic trends like inflation. A lot of global fund managers believe gold is undervalued which is why most investors are being encouraged to buy gold now before the yellow metal becomes more relevant in the coming months.
So, is Trump advocating for more people to buy gold? Considering his comments about the dollar, and the Fed’s monetary policies as well as taking steps that can only weaken the dollar, one can say Trump is a big proponent of gold – he might just be trying get more people to buy gold.