Taxes, tariffs, and inflation : How Trump and Harris impact gold prices

Wed Nov 06 2024

After months of speeches, polling, debates, and speculation, election day is finally upon us. Today, Americans head to the polls to choose between former President Donald Trump and current Vice-President Kamala Harris. 

While the two leaders and their respective parties offer very different visions for the future of the United States, many experts and market participants believe that in the near term, both will likely enact economic policies that would stoke inflation and drive gold prices higher.

Bob Haberkorn, senior commodities broker at RJO Futures, thinks both administrations would run inflation higher, at least in the near term, but he believes a Harris presidency would drive gold highest.

“I think Harris would be the biggest boost for gold prices because she would be more of a continuation of Biden and the Fed’s current policy,” he said. “Harris is not going to cut government spending, and she'll get whatever she can get through on tax increases, though I don't think she'll have the votes in Congress to get anything through. I think she's more inflationary for gold.”

Darin Newsom, senior market analyst at Barchart.com, also believes both Trump and Harris would only devalue the dollar further, but thinks Trump’s policies would have investors fleeing to gold. “I would say the upside for gold is more with a Trump victory,” he said.

“Both sides are going to spend like money just grows on trees,” Newsom said. “We know that. They have a different idea of what's important to spend money on, so that will fall along party lines.”

Newsom said both sides are also talking about cutting taxes. “For the Harris side, it's everyone but the billionaires,” he said. “On the Trump side, it's the billionaires who are going to see a tax cut.”

Haberkorn believes that Trump will deliver on the tax cuts. “I think the tax cuts that they're talking about will go through, the ones that expire next year that were pushed forward,” Haberkorn said, “I think they'll make some changes, and if not, maybe make some more significant cuts.”

But it’s on international trade that the candidates’ economic policies appear to differ most dramatically, and this is the area that could prove most impactful on inflation expectations and gold prices.

“What it comes down to is, on one side, we have free trade and a global view,” Newsom said. “And on the other side, we have anti-free trade and isolationism. And that tends to increase inflation, because it costs more to bring things in, costs more to get things out. Trade partners aren't as interested in what we have when there are trade wars and tariffs in place.”

“Most of it is utter nonsense,” Newsom added. “But it's a fact that one of them is talking about doing that.”

Haberkorn also thinks Trump’s threatened tariffs would drive up prices. “Tariffs are inflationary,” he said. “If he gets that through, if we do, in fact, go through with tariffs on Europe or any country, it will raise the cost of goods. And he's setting the stage to use tariffs as a form of tax, almost replacing income tax with tariffs. I know he did say something about getting rid of the federal income tax and replacing it with tariffs, similar to how the government was run pre-1916 or 1917. The problem with that is that government spending is a lot more than it ever was back then.”

Still, he believes Trump’s threats are just that, at least for the time being. “I think at this point it's a negotiating tactic,” Haberkorn said. “If he gets elected, which it looks like he will, a lot of these deals will have to be reworked out, so we don't have to go that far. It's Trump 101, if you go back and look at what he's done in the first administration, The Art of the Deal, that's I think, what you're seeing right here.”

“But he does have it in his back pocket; the tariffs are there,” he added. “It's real, it's not something that can't be done if some of these trade deals can't be reworked.”

Newsom believes that after the experience of Trump’s first term, which featured high tariffs and high-profile trade disputes, the threats should be taken seriously.

“I think that kicks the legs out from underneath the U.S. economic growth that we've seen, as it raises costs again,” he said. “And [Trump] threatened everyone with loss of jobs, and whatever else he could threaten them with, if they even mentioned raising interest rates to combat the inflation that he started by trade wars and tariffs.”

“On the geopolitical side, a GOP victory strengthens the BRICS alliance, Brazil, Russia, India, China, and so on,” Newsom said. “So we're again in a safe haven market with everything else falling apart. I think that provides support to gold.”

Looking further down the road, there’s reason to believe gold prices would continue to rally into the second half of a Harris term, while Trump may end up pursuing policies which address longer-term fiscal issues, which would sap gold’s momentum.

“If [Trump] wins, after the first year and a half, I think you'll still continue to see gold trade higher,” Haberkorn said. “But I think with Trump, it might be different, he might actually be in a position to do more cuts with government. If Trump was younger and going to be on the scene for a longer period, I think you'd get more of what we've seen in the past: They talk about cutting, but they don't actually do it. They do some cutting to get the headlines, but it doesn't really amount to much.”

“I think this is Trump's last go around,” Haberkorn said. “And he probably wants to do something pretty impactful on his legacy. Maybe this time we do see the spending cuts, but initially, over the first year, it's not going to happen, and it will be inflationary. If we get into year two, three, and things are materializing on the cuts side, then you'd see some deflationary [pressures] in metals.”

Newsom believes that if Harris wins, the geopolitical conflict bid that’s been present beneath gold prices since Russia’s invasion of Ukraine would likely continue throughout the term.

“The way that I could see gold being supported with a Harris administration would be the same global players wanting to continue to create chaos,” he said. “I think a Harris administration would follow the same lines and would have to battle the same adversaries over the next four years.”

But in the near term, regardless of which candidate wins when the dust settles, the likely direction for gold remains upward. “I think right now gold's well-positioned,” Haberkorn said. “I don't think in the short term, meanining in the next year, you're going to see much change from that standpoint.”

Source: https://www.kitco.com/