Could the Trump Presidency usher in a return to the gold standard and strip powers away from the Federal Reserve?
Donald Trump is known to be sympathetic to the concept of a gold standard, believing it could be a good way of maintaining the stability and value of the US Dollar.
“Bringing back the gold standard would be very hard to do, but boy would it be wonderful. We’d have a standard on which to base our money.”
Multiple Trump economic advisors are also pro-gold and could advise President-elect Trump to move the U.S. monetary system back toward sound money and the financial discipline that gold commands.
John Paulson is an economic advisor to Donald Trump known for his fund’s investments in gold with Paulson & Co currently the 5th largest institutional investor the SPDR Gold Trust (GLD). The appointment of Paulson to a position on Trump’s team could also arguably bolster Trump’s position on gold in the monetary system.
Dr. Judy Shelton, part of Donald Trump’s economic advisory team, is also a senior fellow and co-director of the Atlas Sound Money Project. Their mission is to promote the principles of sound money and raise awareness of what they see as the inherent problems of our current monetary system.
When Fortune Magazine asked her how she would propose changing monetary policy, she responded with the following:
“I’m not opposed to a new Bretton Woods conference. In terms of gold being involved, some people may think of that as a throwback, but I see it as a sophisticated, forward-looking approach because gold is neutral and it’s universal. It’s a well-accepted monetary surrogate that transcends borders and time. If you look at the foreign reserves of the most important countries, they keep them mostly in gold. I don’t want to read too much into it, but it proves that gold is not some barbarous relic.”
Concerning the Federal Reserve, Trump was asked a question in a March 2015 TV interview:
Question: Let’s go back to our audience now coming from Bob. What is your question? …[Bob]:”My question is about Federal Reserve. What if any changes would you make to Federal Reserve and do you think they should be audited on a regular basis?”
Trump: “Audited, absolutely. I really think you can have it or not have it. A lot of people like it and a lot of conservative people like it. They think there is an adjustment with interest rates and other things. I’m not a fan. I’m not a big fan. Audit, 100%.”
What exactly is the gold standard? Here is a great video that breaks it down succinctly:
We may not see the return to a full gold standard once Trump takes office on January 20th, but even a small increase in the usage of gold in the monetary system could have significant ramifications for the price. As other analysts have pointed out, the gold price would need to climb well above $10,000 per ounce to cover the amount M1 currency in existence (cash plus checking accounts).
If the gold price were to reach these lofty levels and increase 8x the current price, mining stocks are going to advance by 20X or more. With silver at a 50:1 ratio to gold, $10,000 gold implies an advance in the silver price to $200 per ounce.
If gold and silver prices climb 8x to 12x in the coming year and mining stocks continue to offer leverage of 3x to 4x, we could see quality miners generate staggering returns in the 3,000% to 5,000% range. This implies a return of 50x your money. In other words, an investment of $20,000 in top-tier mining stocks could one day be worth $1 million!
Of course, nobody knows for sure where prices will go into the future, but these price targets give us some perspective of the potential gains in this market.
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