SPDR Gold Trust (GLD) is a way to play the likelihood of a transactional deal between Pres. Trump and the Democrat-dominated House of Representatives, asserts Vivian Lewis, editor of Global Investing.
Preident. Trump has already cut taxes by $1.5 trillion and is talking about another cut for the middle class, omitted the last time round. To avoid gridlock, I expect that US fiscal policy will become looser and potentially more inflationary. And it will weaken the Greenback.
To cover that risk, hold your nose and buy GLD. It is not only Chinese and Indians who use the yellow metal to protect their wealth, although they account for about 60% of total world gold demand.
Central banks also like reserves denominated in gold rather than in foreign currencies, even the almighty dollar. In recent months short sales in gold have been lower, because the yellow metal has been in a trading range — not making a lot for short sellers.
There are negatives. The Fed is busily raising interest rates and will be active if my inflationary scenario plays out. So the interest you don't collect from gold, the so-called opportunity cost, is gone.
Note, you can also buy a mining share, like Barrack (ABX) which is buying Goldcorp (GG) of Britain. Both are trading at very low p/e ratios.
