Gold To Do Well On Watered-down Trumponomics In 2017 - Fund ManagerBy Neils Christensen of Kitco News
Thursday February 09, 2017 12:57
(Kitco News) - Gold’s rally in 2017 will depend entirely on how effective the rollout of President Donald Trump’s economic and fiscal policies – dubbed Trumponomics – will be, which is making one portfolio manager slightly more bullish.
Michael Pento, president of Pento Portfolio Strategies
In an interview with Kitco News, Michael Pento, president of Pento Portfolio Strategies, said that there was a lot of euphoria in financial markets after Trump’s election win; however, reality is starting to set in now and there is growing concerns that Trump’s proposals will be watered down and delayed, reducing their effectiveness.
Pento said that at the end of 2016, because of the expected growth resulting from Trumponomics, he reduced his gold positioning in his model inflation/deflation portfolio to around 5%.
“After Trump was elected in November, I pared down my allocation in gold to its lowest level since I started the firm in 2012,” he said.
Since the start of the year, Pento has doubled his gold positioning to around 10%. While off its three-month highs, gold prices are still holding on to most gains last trading at $1,230 an ounce, down 0.36% on the day.
Pento said that one of the reasons why Trumponomics will be watered down is because any cut in taxes will have to be pared against a reduction in spending.
“You are not just going to get a ‘Ronald Regan’ 20 percentage-point reduction in taxes rates. You are going to get a revenue neutral effective tax rate. It also doesn’t look like the bill will come in March but will be delayed until the summer,” he said.
Pento explained that less effective Trump policies will lead to a less aggressive Federal Reserve, lower interest rates and a lower U.S. dollar, which are all positive factors for gold.
While Pento is expanding his exposure to gold, he said that he isn’t ready to completely bet against Trump. Instead, he is taking a wait-and-see approach and holding mostly cash in his inflation/deflation portfolio.
“I have about 45% of the portfolio in cash because the stock market is fraught with risk because of its massive overvaluation,” he said. “As we go through and we see whether Trumponomics becomes more of a failure then you put more money into gold and go long bonds, and short defence and banking stocks. Right now, I’m walking the tightrope to see what happens.”
Despite the uncertainty in the short-term, Pento also said that investors might want to start building a core gold position for the long-term as the threat of a recession grows.
He said that he sees the U.S. falling into a recession by late 2017 or early 2018. With interest rates still at already low levels, Pento said that the Federal Reserve and the U.S. government will have no choice but to spend money to keep the economy going.“The fiscal and monetary response from this next recession will be unprecedented in scale and intensity so it will be great for gold. I predict that gold will be at record highs by the end of 2018,” he said.