Trumpflation breakdown: Goldman Sachs suggests gold buying

Though Donald Trump promised to end the inflation nightmare, many economists warn that his policies could, in fact, increase the upside inflation risk, termd "Trumpflation". This is attributed to several factors, including his 2.0 policies of tariff, tax, immigration, and monetary. According to the latest polls by FiveThirtyEight, Kamala Harris (47.1%) and Donald Trump (43.6%) remained statistically tied. If you expects a Trump-Win, it is a pivotal moment for you as an investor to consider the investment opportunity behind Trumpflation.

Tariff Increase: Trump proposes a 10% tariff on all imports and adds 60% tariff on China goods. These tariffs increase the cost of imported products, which importers tend to pass on to consumers, leading to higher prices. This price increase can ripple throughout the goods and services, as many products rely on imported raw materials and components, resulting in an overall rise in price levels.

Tax Cut: Trump's plan to reduce the corporate tax rate from the current 21% to 15% might stimulate corporate investment and economic growth, but it would also increase the money supply in the market. Tax cuts enhance consumer disposable income, potentially boosting demand. If this demand growth surpasses supply growth, it will lead to price hikes. Furthermore, tax cuts could exacerbate the fiscal deficit, compelling the government to issue more bonds for financing, thereby increasing the money supply and fueling inflation.

Immigration Restriction: During a June rally, Trump declared, "We're going to have the largest deportation." Trump's immigration policies include large-scale deportations of illegal immigrants, which would reduce the labor supply. A reduced labor force would compel employers to pay higher wages to attract and retain workers. These wage increases would then be passed on to the prices of goods and services, causing inflation.

Weaker Dollar: Trump advocates for a weaker U.S. dollar to boost American manufacturing and reduce the trade deficit, believing a strong dollar hinders the revival of U.S. Manufacturing. A weaker dollar would make imported goods more expensive, further driving up prices. Additionally, a weaker dollar combined with a trade war with China might prompt the Chinese government to shift more of its reserves from U.S. Treasuries to gold, driving up gold prices.

Gold has reached a new all-time high this month, surpassing $2,570 per ounce, marking a 22% increase YTD. Goldman Sachs strategists recommend gold as a hedge against inflation risks arising from the US Election. Why should rising inflation prompt an investment in gold? Historically, there's a strong correlation between CPI inflation and spot gold prices. As inflation diminishes the purchasing power of fiat currencies, investors frequently turn to gold as a store of value. Gold has been regarded as a safe haven during times of economic uncertainty and high inflation.

ETF offers a convenient way to invest in gold without the need for physical storage, making it accessible to a broad range of investors.

Investing in gold mining companies can offer leveraged exposure to gold prices. However, it's important to note that these investments come with additional risks related to the mining industry, such as operational challenges and regulatory issues. Here are some prominent gold mining stocks: