Yet Treasury strength could be limited. Both candidates have campaigned on increased fiscal spending on infrastructure, which would result in more Treasury issuance. We could see this nudging up Treasury yields and supporting the U.S. dollar. Gold may be a better hedge in the short run.
Market Realist – Deficit spending to rise
Both Donald Trump and Hillary Clinton are in favor of higher government spending, especially on infrastructure, to create more jobs and enhance business activities. According to Cumberland Advisors, “The United States needs somewhere between $3 trillion and $4 trillion of infrastructure spending.” While Clinton wants to spend $275 billion to improve America’s infrastructure, Trump wants to double that amount. However, it remains to be seen whether this huge spending is approved by Congress. In the past, Republicans had opposed additional spending due to fears of rising debt.
Though both candidates are in favor of higher taxes to enhance resources, in all possibility, higher spending is likely to be financed through domestic debt issuance like Treasury bills (TIP)(SHY). In turn, the rise in the supply of Treasuries would lead to higher yield and lower bond prices. As more and more investors move away from risky assets (IVV) in favor of bonds, higher inflows could lead to a strengthening dollar.
Against this backdrop, gold seems to be a better bet. Gold (IAU) prices have strengthened 23.8% so far this year due to a supportive macroeconomic environment and the Fed’s cautious approach. The factors led to a strong rally in gold during the first eight months of the year and continue to date—though with varying degrees of intensity. Add to this trend the higher level of political uncertainty in the United States until the general elections, which could support higher speculative and investment inflows in gold (RING).