Amidst the larger drama of the election last Tuesday, the financial markets staged their own little drama. When the Dow futures plummeted by hundreds of points as it began to look as though Donald Trump would achieve a surprise victory, some people hastily jumped to the conclusion that financial markets feared a Trump presidency. Not so.
While markets were momentarily spooked by an outcome that they had not anticipated, it didn’t take long for market participants to recalibrate their expectations and surmise, at least temporarily, that economic prospects under a President Trump were favorable. Stocks reversed their plunge in a matter of hours and have since charged to several record highs. Conversely, the price of gold fell from a momentary spike above $1300 an ounce to as low as $1211 per ounce.
Economists have different theories about the significance of the price of gold; mine is that gold is primarily a barometer of confidence in the dollar. That confidence is affected by a number of factors, among which are: the outlook for the future purchasing power of the monetary unit; whether the economic policies appear more conducive to strong economic growth or stagnation; and geopolitical factors.
