This week John Ing, President and CEO of Maison Placements Canada Inc. is once again our guest author and shares his thoughts on the Trump administration and the price of gold.

After Donald Trump’s first month in office, the only certainty is uncertainty. In less than a month, Mr. Trump has created wars on many fronts, sometimes with a stroke of the pen, sometimes with a tweet. To his many critics, he is reckless and dangerous. The longer-term dilemma is that many of Mr. Trump's ad hoc solutions to complex problems are actually non-solutions. The classic Trump trade then, is to buy gold. Overlooked by Wall Street is a potential war with the Federal Reserve, which was set to hike rates three times this year to ‘normalize’ and shrink its $4.5 trillion balance sheet, bloated by nearly a decade of ultra-loose monetary policies. Ominously, any unwinding risks unleashing hyperinflation. Mr. Trump has said he wants investment to jumpstart the economy, but not how he will pay for this. The Federal Reserve, on the other hand, seems unwilling to provide more fiscal stimulus, setting up an inevitable clash with Fed Chair Janet Yellen. Again, gold will be a good thing to have. As with Tom Brady, the iconic quarterback of the New England Patriots, we should watch what Trump does, not where he feints. We believe his provocative tweets or surrogates’ statements, like Brady’s feints, are just diversions. Under the radar, his party and cabinet are fashioning the biggest tax cut in history and pushing for reduced regulation, while slowing down on Obamacare and stepping back from a confrontation with China. Of greater concern is the prospect of a full-blown and unaffordable trade war. In the last forty years, America’s economy has become consumption-based, under-investing in physical and human capital. China, Japan and India became the world’s workshops, generating a chronic global trade imbalance and enabling Americans to consume more than they produce. American icons such as Apple, Walmart and GM benefited from the creation of global supply chains, taking advantage of the arbitrage of lower labour costs. The vast integrated food, agriculture and auto supply chains benefitted North American consumers. A trade war would collapse these intricate supply chains, hurting American consumers and costing badly needed jobs. The dilemma for everyone is that the global economy is slowing down, recording its slowest economic growth in five years. With or without Trump’s policies, the US economy will slow down further. Emerging countries will have to turn to other markets, already troubled by Britain's Brexit, elections in France and Germany, and a festering Greek bailout crisis. Germany has quietly repatriated almost 600 tonnes of gold from America and France in a move to better safeguard its reserves. Of greater concern is France’s populist Marine Le Pen (Madame Frexit) threatening to renege on France’s debt. This would amount to the largest sovereign default in history; ten times the size of Greek’s restructuring, and threatening the breakup of a weakened EU. The US trade deficit reached half a trillion dollars last year. Trump faces obstacles: the strong dollar, low national savings, a national debt at $20 trillion (100% of GDP), shaky overseas demand, and financing another whopping budgetary deficit, boosted by record tax cuts and increased government spending. He has accused America’s major trading partners, China, Japan and Germany of weakening their currencies to gain trade advantages, yet those same countries are asked to finance America’s debt. America continues to consume more than it produces and the new world order will make the world’s largest creditor beholden to its rivals. Americans believe they can have it all. But these imbalances have skewed incomes, boosting inequality and paving the way for populism and the Trump election. Trump campaigned with inflammatory talk questioning China’s ‘one China policy’, although he later softened that position in a much-delayed call with President Xi Jin Ping. But ramping up tensions risks Chinese retaliation. While Apple phones and Boeings are likely targets, the bigger concern is that China could stop financing America’s profligacy. China has already imposed new regulations to keep money in the country, running down its behemoth foreign exchange reserve pool by a whopping trillion dollars, selling dollars aggressively to curb renminbi depreciation, and purchasing and stockpiling huge supplies of gold as a currency hedge. We believe China’s moves are designed to reduce dollar exposure, knock currency speculators offside and build up an arsenal in anticipation of a potential trade war between the world’s two largest economies. Geopolitically, a retreating America is highly destabilising. Today, China pays for Saudi Arabian and Russian oil in renminbi, bypassing the dollar. Ironically in pursuing its mercantilist policy, China has already filled the vacuum created by America’s retreat in Africa and parts of Latin America. Mr. Xi’s ‘One Belt One Road’ initiative will expand China’s political and economic influence in some 65 countries in Asia, the Middle East and Eastern Europe through trillions in infrastructure spending financed through the China Development Bank, the Export Import Bank and the newly created Asian Infrastructure Bank (AIIB). China's investments and new alliances would offset the impact of a potential trade war with the US. Gold is back in demand, up by 6% since the beginning of the year and outperforming the major indices. It appears gold has taken on a Trump discount. We believe this Trump trade is a hedge against the possibility his presidency will be one of global disorder, pitting country against country, consumers against producers and debtors against creditors. Gold is a classic hedge as a store of value when two thirds of the world's assets are denominated in the fiat currency issued by a country whose authorities are taking policy actions which leads to debasement. Gold is a good thing to have. Gold has rebounded from the lows of US$1,140 an ounce after reaching a peak at US$1,940 an ounce, six years ago. We continue to believe that the resumption of gold’s uptrend will see gold at US$2,200 an ounce. The dollar and gold are telling us that a perilous adjustment in currencies and economies lies ahead.