Lyon has long held an investment in gold, but has seen the value of the precious metal suffer in recent months, as investors take the view that Trump’s policies will lead to a stronger dollar, and that is bad for gold.
He said, ‘Gold bullion has been seen by many as a laggard in 2016. A number of investors have asked why it has been so dull. In the last three months of 2016 gold fell by just over 12 per cent.
Yet set in the context of the year, gold paid its way, rising by 8.6 per cent in dollar terms, and up 29.7 per cent in sterling terms.’
The market presently anticipates that Trump’s policies will lead to rising inflation, and rising interest rates.
Lyon takes the view that if Trump’s policies do lead to higher inflation, that will be a positive for gold, as gold has the capacity to hold its value.
He added that if the policies don’t lead to inflation, then the likelihood is that deflation will take hold, and the dollar would weaken. That could be a positive for the gold price, as one of the reasons the value of the precious metal has suffered in recent months is that the income available on US government bonds has risen.
Those bonds compete with gold for the status of safe haven. Gold pays no income, so a rising income paid by the bonds serves to make them more attractive as a safe haven.
If the rising dollar continues, then US interest rates are likely to keep rising, pushing the income on those bonds upwards.
But if Trump’s policies fail to deliver the inflation that is the goal, then rates won’t rise, and that is likely to keep the value of the dollar, and bond yields, low.
The Troy Trojan fund has returned 86 per cent over the past decade.