Why Did Donald Trump Accept Gold as Collateral?

Thursday was a busy day for the markets.  The Dow (NYSE:DIA) surged 186 points as central banks around the globe agreed to provide dollar (NYSE:UUP) liquidity for a desperate Europe.  While Europe is craving dollars, especially UBS (NYSE:UBS) with their $2 billion rogue trader scandal, some American investors are diversifying away from the greenback.

Billionaire real estate mogul, Donald Trump, is once again in the spotlight for his recent business decisions.  Last month, Trump announced he shocked even himself by investing in stocks.  Donald Trump explained that he bought stock in Bank of AmericaCitigroup (NYSE:C), Caterpillar (NYSE:CAT), Intel (NASDAQ:INTC), Johnson & Johnson (NYSE:JNJ), and Procter & Gamble (NYSE:PG).  Now, it appears that Trump is seeking to diversify his real estate portfolio even more.  On Thursday, American Precious Metals Exchange (APMEX), a precious-metals dealer, released a statement detailing their recent 10-year lease agreement with Trump.  APMEX explained, ” Donald Trump, for the first time ever, accepted Gold bullion (NYSE:PHYS) as a security deposit on the commercial office space that APMEX will occupy in the Trump Building at 40 Wall Street.”  APMEX provided Trump with three 32-ounce gold bars, each with a purity of 99.9%. The total dollar worth of the three gold bars is about $176,000.  It is the first time Trump has accepted 99.9% gold bullion as a deposit on a commercial lease agreement.

APMEX CEO Michael Haynes expressed his enthusiasm on the deal.  Haynes said, ” New York is one of the major financial and precious metal (NYSE:DBP) capitals of the world and 40 Wall Street is a landmark building. We are experiencing significant growth as more and more investors realize that precious metals such as Gold, Silver, Platinum, and Palladium, may provide balance to a portfolio as a part of the asset allocation. We are pleased that Mr. Trump has agreed to accept Gold as a deposit on this lease, and in doing so expresses his confidence in Gold as a valuable, long term asset.”

So why did Donald Trump accept gold (NYSE:GLD) bullion instead of cash?  First, let’s remember who we’re talking about here. The Donald is a business man at heart.  The APMEX golden lease deal benefits Donald Trump on multiple levels. First, he receives a deposit in a form other than the dollar.  Trump has been very vocal about his disapproval of Washington and the effect it has on the dollar.  Trump said, ” Well, sadly we all know what’s happening to the dollar. The dollar is going down and it’s not a pretty picture, and it’s not being sustained by proper policy and proper thinking. This was an opportunity and maybe an opportunity to show people what’s happening with the dollar so we can do something about it.”  Since Donald Trump’s Presidency aspirations have been put on hold, this could be one way he hopes to bring policy change to Washington.  A large enough trend of using gold as money just might catch the attention of Washington as it did Utah.  In May, Utah become the first state in the country to legalize gold and silver coins as currency.  Secondly, a large amount of Donald Trump’s success has come from real estate. As any landlord knows, if the tenant is doing well so is the landlord.  What better way to advertise for your commercial tenant than by promoting his product with the very same lease agreement?

Although there are multiple theories as to why Trump accepted gold as a deposit, it shows that gold does have a role as money, the kind of money that can’t be printed at will.  Trump is hardly the first to accept gold as collateral.  Earlier in the year, J.P. Morgan (NYSE:JPM) became the first bank to accept gold bullion as collateral.  Last year, ICE Clear Europe became the first clearing house to accept gold as collateral.  Gold prices have increased about 28% this year, while silver (NYSE:SLV) has gained nearly 34%.

Investors looking to hold precious metals in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Silver plays include First Majestic Silver (NYSE:AG),Endeavour Silver (NYSE:EXK), and Global X Silver Miners ETF (NYSE:SIL).

Is Gold the Safe Haven? For more analysis on support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.

Disclosure: Long AGQ, AG

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