The New
“Trump Bump”: Gold Takes Off President Trump has been creating safe haven demand for gold, but the metal needed more than that — some monetary factor — to keep the rally going.
Now he’s graciously provided that as well. Dear John, I warned against buying gold because of some hot-flash headlines the last time I wrote to you. And that proved to be good advice when President Trump sent cruise missiles hurtling into Syria a few days later. Yes, gold spiked higher on the news. But before that trading session was over, most of the gains had already evaporated.
The lesson: Fear provides a weak foundation for a gold rally — unless that fear is based upon long-term currency debasement. Donald Trump
Is Different
(In Case You
Haven’t Noticed) With all this said, Donald Trump has changed the equation.
Usually, geopolitical crises come and go periodically, like waves crashing upon the shore. Before you know it, they’re gone…and any opportunity to ride them has escaped.
But the Donald has provided something more akin to a massive, Bay-of-Fundy tide of concern in the markets that never seems to withdraw.
This might, in fact, account for the undercurrent of buying that has been supporting gold over the last few months.
And then gold took off on Tuesday, jumping about $20 as the Trump administration ramped up its rhetorical wars with Russia and North Korea…and backed up its talk with missiles and a carrier strike group, respectively.
As this rally was unfolding, I dispatched a Gold Newsletter Alert to our subscribers, warning them once again that the fear trade is a fragile driver for gold prices, since crises usually pass quickly.
With this rally, though, gold had decisively broken through the 200-day moving average around $1,262, turning the technical picture around so completely that it would likely bring in trend-following buying by traders on top of fear-induced buying by others.
I also noted that the longer-term monetary picture was still positive as well, as inflationary pressures were rising, real interest rates are dropping further into the negative zone and the Fed remained reluctant to get ahead of inflation with their rate hike program.
And given the ongoing geopolitical tensions, they would be even more reluctant going forward.
Elsewhere, the bull market in stocks has been looking increasingly tired and tenuous, with the Dow’s last high-water mark occurring over five weeks ago. Since then, the rationale behind the Trump Bump has been steadily unraveling.
This is important because, when the music finally stops in the stock market, the resulting relocation of money into the relatively small gold market will propel prices significantly higher. (Less than 0.5% of all global investment assets are currently dedicated toward gold!) Still More
Was Needed So both the technical and fundamental stories for gold had turned bullish on Tuesday.
But to me, something was still missing.
What gold really needed to keep its rally going was some sort of a monetary driver…some fundamental sign that the inevitable dollar depreciation might also be imminent.
Leave it to the Donald to graciously provide just what we needed.
In an interview with the Wall Street Journal yesterday, Trump noted that… “I do like the low interest rate policy, but I must be honest with you, I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But, you know, that’s hurting — that will hurt ultimately. “Look there are some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good. You know, it’s very, very hard to compete when you have a strong dollar and the other guy — other countries are devaluing the currency. It’s very hard for our manufacturers to compete.” Gold immediately jumped another $10 after this quote was released.
You see, as I’ve repeatedly stressed in Gold Newsletter, the Trump administration is not populated with free market advocates. If they have any consistent economic ideals at all, they are of mercantilists who favor a weaker currency and other protectionist trade policies as shortcuts to economic growth.
They want a weaker dollar, which will be a boost to gold. They want trade barriers, which will fuel stagflation that will also be bullish for gold.
And this is just the kind of fundamental driver that gold bugs were waiting for.
Even mainstream analysts acknowledge how positive this is for gold. This morning, none other than Peter Boockvar noted that... “With respect to gold and the unofficial/official Administration endorsement of a ‘not strong dollar’ in addition to every other single country in the world who also wants a weak currency, I’m upgrading my view point on gold and silver from buy to pound the table buy. Both are now above their 50, 100 and 200 day moving averages and at 5 month highs.” (Peter is the Chief Market Analyst for the Lindsey Group, one of today’s most respected macro economic and market research firms. He was also a big hit at last year’s New Orleans Investment Conference, and has just confirmed that he’ll present again at this year’s event!)
So what now? I expect gold to trade sideways for a bit to digest its recent move, and in fact it’s down about $2.00 today.
But over the longer term, the path higher for gold has been somewhat cleared by Trump’s acknowledgment of the dovish monetary policies his administration will pursue, and the metal seems likely to build upon its recent gains over the weeks ahead.
If you’re not adequately positioned in gold, silver and top-quality mining stocks, you should seriously consider subscribing to Gold Newsletter and attending this year’s New Orleans Investment Conference. All the best,
Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference |
