This morning, I’m going to focus on a single issue. Post election, like many of you, I have been surprised at the reaction in precious metals and the miners. The conventional wisdom was that a Trump victory would mean “lower stock prices and higher gold prices”…and of course we’ve seen just the opposite…making the conventional wisdom, conventionally wrong…again!
In retrospect, we can make sense of it.
1) the majority is almost always wrong
2) Clinton, not Trump, was actually the “fear candidate”. Allow me to prove my point. Since the election, we’ve heard very little about the second amendment being in trouble. Of course its not…Trump won. Had Clinton won, and trust me on this, leading gun maker Smith & Wesson would not be down 25% (as it is), post election. Nope…SWHC would surely be up another 25%.
If you really want your mind blown, consider this; SWHC was trading near its all time high of $30 over a month before the election, when it topped and began its decline, meaning that the stock market (through SWHC’s fall) was actually predicting a Trump victory…back in late September/early October. I find this most interesting…especially with SWHC trading all the way down to $21.40 today.
3) Golds initial reaction was a BIG spike higher…$40/oz higher…a spike that (like Brexit) lasted all of about 1 hour. Since that short term top, the actions been almost entirely in the other direction…for both gold and silver (most interestingly to me, as other base metals are soaring higher).
Since 11/9, gold has dropped 9.6% ($1173/oz) while silver has plummeted 10.9% ($16.84/oz).
Here’s why: the “market” sees Trump as pro growth and pro “fiscal policy debt”….versus HRC, which the market saw as more of the same “slow growth, central bank-led monetary policy”. It’s this single identifier of “fiscal…aka, government-debt based growth”, versus “monetary, aka, QE central bank-based growth” that has been the primary reason for gold/silvers decline”.
And you bet….I am saying that the markets are getting it wrong (famous last words, I know).
Here’s What I Predict is About to Happen: Gold and Silver Spike Higher
1) the majority is waiting for the FED to hike rates, before moving back into gold/silver, at what they hope will be really cheap prices…just as happened at the end of 2015, as the FED hiked for the first time in over a decade. THE MAJORITY…as almost always…WILL BE WRONG.
2) The smart money knows what I am about to tell you; precious metals always perform best when “real interest rates are negative”. To figure “real rates” take the 10 year US Bond (currently yielding 2.35%) and subtract inflation (currently around 2%, if you believe the governments made-up figures…I’ll explain COLA’s at a later date…you’ll know exactly why the govt cheats when figuring inflation figures…as any retiree on govt benefits can tell you).
Based on real-world inflationary data, real rates are clearly negative today….a major positive for gold…which also explains why gold is up 10% since the beginning of the year.
3) Now, check this out. If you believe…as I believe…that all of the signs of rising inflation are here, and that inflation will rise faster than interest rates…then you must also believe that gold will continue to move higher, in a Trump presidency. And BTW, there can be NO doubt that global debt totals will continue to rise…most likely, in scary fashion, another bullish reason to own gold. And global risks? No…geopolitical surprises are not likely to go away.
Finally, over the last 4 days, the miners (GDX, mining ETF) have outperformed gold on a relative basis. This has always been my “go-to” indicator before major moves higher in the past.
At the risk of pissing off the stock-market gods…the markets have gotten precious metals wrong, to date, post election. If I am right, gold, silver and the miners will soon rally back above their 200 dma…and 2017 will be a banner year.
And no…I don’t believe a strong USD will matter…much (we’ll cover that going forward)
Until next time, thanks again for reading…