Originally published by Chamber of Merchants
Note: Since writing this report, FBI director Comey has release a letter which clears Hillary. Gold has pulled back below $1295 on the news. I expect it to grind back above $1300 by tomorrow but who knows what else will happen politically between now and then...
The U.S stock market has suffered in longest decline since the 1980’s:
It’s not the biggest decline, but it is the longest decline and I believe we’re about to hit 10 days which would be the longest decline since the 1960’s according to Bloomberg. If you look at the last candlestick above, you’d notice that a bounce was underway on Friday, which completely failed to hold. I don’t believe that today or tomorrow will be any different unless some news surfaces to improve Hillary Clinton’s position.
Gold and Safe Haven Assets
There is a portion of Gold, Yen and Bond purchases that are short term, little more than a hedge against the election outcome. However, the buying pressure and support commenced while Hillary Clinton was still experiencing a large lead in the polls. As the polls became more contentious, the gold purchasing gained momentum as the U.S. dollar became weaker on uncertainty.
Gold Day Chart November 2016
The next trading channel for gold is beyond $1308, probably somewhere around $1320-$1350. I don’t see it remaining sideways into the election. As the dollar sell-off continues gold must go up.
However, from a Merchant’s Perspective, I expect that the obvious trades will not occur sustainably. So we all need to be careful to make basic assumptions. I believe there is a portion of the big money and smart money that have access to more accurate polls and early vote numbers. If they have better information, they will make better decisions and that part is out of our hands. However if you happen to be on the side of the banks and funds then you’ll make money with them, as well as vice versa.
I will soon post an article explaining that there are probably 4 outcomes of the election.
[UPDATE: Director Comey has released a statement that Hillary Clinton will not be charged after having review the 650 thousand emails since last week. This has caused gold to gap down as traders runs for the exits… It should be up around $1300 soon enough again since we’re still 2 days away from the election outcome.]
Market Crash? No. Sector Rotation.
Look, if Hillary Clinton wins, we will see a resurgence in the sectors that have recently dipped. We’ll see a pull-back in the gold price since the U.S. Dollar will rally temporarily until the market realises the Federal Reserve has an interest rate and growth problem of their own.
However, in the event of a Trump win, I see many headlines suggesting that the market will crash and that gold will skyrocket and …basically the apocalypse. From a Merchant’s perspective I view that as a very emotional, sensationalist and exaggerated approach primed to get more clicks on articles.
I see a slightly different story.
There will be some weakness in the U.S. Dollar. There will be uncertainty. But funds will soon return to the market and be injected into the areas that are going to benefit from a Trump government. That means that while some sectors will have funds being pulled out (health comes to mind due to demolishing Obamacare), other sectors will experience an injection of investment. According to Trump he’ll be directing the billions of dollars away from the United Nations and rather invest that money in infrastructure. So one can expect civil, construction etc to start a new bull trend under a Trump government. Retail will receive a major boost as taxes are cut and capital investment increases.
Remember, in the medium to long term, Donald Trump’s policies will be pretty beneficial for the United States. The stock market will arrange itself to adapt and make money in whatever way is possible.
Inflation will also start to overshoot with lower taxes, so the structural issues with regard to the bond market and low interest loans will create medium term issues as the Fed might be forced to raise rates 12-24 months from now. (I’m guesstimating here)
So stock market crash in a Trump Victory?
No.
Short term corrections maybe, but not a bear market crash. Funds will simply rotate out of some sectors and direct into other sectors that will benefit from the new government. This may take weeks or months to occur as Trump’s policies get announced and passed/knocked by congress.
The next 3 days
Look, it’s not going to be smooth sailing. I can assure you.
Precious metals will certainly benefit from the next 3 days as will other currencies such as the Euro and Yen. ( Ha, I’m not even a forex trader but gold goes hand in hand with forex so go figure…)
Whether that will translate to higher gold and Silver stock prices will have to be seen.
Other stocks may suddenly appear overvalued when viewed through the lens of a new America, so I don’t see myself confidently investing in anything else beside junior gold and silver miners for the time being. Crude Oil is on the fritz, so I’m not even interested. (Unless for some reason the U.S has a war on its hands with [insert name] )
You will need to read my next post to understand more about the outcome following the elections, so don’t miss out on that.
The Australian stock market, Asian, Euro zone and U.S. will most likely continue its pull-back as fund managers literally withdraw from their positions.
They don’t want to get caught off guard: Remember they report to their shareholders… They can’t bet pension funds etc on a hunch of who will win the election. That is why I believe that immediately following the elections you’ll see a rush for the sectors that will benefit from whichever candidate wins.
Conclusion
As a Merchant, I never purchased precious metals producers for the sake of the elections. Yes, the uncertainty does benefit my portfolio, but this is short term play.
Your guess is as good as mine with regard to who wins. From watching the polls the race looks like it’s in favour of Hillary, but watching the rallies it looks like Trump has some major grass-root support and that is probably being under-reported by the media
Trade Choices:
- I could sell out just prior to the election result to lock in any potential gains. Not the Merchant way. If Trump wins I would miss out much of the gains of a gold rally, being sorry that I was eager to keep pennies but lose the pounds.
- I could hold on to my positions, but if Hillary wins then the Dollar will rally a final time and gold will pull back temporarily. I can handle that, but some can’t. As I said before, I entered gold due to the structural economic issues which are in gold’s favour. Those issues should keep gold on a bull trend for the next 2-4 years depending on U.S. policies etc.
My Decision:
I’ll hold my positions in gold and silver and ride out any drawdown with the upside possibility that I may benefit from a major rally in the event of a Trump Victory.
There is actually so much depth here, so many different time frames etc… Worthy of an entire weekend workshop. But alas, I have only this meagre post to offer you on this Monday morning.
Look for Dollar/ GBP / Euro trends and you’ll be able to work out the short term gold trend from there.
Maybe we’ll see the $1320-$1350 mark by Tuesday. I can’t say for sure, but it’s a logical and reasonable extension of the previous #Brexit build-up.