Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

What Does Trump Mean for Gold Investments?

Commodities / Gold and Silver Stocks 2016 Nov 26, 2016 - 05:04 PM GMT

By: The_Gold_Report

Commodities

The market reaction to Trump's election victory—stocks and the dollar up, gold down—was the opposite of what had been widely foreseen. Money manager Adrian Day takes a look into what happened and why, and discusses the outlook going forward.

At the core of the market reaction are interest rates. Bonds declined sharply on the Trump victory. They had already been falling for the last several months, and the growing conviction of a rate increase in December stepped up the decline. Trump, with his grandiose spending and debt plans, only exacerbated that decline.


But that made U.S. yields attractive (relatively) to foreign investors,

and yield overrode the negative sentiment globally towards Trump. Thus, foreign investors bought U.S. bonds, which drove the dollar up, and pushed gold down (aggravated by massive sales by well-known investors including George Soros, Carl Icahn and Stanley Druckenmiller.

A general distrust turns to specific positives
As for stocks, there had been a general negative attitude toward Trump, and somewhat positive toward Clinton, in the period leading up to the election, as evidenced by market moves after each debate, FBI statement and new poll. When it looked as though Trump might win, Asian stock markets duly sunk, along with Dow futures.

But once Trump was declared the winner in the middle of the night, the general shifted to the specific, and investors started looking at sectors that would be gainers and losers from a Trump presidency. And off of a sudden, there were more stocks that were winners that losers, led by banks and the financial sector (less regulation), base metals (infrastructure spending), oil drilling and drug companies. Given that these sectors had been depressed on fears of greater regulation under Clinton, the rebounds were sharp.

Likely outcomes in the period ahead
All of these moves are likely overdone in the immediate term. But if we look at a Trump administration, we will likely see:

  • Increased spending, including on infrastructure and defense
  • Tax cuts and less regulation
  • Higher interest rates
  • All in the context of continued easy money globally

This suggests a stronger dollar in the near term.

With regard to Yellen's threat for a more "hawkish" Fed to counterbalance fiscal profligacy, we would retort, "I knew Paul Volker, and she's no Paul Volker." We do not expect sharply higher rates, and further out we will likely see higher U.S. debt (already high) and higher inflation (already stirring).

So the outlook a little further out—combined with easy money around the world, stronger Indian demand, possible geopolitical turmoil, and a decline in mine production—will be a higher gold price.

The question for us is, at what point does the near term turn into the further out. We will likely see a stronger dollar (and lower gold) heading into the rate hike, but that could well prove a turning point, as it did last December. We would also add that the withdrawals from gold ETFs are probably overdone, while stock valuations, among both miners and exploration companies, are very favorable.

Some stocks will continue their advance
Stocks could continue to do well for the time being, with the financial and drilling sectors further to go if the promised deregulation takes effect. The base metals are likely ahead of themselves, however. We would agree with Freeport-McMoRan Inc.'s (FCX:NYSE) CEO Richard Adkerson—FCX up from $9.50 to $14 in the past month—that it will take more than Donald Trump to keep copper rallying, specifically a "positive economic situation" in China. (To be clear, I think copper has likely bottomed and the multiyear outlook is very positive based on a shortage of large-scale projects, but the rally over the last month is likely overdone.)

Top buys right now
In the meantime, given the price changes in the markets just in the last several weeks, there are some opportunities to buy some of our long-time core holdings if you do not own them: Nestle SA (NESN:VX; NSRGY:OTC), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). Others at good prices include Lara Exploration Ltd. (LRA:TSX.V). Many of the resource companies, including the senior gold companies and exploration companies, are at good prices and we will be looking to add in coming weeks, watching for additional commodity price weakness or extreme tax loss selloffs.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nestle SA, Franco-Nevada Corp. and Lara Exploration Ltd. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All of the companies mentioned. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules