Where does gold go after Trump?

[Bumble]

In the run-up to the US elections, gold rose when Trump was doing well and fell when Hillary was doing well. People were expecting gold to rise if Trump was elected, but apart from a brief spike, it fell. We're now left trying to understand whether it will fall further or recover.

Bond prices have also fallen recently (i.e. yields have risen) and some commentators are predicting the end of the 30 year bull run in bonds and a further sell off.

I'm struggling to make sense of it all, but I'm holding fast to the following considerations:

1. Interest rates cannot rise very much. The level of indebtedness, whether national, corporate, municipal, or household, is so great that every debtor in the developed world would be bankrupted by higher rates. Rates could rise one per cent or so in the next few years, but not much more. If investors continue to sell bonds, governments and central banks will have to step in and resume purchasing them to keep the rates low.

2. Trump's promised huge increase in infrastructure spending is positive for industrial metals and the shares of construction companies. Because it requires more debt it would normally cause higher interest rates, but as per point 1, this won't happen. Deficit spending would normally tend to weaken the dollar and cause price inflation.

3. The US dollar is the least dirty shirt in the currency laundry. Some commentators are predicting a fall in USD, but it will not fall against EUR, GBP, CAD or JPY, because these are even weaker. It can only fall in its purchasing power, which is to say we are likely to see rising price inflation.

4. Investors seeking yield have been chased out of bonds and into stocks. Stocks are expensive by most measures, such as CAPE, but they are a source of dividends and they are one of the main beneficiaries of QE. Loose monetary and fiscal policy means that CAPE values may never again be as low as they have been historically.

5. Gold is an asset class that competes for investment with the other classes: bonds, stocks, cash, real estate, collectables. No matter how good the fundamentals for gold look, if some other asset class is looking more attractive, investors will rotate into it.

6. Price inflation will not force interest rates to rise. Governments and other debtors need negative real interest rates in order to inflate away their debt.

7. From 2 and 4 it seems that stocks may continue to do well. Especially ones connected to infrastructure. Manufacturers who import from China may get hit by tariffs.

8. From 5, 6 and 7, gold will be pulled in two directions. As long as stocks do well, this will be negative for gold. But rising inflation and negative real rates will be positive.

[sovereignsteve]

Personally I think it's just traders jumping on a trend, along with the many bears who are just relishing the chance to give gold a kicking.

Once the idea arose that Trump might be good for US businesses and stocks, traders exited gold to buy them and everyone jumped aboard.

How long it will last and rational thought resumes, who knows?

 

[HawkHybrid]

4 hours ago, Bumble said:

Bond prices have also fallen recently (i.e. yields have risen) and some commentators are predicting the end of the 30 year bull run in bonds and a further sell off.

 

peter schiff notes this in his podcast.

trump wants infrastructure spending. most likely from

more debt from selling bonds. bond yields are rising in

anticipation.

I think there is a misconception that us bonds are linked

to gold and that the drop in bond prices means lower

gold prices. at some point people will realise that gold is

a better insurance than us bonds and that the dollar no

longer represents gold. physical gold will lead paper gold.

let's see if a buying opportunity emerges that is similar

to the dec 2015 rate rise move.

 

HH

[Cointreau]

Trump has before spoken of returning to the gold standard. What if he's told there's no gold in Fort Knox?

Anyway, the world will continue to de-dollarise. Trade barriers will go up, bond yields will continue to rise, the physical markets in the East will

continue to usurp the Western paper markets. It all looks good to be and I remain bullish.

[Pipers]

IMO we may well be at the end of the deflationary period who knows, one thing is for sure stocks in the US will rise with the Republicans in full power.  There will be deregulation of everything in the USA the Stock market will spike then pop.  

Trump may well devalue the $ to make the USA more competitive this will also boost the stock market, Tarifs in the way of extra VAT may well be put on American owned companies goods that do not bring home there money.  

China owns lots of USA debt and is unwinding that debt both sides will need each other less when the debt gets lower.  The factories in China are a problem for western companies one can already buy the same products but without the brand name on for 25% of the cost that is how much we are being ripped off .  So Trump is quite right to point out to the corporations where is all that money, bring the jobs here and have the money circulating in the local communities.

As for infrastructure there is a lot of work needed in the USA on bridges roads cabling etc.       

[HawkHybrid]

http://uk.advfn.com/news/DJN/2016/article/72906301

 

Quote

"The fact that this selloff happened despite disappointing data in China also highlights just how US focused this selloff is," said Aaron Kohli and Ian Lyngen, a team of fixed-income strategists at BMO Capital Markets, in a research note published Monday.

 

do these people just make it up as they go along?

 

HH

[HawkHybrid]

http://uk.advfn.com/news/DJN/2016/article/72929922

 

Quote

One reason he believes inflation is set to stay low is the nation's $19.8 trillion debt load, which has grown steadily over time. The increase in debt stands to make each dollar go less far in spurring growth, he said. Between 1952 and 1999, it took about $1.70 in nonfinancial debt for gross domestic product to grow by $1. In the year through June, it took $4.90 to do the same, Mr. Hunt found.

 

inflation: if the dollar loses purchasing power

creating goods will be priced in more dollars.

not to be mixed up with growth which have a

side effect of buyers chasing prices higher

until supply catches up.

 

the bond market is the one to watch and

this could get ugly. if america is borrowing

via bonds then who has the capacity to lend

to them? (it's not china).

 

HH