Trump Will Fix It
In my previous post (The Post-Trump Victory Trade), I highlighted a half dozen stocks in which my subscribers and I had positions that had double digit gains the day after Trump's election victory. In response, a commenter wrote, "Well, I didn't like any of those trades, so I will stick to my Gold and Silver.".
As it happened, the day after Trump's victory, was also the day of the "Great Gold Puke", as The Market Ear put it:
All good things...
....must come to an end. Gold is puking, putting in the biggest down candle in forever as it breaks below the short term trend channel. The 50 day comes in around $2635, and the bigger trend line around $2600.
Source: Refinitiv
Why would gold tumble after Trump's victory? Perhaps there's a clue in the Trump campaign's slogan, "Trump will fix it". One of the things Trump will fix is the elevated geopolitical risk the world has seen over the last few years, starting with the Russia-Ukraine War, and extending to the wars in the Mideast between Israel and Hamas, and Israel and Iran, and tensions between China and Taiwan.
Geopolitical Risk Is Already Starting To Ebb
The geopolitical risk premium is a key factor influencing the price of precious metals like gold and silver, as they are traditionally seen as a haven during times of instability and war. Given that, note what has happened since Trump's victory:
- Hamas has called for an end to its war with Israel.
It took about 12 hours after my father‘s election win for Hamas to call for peace! @realDonaldTrump isn’t even president yet and he’s already getting it done. Spectacular. pic.twitter.com/mRaPN2dJs3
— Donald Trump Jr. (@DonaldJTrumpJr) November 7, 2024 - Russian President Vladimir Putin has congratulated Trump on his victory, praised Trump's bravery during the first assassination attempt on him, and expressed an openness toward talks aimed at ending the Ukraine war. Peace between the U.S. and Russia would facilitate peace in the Mideast and elsewhere, given Russia's ties to Iran, China, and other key countries.
- China's President Xi also extended congratulations and an olive branch to Trump.
Chinese President Xi Jinping on Thursday extended congratulations to Donald Trump on his election as president of the United States, urging the two countries to find the right way to get along in the new era. #XinhuaNews pic.twitter.com/PU4UGzgxCK
— China Xinhua News (@XHNews) November 7, 2024
If Trump succeeds in ending the wars in Eastern Europe and the Mideast, and calming tensions across the Taiwan Strait, that would further reduce gold's geopolitical risk premium.
The Deflationary Potential Of Trump's Domestic Policies
You're probably thinking now that even if peace starts to break out, high inflation is baked into the cake because of government spending, and that should boost the price of gold. Consider, though, the deflationary potential of Trump's proposed policies, and those of his close allies.
- Trump's tariffs. Critics of tariffs often point out that they are, effectively, a regressive tax on domestic consumers. This is actually true, and like all regressive taxes, they are deflationary. Just as throwing money and low income Americans boosted inflation during COVID, an effective regressive tax on them would cool inflation.
- Trump's deportations. Deporting millions of illegal aliens--or deporting a smaller number and prompting millions more to self-deport--will have a deflationary effect on sectors such as housing, as there will be fewer consumers competing for the same number of homes.
- RFK, Jr.'s campaign against chronic disease. Every case of diabetes and other chronic diseases RFK, Jr. can prevent with changes to American food policy means a reduction of tens of thousands, if not hundreds of thousands of dollars in health care spending. That would cool healthcare inflation.
- Elon Musk's Department Of Government Efficiency. Elon Musk has spoken about slashing the number of federal employees (something Vivek Ramaswamy pointed out could be done while avoiding Civil Service regulations) and cutting government waste. That would be deflationary too.
Much Of This Is Likely To Happen
We all remember how Trump was stymied in his first term, but he is in a much stronger position now. He won a landslide victory, and is now the undisputed leader of the Republican Party. Plus, he has much smarter, and more competent people on his side now, such as Elon Musk. None of this is particularly good for gold and silver prices.
Taking My Own Counsel
On Thursday, I exited the two gold positions I had, in Orla Mining (ORLA) and IAMGOLD (IAG), as you can see below, in my list of trade exits for this week.
Stocks or Exchange Traded Products
Lantheus Holdings (LNTH 0.00%↑). Bought at $94.84 on 8/16/2024; stopped out at $96.99 on 11/6/2024. Profit: 2.3%.
Orla Mining (ORLA 4.11%↑). Bought for an effective price of $2.90 on 11/17/2023 (I sold $5 strike puts on it for $2.10, and those puts exercised on 11/17/2023); sold for $4.60 on 11/7/2024. Profit: 59%.
Options
Call spread on Super Micro Computer (SMCI -9.10%↓). Entered at a net debit of $0.33 on 11/4/2024; will expire worthless on 11/8/2024. Loss: 100%.
Call spread on Advanced Micro Devices (AMD -0.05%↓). Entered at a net debit of $1.65 on 10/9/2024; expired worthless on 11/8/2024. Loss: 100%.
Calls on IAMGOLD (IAG 0.96%↑). Bought for $0.75 on 10/8/2024; sold (second half) for $1.15 on 11/7/2024. Profit: 53%.
Calls on Emergent BioSolutions (EBS -0.09%↓). Bought for $2.05 on 8/30/2024; sold for $4.10 on 11/7/2024. Profit: 100%.
Call spread on TG Therapeutics (TGTX 2.33%↑). Entered at net debit of $0.33 on 8/30/2024; exited at a net credit of $0.94 on 11/8/2024. Profit: 184%.
Call spread on Tesla (TSLA 9.19%↑). Entered at a net debit of $1.63 on 4/8/2024; exited at net credit of $4.74 on 11/8/2024. Profit: 191%.
Call spread on Innodata (INOD 31.81%↑). Entered at $0.33 on 8/13/2024; exited at $0.97 on 11/8/2024. Profit: 194%.
Call spread on Powell Industries (POWL -2.81%↓). Entered at a net debit of $1.60 on 8/13/2024; exited at a net credit of $4.75 on 11/7/2024. Profit: 197%.
Calls on Travelzoo (TZOO -2.69%↓). Bought at $1 on 7/23/2024; sold (half) at $8.30 on 11/6/2024. Profit: 730%.
The Post-Trump Victory Trade We're Buying Now
Trump's victory means China is going to have to stimulate its economy more aggressively (because it won't be able to export as much to the U.S. with Trump's tariff).
"Donald Trump’s second US presidency is likely to prompt aggressive China stimulus" - Devan Kaloo, global head of equities at abrdn https://t.co/hVPBus1Bde
— zerohedge (@zerohedge) November 7, 2024
That stimulus will boost companies doing business in China's domestic market. One of those companies hit our top ten names last night, and my subscribers and I placed a trade on it today.
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