Trump Lights a Fire Under Precious Metals
President Trump likes things big and gold. And there’s nothing bigger than the rally he’s stoking in the gold and silver markets right now.
I think we can expect more.
To be sure, there are many forces driving gold and silver. But there’s no doubt in my mind the recent rallies we’ve seen in both metals are due to Trump.
It doesn’t matter whether you agree or disagree with him. (And I’m not making a call either way.) What’s plain to see, though, is Trump is adding uncertainty to the market every time he talks or tweets. I call this Trump’s “X-Factor.”
This is making investors nervous. And when they get nervous, they buy silver and gold.
It wasn’t supposed to be this way. I think Trump’s election surprised a lot of people. Not me. I told a boatload of people on a MoneyShow cruise my prediction back in February of last year. And I reiterated my Trump pick in an Investment U article in July.
I can tell you what did surprise me though… the fact that gold and silver took it on the chin when Trump was elected. Both metals flopped as anxiety drained out of the market. Investors thought they had certainty, and they ditched gold and silver to buy the S&P 500.
You could say the stock market experienced a surplus of confidence. That’s because the market completely ignored Trump’s X-Factor.
China’s Seeing Red
Let’s take China for example.
You already know that Trump is talking about slapping sanctions on China for being a “currency manipulator.” This stokes the embers of worry.
Also, Trump likes to talk to the government of Taiwan. This caused the Chinese government to grumble, through the English-language China Daily: “If Trump is determined to use this gambit in taking office, a period of fierce, damaging interactions will be unavoidable, as Beijing will have no choice but to take off the gloves.”
Beijing’s spokesman added, “The Chinese mainland will be prompted to speed up Taiwan reunification and mercilessly combat those who advocate Taiwan’s independence.”
And that’s not the only point of contention.
See, Rex Tillerson, Trump’s nominee for secretary of state, told the Senate that we’re going to stop China from building on the artificial islands it built in the South China Sea.
In building there, China is ignoring the rights of other nations in the area. It’s a naked grab for more than 11 billion barrels of oil that lie underneath those waves, along with at least 190 trillion cubic feet of natural gas.
“We’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed,” Tillerson said in his confirmation hearing.
How do you think China took that news? Its response: “Unless Washington plans to wage a large-scale war in the South China Sea, any other approaches to prevent Chinese access to the islands will be foolish.”
You can see how this might make people on both sides of the Pacific nervous – and make gold and silver more attractive.
NATO Is on Notice
Then Trump knocked NATO, our alliance with Western Europe. He said it was an instrument of German domination designed to beat the U.S. in international trade.
“It’s obsolete, first because it was designed many, many years ago,” Trump said. “Secondly, countries aren’t paying what they should.”
He’s probably right that NATO members could pay more, particularly Germany. The point is, this makes people on both sides of the Atlantic nervous. And that puts another bid under precious metals.
Dollar Looks Toppy
Then last week, Trump said that the U.S. dollar was too strong. He also blamed China for holding down its currency.
Trump said, “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
That sent the dollar into a nosedive on Tuesday. Since gold is priced in dollars, that drop sent the yellow metal higher.
More Fuel for the X-Factor Rally
To Trump’s X-Factor, we can add all the other drivers for precious metals…
We’ve hit “peak gold” and “peak silver.” That means, going forward, mine production is going to go down, not up. The reason is gold and silver are depleting assets. Over time, mines get worked out. And given recent prices, very little money is being spent on exploration.
Meanwhile, in countries with a strong cultural affinity for precious metals – India and China – the middle class continues to grow by leaps and bounds. Plenty of people can afford gold for the first time.
The list goes on. Put it all together, and I think we could see the same kind of rally in precious metals this year that we saw last year.
Last year, through the end of July, gold rallied 27% and silver rallied 46.7%. Mining stocks rallied even harder. But then the steam leaked out of the rally. They compressed, tighter and tighter, even as fundamentals for select mining companies improved.
We could be looking at the same thing this year. You better get on board before the gold rally takes off. The next leg up could be “bigly.”