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Gold and Trump: A New Bull Cycle

Published 01/23/2024, 12:16 PM
Updated 02/07/2024, 08:50 AM

Gold, silver, and the miners are off to a rough 2024 start, but could that be about to change?  The answer is: yes.

XAU/USD Daily Chart

I outlined $2010 in the cash market as the price for aggressive buyers to focus on.

So far, the buy looks good.

Gold Daily Chart

Another look at the daily chart. This is a futures chart, with my key 14,7,7 series Stochastics oscillator highlighted. Note the buy signal coming into play in the oversold zone.

Nobody needs to be a Trump worshipper to be horrified by the hideous ramp-up in US government debt and murderous wars that have occurred with Biden as president.

Ukraine is a wasteland, Gaza is worse, and here’s the bottom line:  Americans like winners as much as they like apple pie…and it’s obvious that Biden is a loser.

What would Trump mean for the stock market and gold?

Barron’s writer Al Root notes that the “Magnificent Seven” stocks account for a staggering 65% of the SP500’s performance. He also is aware of “PEG” ratios.

I’ve cautioned gold bugs who like shorting the US stock market to be aware of the huge hedge fund focus on the “Mag 7” PEG ratios. The PEG ratio is a company’s price-to-earnings ratio divided by its earnings growth. 

By the traditional PE ratio measure, the US stock market is wildly overvalued, but, as in the years 1999-2001, it’s not until earnings growth collapses that the PEG ratio surges and hedge funds bail.

Trump is unlikely to do much more with tax cuts. He will be more responsible with issuing new debt than war worshipper Biden has been, but he loves tariff taxes. Tariff taxes are inflationary, negative for the dollar, and good for gold.

Earnings growth (the key catalyst for the PEG ratio in an overbought market) is likely to continue its slow death march towards the abyss, but my suggestion (for now) is for most investors to focus on big stock market price sales to buy, rather than shorting the market.

The US stock market needs an earning growth collapse catalyst before it can crash, and Trump is not likely to be that catalyst.

Dow Jones Weekly Chart

The stock market is in a sell zone, but it’s a profit booking zone more than a top call zone…until the PEG ratios begin to surge.

GDX Daily Chart

What about Trump and ultimate money gold?  Well, this is where it gets interesting. Here’s a look at the miners (basis GDX (NYSE:GDX)) from January 2016 to August of that year.

After a rough start in January, GDX almost tripled in just 8 months. Note that the low was around January 20.

GDX Daily Chart

Here’s a look at the GDX action in the election year of 2020, also from January to August.

The corona crisis created an aberration, but there was also a huge rally into August.

GDX Daily Chart

The third “Trump And GDX” chart. Note the fantastic action of the 14,7,7 series Stochastics oscillator.

There’s also a slight bull non-confirmation of RSI with the price.

Sometimes history rhymes, sometimes it repeats exactly, and sometimes what happens is something completely different from what happened in the past.

What can be said about the current situation is that $2010 is a buy zone, albeit for aggressive players (gamblers).  What can also be said is that gold, silver, and the miners have often rallied from January to August during US election years. 

It’s clear that there may be both a loose four-year cycle and an eight-year cycle for the metals market.  It’s also clear that republican administrations have a general tendency to be negative for the dollar, and it’s looking like one will be elected this year.  Gold stocks may or may not be bottoming in line with the Jan 20 area bottom that occurred 8 years ago in 2016.  They may or may not have a swoon into March like they did 4 years ago in 2020. But what can be said is that numerous cycles are converging, and they all suggest that by August the price of gold, silver, and GDX will be significantly higher than it is right now.

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