Gold After Trump Wins / Commodities / Gold & Silver 2024

Gold has sure had awild ride in the several weeks since the US elections!  It first plunged then surged after Trump’sdecisive victory, which surprised legions of traders.  Gold’s earlier big down days helped fuelfears another Trump administration is bearish for gold.  Its poor performance after Trump’s first wineight years ago buttresses that case. But that’s probably not predictive in today’s wildly-differentenvironment.

On Election Day 2024,gold closed at $2,743.  That was just1.5% under its latest nominalrecord high achieved four trading days earlier.  But the next day when Trump’s big win wasalready apparent, gold plunged 3.0%. That was its worst day by far since a 3.6% plummeting in early June on ahuge US-jobs upside surprise, which in turn was gold’s biggest daily loss in3.6 years.  Then more post-electionselling came.

By Friday the 15theight trading days later, gold had plunged 6.6% since Election Day.  That extended its total selloff since lateOctober to a big-and-sharp 8.0% pullback.  Bearishness flared on that, and I heard fromplenty of newsletter subscribers worried gold was following thepost-2016-election script the last time Trump won.  That’s understandable and certainly worthconsidering, as gold didn’t fare well eight years ago.

On November 8th, 2016,Donald Trump beat Hillary Clinton to become the 45th president of the UnitedStates.  He won 304 electoral votes toher 227, but lost the popular vote 46.1% to 48.2% with 63.0m Americans electinghim.  Gold closed at $1,276 that ElectionDay, then suffered sizable selling in its wake. Eight trading days later, gold had fallen 5.2%.  And selling continued from there, hammeringgold much lower.

By late December 2016just over six weeks after Trump’s win, gold had fallen 11.5% in that span.  That extended a larger correction since earlyJuly that year to 17.3%, threatening new-bear territory.  Gold did start recovering from there ratherthan rolling over more, but a year later well into Trump’s first term it hadonly eked out a 0.4% gain since elections. The leading GDXgold-stock ETF slumped to a 4.5% annual loss.

Considering thishistory, and gold initially tracking 2016’s post-election precedent afterElection Day this year, it’s easy to see why plenty of traders are worriedabout gold’s fortunes under Trump’s second term.  But this superficial analysis ignores thebroader context surrounding gold’s moves. Gold’s price action largely results from several major driversinteracting, and today’s setup is wildly-different from eight years ago.

Gold’s two dominantprimary drivers are speculators buying and selling gold futures and investors’capital inflows and outflows.  These twogroups of traders have very-dissimilar focuses and time horizons.  Gold-futures trading allows crazy-extreme leverage, running as high as 22.9x mid-week! At those levels a mere 4.4% gold move against positions wipes out 100%of capital risked, forcing an ultra-myopic worldview.

Those guys can’t affordto be wrong for long, so they only care what gold is likely to do in hours,days, or maybe weeks.  Gold-futuresspeculators watch the USdollar’s fortunes for their main trading cues, then usually do theopposite.  They tend to aggressively buywhen the dollar weakens substantially, and rush to sell on material dollarstrength.  Gold futures’ huge leveragegives them proportionally-outsized gold influence.

At 23x, every dollar tradedin gold futures has 23x the price impact on gold as a dollar investedoutright!  So though the overall capitaldeployed in hyper-risky gold futures is quite small, it punches way above itsweight.  Specs’ gold-futures tradingoften proves the tail wagging the gold-price dog, influencing how eveninvestors view gold’s prospects and thus their capital flows.  Investors naturally have far-longer timehorizons.

While spec gold-futurespositioning is reported weekly, comprehensive global gold fundamental data isonly published quarterly by the World Gold Council.  But the combined holdings of the mightyAmerican GLD and IAU gold ETFs, which dominate global ones backed by physicalgold bullion, are often a good proxy. The WGC’s latest Q3’24 data revealed GLD and IAU command 39% ofthe world’s gold-ETF bullion!

So understanding howgold fares after Trump wins not only involves its prices, but specs’gold-futures trading on both the long and short sides, the benchmark US DollarIndex’s fortunes often driving that, Fed-rate-trajectory expectations whichfuel material dollar moves, capital inflows and outflows into GLD and IAU asevidenced by their gold-bullion holdings, and gold’s degree of overboughtnessand oversoldness!

I’ve been racking mybrain trying to coherently distill all that into a pair of charts covering eachTrump win, but failed to figure it out. So rather than risk getting bogged down in a half-dozen-plus charts, I’mgoing all-text this week.  For ourpurposes today, the high-level interaction among all these key gold drivers ismore important than their individual detail. Gold’s setups surrounding both elections couldn’t be more different.

Back in early July 2016four months before Trump’s first win, gold had blasted to $1,365 for the firsttime ever.  That was driven by acombination of spec gold-futures buying on a weakening USDX and American stockinvestors buying GLD and IAU shares faster than gold was being bought.  Gold’s strong run then included an enormous4.8% up day, and stretched gold to extremely-overbought levels 1.152x its200dma!

Speculators were all-ingold futures, holding 440.4k long contracts which was then a record!  Their shorts were very low too at100.2k.  Since gold-futures trading is soincredibly-risky, the traders and capital in that realm are very finite.  Once spec gold-futures positioning grows tooextreme, major mean reversions back the opposite ways are inevitable.  So huge gold-futures selling hit both beforeand after 2016’s elections.

Again speculators’gold-futures contracts held are reported weekly.  Huge moves in longs or shorts start at 20kcontracts in a single week.  In early andmid-October 2016, total spec longs plummeted 33.0k and 42.0k contracts!  Then in mid-November in the week immediatelyafter Trump’s first victory, spec longs cratered an even-huger 45.9kcontracts!  That epic longliquidation was fueled by a surging US dollar.

The USDX blasted up3.4% in the eight trading days after 2016’s elections, a big move for theworld’s reserve currency.  Traders wereflocking to the US dollar because the Fed was increasingly signaling it would soonresume its interrupted rate-hike cycle. Back in mid-December 2015, the FOMC had hiked rates for the first timesince way back in June 2006, finally slaying its 7.0-year-oldzero-interest-rate policy!

Then Janet Yellen wasrunning the Fed, a lifelong Democrat partisan. And the Fed is overwhelmingly Democratic, with over 90% of itscurrent 400+ PhD economists registered Democrats!  Fed officials prize central-bank independenceabove all else, and Republican lawmakers have questioned that over the years.  So Yellen held off on hiking rates again foran entire year, trying to boost Clinton’s odds of winning in 2016.

Trump’s first win that Novemberwas considered one of the biggest political upsets in US history, withway-lower expectations he’d pull it off than in 2024.  Once he prevailed, the Fed no longer had toworry about how rate hikes would affect voters’ perceptions of the US economy withDemocrats in power.  So Yellen and crewhiked rates a second time in that cycle in mid-December 2016, telegraphing thatsince elections.

That Yellen Fed wouldhike three more times in 2017, then another four in 2018!  Gold was staring down the barrel of a majorFed-rate-hike cycle after Trump’s 2016 win. Traders really worried about that, despite the fact gold thrived through hikingcycles historically.  After thatelection, Republicans regaining power unleashed the Democratic Fed to hikeaggressively.  Thus investors fled goldalong with gold-futures specs.

Between gold’searly-July-2016 peak and Election Day that year, GLD+IAU holdings stayed verystable merely edging 1.2% lower to 1,180.7 metric tons.  American stock investors weren’t worriedabout that paused Fed-rate-hike cycle with Obama still president and Clintonuniversally expected to win.  But oncethe underdog Trump prevailed, rate-hike fears exploded given the Fed’shistory of political monetary policy.

So from Election Day tothe Fed’s second rate hike of that cycle in mid-December, GLD+IAU holdings suffereda major 11.4% or 134.9t draw! American stock investors were selling gold-ETF shares way faster thangold itself was being sold.  That forcesgold-ETF share prices to decouple from gold’s to the downside, failing theirtracking mission.  So ETF managers sellgold bullion to use the proceeds to buy shares.

That sops up excesssupply, keeping gold-ETF prices mirroring gold’s own.  Investors’ frightened exodus from goldstarted just two days after Trump’s first win, when GLD+IAU holdings suffered aseries of big 1.4%, 1.1%, and 1.0% daily draws!  Those persisted with a 1.2% one in late Novemberand another 1.4% one in early December. Selling begets selling, driving gold lower multiplying worriestriggering more selling.

Interestingly the dustdidn’t settle on American stock investors fleeing gold until late January 2017,when the total GLD+IAU-holdings draw since Election Day extended to 15.5% or183.3t!  Specs aggressively dumpedgold futures in that span too, with total longs collapsing 89.2k contractswhile total shorts climbed 24.5k.  Butagain all that centered around Fed-rate-hike expectations and a resultingsurging US dollar.

Higher rates arebullish for the dollar because they increase yields on dollar-denominated bondsrelative to major-currency competitors. Between Election Day 2016 and just after the Fed’s second hike of thatcycle in mid-December, the USDX blasted 5.3% higher!  The gold action after Trump’s first winresulted from the Fed’s first rate-hiking cycle accelerating after sevenlong years of ZIRP, it wasn’t a Trump thing.

Fast-forward eightyears, and top Fed officials are again waxing way more hawkish than they were amonth ago when traders generally expected Harris to win.  The Democratic Fed is way more likely to holdrates low or cut during Democrat administrations, and way more likely to keeprates high or hike during Republican ones. So the expected Fed-rate trajectory has again shifted since Trump’ssecond win this month.

According to bettingmarkets, Trump’s odds of winning in November 2024 hit their low ebb around lateSeptember.  That’s also right when the USDXslumped to a 14.2-month low of 100.4.  Inthe middle of that month, futures implied traders were expecting 110 basispoints of Fed rate cuts in the rest of 2024 along with another 126bp next year!  That was nine-plus 25bp rate cuts overeleven FOMC meetings by year-end 2025.

In mid-Septemberleading into elections, the political Fed not only executed its first rate cutin 4.5 years but made it a crisis-level50bp one!  That outsized cut certainlywasn’t justified economically, but it would goose stock markets.  When they rally in the final few monthsbefore voting, Americans feel better about the economy really upping the oddsthe incumbent party will retain the presidency. So a cutting cycle was born!

Yet as Trump’sbetting-market odds of winning again surged in October, so did the USDX.  In just a month out of those lows, it soared4.0%!  The main reason was if Trumpmanaged to pull off a victory, the Democrat-dominated Fed was less likely to cutrates as aggressively.  It certainlywouldn’t start hiking, but it could dramatically slow its new rate-cutcycle.  So expected Fed rate cuts alreadycollapsed by Election Day.

They ran 39bp more in2024 on top of that maiden 50bp cut, followed by another 66bp in 2025.  That was the equivalent of just six 25bp cutstotal, down by over a third since Harris’s chances of winning lookedhighest!  The FOMC cut another 25bp twodays after this year’s elections, but this week only 71bp more cuts were pricedin by year-end 2025 on top of the 75bp so far. That makes for 146bp total, a massive drop.

Again back in lateOctober, fully 236bp of cuts were priced in over that span!  So though gold certainly isn’t facing anaccelerating rate-hike cycle like eight years ago, it is definitely contendingwith fewer cuts driving the dollar higher. That more-moderate rate trajectory under Trump than had Harris wonreally amplified dollar buying after 2024’s results were in.  Trump’s second victory proved way moredecisive.

He had already won themorning after Election Day, securing 312 electoral votes to Harris’s 226.  Trump also won the popular vote 50.0%to 48.4%, with a way-higher 76.9m Americans selecting him to be the nextpresident!  That surprised so manytraders the USDX soared 1.6% higher the day after elections this year, itsbiggest up day since March 2020’s pandemic-lockdown stock panic!  That’s why gold plunged 3.0%.

One of gold’s biggestdown days in years right after Trump won again kindled all these 2024-to-2016gold comparisons.  And there are someparallels.  Gold had just surged toextremely-overbought levels way up at 1.183x its 200dma in late October.  And spec gold-futures longs had soared way upto a near-record 441.0k contracts in late September, a hair over July 2016’sextremes.  So gold was overdue foranother selloff.

I warned about thisextensively before the elections, even dedicating an entire essay to gold’s high selloff risk in early October.  With gold soexceedingly-overbought and spec gold-futures longs so extremely-overextended,we ratcheted up the trailing-stop-loss percentages in our newsletter gold-stocktrades to lock in more of our big unrealized gains.  A sizable-to-big gold selloff was looming withor without elections.

Interestingly enormousgold-futures mean-reversion long dumping erupted the week before elections,when specs jettisoned a colossal 30.6k longs! That ranked in the top 3.1% of all weeks since early 1999.  Yet in the week immediately following Trump’ssecond win, specs’ gold-futures long selling was almost cut in half to 16.4kdespite gold’s huge 3.0% down day.  Theweek after, long selling moderated again to 11.3k.

Two weeks ofspeculators’ gold-futures-positioning data has been reported since 2024’selections, with 27.7k longs sold.  Thefirst three weeks after 2016’s saw a way-larger 65.6k dumped!  So speculators are not fleeing gold futuresanywhere near like they did eight years ago. And they shouldn’t, as no rate-hike cycle is looming.  While the expected pace of cutting hasmoderated, we’re still in a young Fed-rate-cut cycle.

At best since ElectionDay, the USDX has surged 3.9% as of last Friday.  That’s right in line with the 3.8% eightyears ago over a similar post-election timeframe.  Yet not only has specs’ gold-futures sellingbeen way smaller, so has investors’ according to GLD+IAU holdings.  Following Trump’s second win, there was asix-trading-day streak of draws.  Butthey were small, 0.3% at worst with all totaling just 1.0% or 13.1t.

Again after 2016’s elections,GLD+IAU suffered major daily draws as big as 1.4%.  In the first six trading days after Trump’sfirst win, they had already plunged 3.8% or 44.3t!  And that mass exodus from gold-ETF shareswith Fed rate hikes threatening would continue. By 16 trading days later which is where we are mid-week today, GLD+IAU holdingshad collapsed 9.3% or 109.8t after November 2016’s Election Day!

Investors weren’tfleeing because they were worried about Trump’s tax cuts or tariffs, butbecause they knew the Democrat-dominated Fed was likely to aggressively hikerates with a Republican administration bearing the consequences.  This time around all they have to fear isslower cuts, not hikes.  So stunningly inthe comparable 16 trading days after 2024’s elections, GLD+IAU holdings have actuallyfully recovered.

Since Trump’s secondwin, GLD+IAU holdings have edged up 0.3% or 3.6t!  That’s a stark contrast to the huge draw bythis point after his first win.  On theseventh trading day after these latest elections, GLD+IAU holdings buildsresumed on differential buying.  That initiallystarted on the IAU side, which professional institutional investors tend tofavor over GLD due to IAU’s lower annual percent-of-assets fees of 0.25%.

While GLD is over twiceas big and way more popular, it charges 0.40% per year.  So gold investment demand quickly recoveredand resumed climbing this month with Trump 2.0 nearing, despite similarbig US-dollar gains as eight years ago!  Thispsychological environment for gold is way different looking at slower rate cutsthan fearing a looming hiking cycle. Gold’s powerful bull-market upleg remains alive and well.

Despite 2024’s sharppost-election pullback that was overdue anyway, gold again merely retreated8.0% at worst.  That cut away all gold’sextreme overboughtness, dragging it back from 1.183x is 200dma in late Octoberto just 1.071x at its nadir on the 15th! Since then gold has bounced 5.7% higher at best in a sharp recovery.  Mid-week it was down 3.9% since elections, comparedto 8.1% at this point eight years ago.

Trump returning is actuallyquite bullish for gold, even without more Fed rate cuts.  He wants to extend big tax cuts from hisfirst term and pass new ones.  Americantaxpayers having more money to spend will increase inflationary pressures,bidding up prices on goods and services. And big tariffs on imports will also force prices higher before supplychains adjust, which can take years. Higher inflation is bullish for gold.

Given thesewildly-different setups leading into Trump’s first and second terms, it’s prettyirrational to worry gold’s post-2024-elections price action will followpost-2016-elections’ precedent.  Therecent gold selling has already proved short-lived, and offers a greatopportunity to load up on bargain gold stocks. They got sucked into gold’s post-election selloff, yet have epicfundamentals as they achieveall-time-record profits!

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The bottom line is gold’s behavior after Trump’s second win hasalready proven nothing like after his first eight years earlier.  Back then the Fed was ramping up its firstrate-hike cycle in about a decade, driving the US dollar higher and hittinggold.  That helped fuel a mass exodus byboth gold-futures speculators and American stock investors, pounding gold muchlower.  That setup was wildly-differentthan today’s.

Rather than hiking, the Fed is now engaged in a young cuttingcycle.  While the rate-cut pace willlikely be slower under Trump, that’s still a far cry from hiking.  So spec gold-futures selling has been waysmaller since elections.  And Americanstock investors quickly resumed differential gold-ETF-share buying afterinitial kneejerk selling, leaving GLD+IAU holdings higher since ElectionDay!  Gold’s Trump-2.0 outlook isbullish.

Adam Hamilton, CPA

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