November 2024 - Week 1 Edition

Trump’s Historic Sweep Helps Unify America – But Causes a Gold Correction

Gold has acted more like a crisis hedge than an inflation hedge this year, rising in the face of a strong dollar and rising long-term interest rates. This goes against market expectations but gold has corrected after the surprisingly strong win of Donald J. Trump in both the popular and electoral college vote. He will likely have over 300 electoral votes when all are counted vs. under 240 for Kamala Harris.

Trump’s almost five million popular vote margin is the first popular vote victory for a Republican since George W. Bush’s second term win over John Kerry, and that was only by a three million vote margin. The Senate will deliver at least a 52-seat Republican majority and could reach 54-46, with some House races taking a week to count. Republicans will likely retain control of the House too, giving them the same sweep Trump enjoyed in 2017-18, when he and his team passed the Tax Cut and Jobs Act, which would have automatically expired at the end of 2025. Now, with a Republican sweep in Congress he can extend those bullish business tax rate cuts.

As Steve Forbes and I predicted, gold exceeded $2,500 this year. However, he also believed it could go much higher “if the wrong people win the election,” but the reverse was also true. Gold is an insurance policy against bad government, inflation and global crises, so the massive vote of confidence in Trump and Republican Congressional candidates implies the opposite – a less oppressive central government, more stability, fewer wars overseas, lower inflation and probably lower deficits than if the Democrats controlled two (or all three) of the centers of power in Washington, DC. That left investors feeling bullish about business investments and they took their profits from golds recent runup and shifted it to stocks in overnight trading.

Just before 9:00 pm EST on Tuesday, when most polls and the bulk of states and electoral votes became known, the Presidential race seemed even, and gold on the futures market (December contract) was trading at $2,757 per ounce. That was near an all-time high, trading on the election uncertainty that still remained, but gold began falling right after 9:00 pm and dropped $40 per ounce by 1:47 am, when the race was essentially over, and Trump was declared the winner. Gold kept declining overnight as wins mounted in Congressional races. Gold bottomed at $2,660 – almost $100 lower – before recovering to $2,675 in mid-afternoon on Wednesday.

Silver mirrored gold’s decline, with the December contract trading at $32.80 at 9:00 pm Tuesday, then falling to a low of $30.94 by Wednesday morning and later recovering to $31.35.

This is clearly a “honeymoon” period for Trump and the Republican majority but the world will not magically end all wars by January 2025, nor will the new Congress find some magical way to balance the budget within a year or two.

This initial gold decline is caused by traders with itchy thumbs wanting to “do something” in reaction to the election, so they switch from gold to stocks but that’s just one day. Stocks will correct and gold will rise again. I’d say we will likely see a strong recovery in gold and silver next year, when the reality of global crises and domestic challenges confront the Trump team.

In the meantime, we celebrate this miraculously revived President, who has been under full-scale attack for nine years, to become the first candidate to gain non-consecutive victories since Grover Cleveland in 1892. Cleveland, by the way, was the only Democrat to win the presidency between the Civil War and Woodrow Wilson in 1912 – a 50-plus year period.  Sadly, for Cleveland, as soon as he took his second oath of office in March 1893, the Panic of 1893 set in, putting a cloud over his entire second term. This opened the way for a huge Republican landslide in the 1894 mid-term elections – similar to the Republican Revolution of 1994. There were then two big wins by the “gold bug” movement that swept Republican William McKinley to two straight victories.

This time around, there will likely be no “panic” recession or depression but reality will set in and, when that happens, we can expect gold and silver to revive again. When it does, we should see $3,000 gold in 2025 and silver well over $40, due to the chronic difficulty of cutting spending, lowering the federal debt, containing inflation and achieving less global turmoil, despite the apparent clean sweep by Republicans in 2024.

October and Year-to-Date Market Summary

October was another good month for gold and silver, as they continued to be the best-performing asset classes for investors in the first 10 months of 2024 – including all major commodities, stocks and bond groups – as reported by the Bespoke Investment Group on October 31:

These gains are measured by their ETFs, which specialize in those investments, namely GLD for gold and SLV for silver, with financial stocks (XLF) rising in October. This is in reaction to the rapidly rising long-term interest rates (the 10-year and 30-year Treasury bond rates), which tend to fatten banking profits. The benchmark 10-year rate rose from 3.62% on September 16, just before the Federal Reserve met to CUT short-term rates, to 4.28% at the end of October, shooting up to 4.45% early on Wednesday morning, November 6, on fears the Trump tariffs might be re-ignited inflation in 2025.

Precious metals led stocks by a wide margin – both in October and for the first 10 months:

Gold and silver fell sharply following the Trump/Republican sweep in Tuesday’s elections on the good news that the economy will be in relatively sound hands the next four years. Gold is a crisis hedge and portfolio insurance, so most investors should rejoice when gold corrects, as it reflects a safer world, a more hopeful economy and better financial performance across the board. The Republican sweep also sent the stock market indexes up sharply, to new highs. However, we should also be realistic, that this Republican honeymoon can’t last forever, and they will face several roadblocks to reducing deficits and inflation, promoting free trade, lowering taxes and once again reducing global turmoil.

This is the big domestic challenge Trump faces:

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