Gold is down $80/oz to $2,653/oz and Silver $1.64/oz to $31/oz, following a decisive win by Republican U.S. presidential candidate Donald Trump. The presidential race was not as close as expected and the process won’t be in dispute. This is prompting the unwinding of safe-haven long-gold trades. The dollar is up sharply to 105 on the DXY index and higher Treasury yields of 4.47% are also bearish for gold.
Gold’s decline today is a knee jerk reaction to the Trump victory. The long-term issues that the US faces with $36 trillion in debt, hundreds of trillions of unfunded liabilities, and chronic overspending remain, and will likely intensify over the coming months and years.
Last time Trump was President, Gold rose 67% from $1,200/oz to $2,000/oz from November 2016 to November 2020. This is an annualized 14% per year.
A Trump victory will ultimately be bullish for Gold. Trump loves debt. He built his real estate empire using debt and will do the same to jump start the US economy. Last time Trump was President US public debt rose $7 trillion or 35% during his term. If he spends like last term we could expect to see US debt rise from current $37 trillion to $49 trillion in 4 years.
Foreign holdings of US treasury debt have declined from 37% in 2010 to 15% now. China, Russia, and Japan have decided they are not being compensated for inflation and loss of purchasing power due to endless US spending. Central Banks around the world are selling their dollar denominated US treasuries and are buying real assets like Gold. Gold has been a store of value for 1,000’s of years. Gold holds up much better than US dollar denominated paper assets when a Country faces an overspending crisis like the one the US is in now.
You can be sure the overspending and deficits will continue. Neither Trump or Harris even mentioned cutting spending or reducing the deficit during their campaigns. A return to fiscal austerity is not even on the table. Both parties have embraced Modern Monetary Theory (MMT) created by Stony Brook Economist Stephanie Kelton. MMT states deficits don’t matter because the government can print as much as they want. The increased debt simply produces economic growth with no link to inflation. MMT allows both parties to spend as much as they want because it is “good” for the economy. It’s a politician’s dream scenario.
I’m happy to see the Gold market cool off here for a bit. Low grade worthless lifestyle miners have been pushed higher by a speculative frenzy. These inferior gold and silver companies are entirely dependent upon a higher gold price to create any value. They will be hit hard, falling ever closer to their intrinsic value of zero.
GP seeks Gold and Silver companies that can increase shareholder value regardless of the gold price. Miners can improve recoveries to boost profits or add reserves to extend life of mine, developers can prioritize high grade ounces up front and lower capex to boost total project worth, explorers can create hundreds of millions of worth with a single high grade drill hole. GP finds these value creating, shareholder aligned, companies that represent quality opportunities at the right price. GP members should hold up much better vs the Moose Pasture long shots. As of this writing, at 10:30AM the GDX is down -3.09%, while the GP is down only -1.45%. So far YTD the GP is up 35.49% crushing the GDX ETF only up 25.35%.
In fact, the newest member of our GPIV portfolio is bucking the trend, trading 4% higher today. When you buy quality assets at a significant discount to fair value the only way is up.