Is It Really Time To Dump Gold?

Posted On Nov 11, 2016 By Dave Gonigam

  • Billionaire says no more reason to own gold…
  • … but is the “crazy stuff” he cited last year really over?
  • S&P sectors go in and out of fashion at warp speed
  • Requiem for TPP — the “trade treaty” that was anything but
  • Mattress Mack’s $10 million election payout… a few final words about the Trump trade’s unfortunate timing… reader demands that we “lay off” the new president… and more!

“I sold all my gold on the night of the election,” Stanley Druckenmiller told CNBC yesterday.

“All the reasons I have owned it for the last couple of years, it seems to me they may be ending.”

Druckenmiller, as you might know, was once George Soros’ right-hand man. His hedge fund made an average 30% a year for a quarter century until he closed it in 2010.

How things change: In the summer of last year, we took note of the quarterly 13F disclosure form Druckenmiller filed with the federal government. It revealed that 22% of his publicly traded securities were tied up in the SPDR Gold Trust (GLD). The previous quarter, he had no gold position at all.

Have “all the reasons” Druckenmiller bought gold 18 months ago really changed?

In January of last year, he spoke to a group of money managers in North Palm Beach, Florida — effectively revealing why he would load up on gold in the months that followed: “Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us [in the 2008 financial crisis] and enabled those bad actors to do what they do…

“This is crazy stuff we’re doing. So I would say you have to be on alert to that ending badly.”

Since that speech, the Federal Reserve has performed one puny interest rate increase… and it’s on track to do one more next month. Beyond that? The Fed’s No. 2 man Stanley Fischer admitted just this morning that rates will plateau at levels below historical norms. If he cops to that much, it means rates will plateau at levels far below historical norms.

In other words, monetary policy is still “reckless.” They’re still doing “crazy stuff.”

But let’s say all this “crazy stuff” doesn’t “end badly” after all. Is that such a bad thing for gold?

We spilled much digital ink yesterday about the coming “helicopter money” that will accompany President-elect Trump’s big infrastructure program — which might well carry a $1 trillion price tag.

“A reflating economy, if accompanied by a dovish [Federal Reserve] has historically been one of the most bullish environments for gold,” Merrill Lynch’s Michael Widmer tells CNBC. “As such, the yellow metal should find support from the current U.S. policy mix.”

“The gold market,” says Jim Rickards, “will soon realize that Trump’s economic plan is pure helicopter money.

“He wants lower taxes and bigger spending. That means bigger deficits, and that’s what helicopter money is. The Fed will have to put a lid on nominal rates to achieve negative real rates (that’s called financial repression).

“I can’t think of a better scenario for gold and gold miners than negative real rates and higher inflation. Gold will soar in the months ahead, almost an exact replay of the November 2015–March 2016 rally of over 20%.”

And the catalyst for that gold rally might well be the Fed raising rates next month.

We’ve been pounding on that point for weeks. But it’s worth emphasizing because conventional wisdom says a rate increase will push the dollar higher — and thus push gold lower.

Just one problem: After that increase, “rates will still be exceptionally low,” our income specialist Zach Scheidt told readers nearly a month ago. “And the Fed won’t be able to keep raising rates, because the global economy is still very fragile.

“If the Fed were to continue to raise rates, it would make U.S. goods and services less competitive. It would cause profits to drop. And this would kill the fragile economic recovery. The Fed does not want this to happen. And so the Fed will not be able to raise interest rates much in the future.”

As mentioned above, Fischer at the Fed said as much this morning.

“When gold traders realize that the Fed has its hands tied, they’ll have to rethink the logic of a higher dollar (and lower gold prices),” Zach says. “Meanwhile, long-term investors are becoming more and more keen on gold to help protect their wealth.”

[Ed. note: This coming Tuesday, Zach will reveal three new ways in which you can extract “cash from gold.” Back in mid-October, he did something similar — showing readers like you how to collect instant gold payouts of $210… $420… and $280.

This is a strategy he’s used all year whether gold was going up, down or sideways. If you think you’d like to be on board for these recommendations next Tuesday, click here for a vivid demonstration of how the strategy works.]

While traders sort out the implications of a Trump presidency, gold has sunk for the moment to five-month lows. At last check, the bid was $1,235.

And you can’t pin it on dollar weakness today: The dollar index raced up on Wednesday, but it’s steady this morning at 98.8.

The major U.S. stock indexes are taking a breather after the last two days’ Trump bump: The Dow is off 34 points from yesterday’s record close, now 18,774. Treasury rates are in a holding pattern, the 10-year at 2.1%.

Crude has tumbled a buck, a barrel of West Texas Intermediate now $43.65.

“What we’re witnessing is some of the fastest sector rotation the market’s seen in a long time,” says Greg Guenthner in today’s Rude Awakening.

And that’s saying something. Time was it took years for money to shift from one subset of the S&P 500’s 10 sectors into another. In the strange post-2008 world, the pace accelerated to months.

This week, it’s happened at warp speed — not everyone is sharing in the Trump bump, not by a long shot.

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“The real story here is simply that investors are nervous,” says Greg. “They’re frantically trying to figure out how to position their portfolios for a Trump presidency. But no one’s really sure what that even means.

“Despite the velocity of some of these moves, it will still take time for everything to shake out.”

In the meantime, Greg urged his readers today to take 25% profits on Amazon. It’s been an especially bad week for the “FANG” stocks — a group that also includes Facebook, Netflix and Google parent Alphabet.

OK, there’s one certainty going into a Trump presidency: TPP is dead.

Senate Majority Leader Mitch McConnell says the Senate won’t vote on the Trans Pacific Partnership during its lame-duck session. And House Speaker Paul Ryan says the votes aren’t there in his chamber.

Trump was foursquare against TPP during the campaign, and it’s (reasonably) safe to say this is one issue on which he won’t flip-flop.

Whatever you think about Trump, this is a glorious defeat that’s just been dealt to the global elites. As we said for more than four years, TPP was in no way a “free trade agreement.” It was 5,554 pages of favors for special interests.

Only five of TPP’s 29 articles even dealt with trade; the rest covered labor, the environment, agriculture, medicine, the internet, human rights, intellectual property rights. A butterfly could hardly flap its wings without coming under the auspices of the TPP. It was a world-improver’s wet dream. Good riddance.

Meanwhile, Mattress Mack will lose less money from a Trump victory than he would have from a Clinton win.

In early 2015, we told you about Gallery Furniture in Houston, whose owner Jim McIngvale is known to locals as “Mattress Mack.” He had a promotion called “85 and It’s Free.” Anyone who bought $7,000 or more in merchandise would get his money back if the oil price closed at $85 or higher at the end of 2015. He didn’t pay out a cent.

At the start of this year, customers who spent $2,000 or more were offered refunds if they correctly guessed which party would win the White House.

With a Trump victory, about 4,000 people will get refunds, and Mattress Mack is out about $10 million, according to the Houston Chronicle.

If Clinton had won? He’d be out $13 million.

All worth it, says McIngvale — who’s previously paid out hefty sums for promotions tied to the performances of sports teams. He told the Houston Business Journal in 2014 he gets “tremendous long-term benefit” from increased customer loyalty and social media buzz.

“Thanks for including some transparent comments regarding Jim’s miss on the market impact for a Trump victory,” a reader writes.

“Those of us who shorted the S&P were not thinking that our trades should take place in Harry Potter’s futures market.

“Thanks for owning up to the fact that there was more to the miss than it was hairy for a while. The comment had all the markings of a poor excuse with no acceptance of any form of responsibility for the missed call that impacted many of your readers. Had Jim issued a warning that the turmoil may only play out in the futures markets, I wouldn’t have reason to express any disappointment.

“Next point at issue is what will actually happen to the market when the Fed announces its interest rate hike on Dec. 14?’”

The 5: Jim’s still on record that it will have a nearly identical effect as last year’s increase did — a 10% stock market correction and a leap in gold.

“Thanks to the readers who called you guys out on glossing over Jim’s election call. I knew someone would and was confident you would print them.

“What blew me away were the responses from you, Dan and Jim. If I read them in dim light with just the right amount of tequila, I could swear I detect just the slightest hint of humility.

“I don’t think your readers expect perfection, but once in a while, it can’t hurt to say, ‘We were wrrrrrr-wrong’ (Fonzie reference, anyone?). Granted, none of you actually said you were wrong, but the admission that things played out faster than expected is a great first step.”

“I can understand where the person that said ‘Don’t be a weasel’ was coming from,” adds one of our regulars.

“On the other hand, once again, Jim was nearly alone (as he was about no rate increase) in his opinion that a Hillary win was far from certain. His assessment of what would happen in the event of a Trump upset was also dead on.

“The markets fell so far so fast overnight that the breakers were triggered. Gold and silver gunned higher.

“But as most of us who tried to profit off those trades know, they evaporated ridiculously fast by Wednesday morning. I made almost nothing on my 2X gold and VIX positions.

“As disappointed as I was, I could hardly be upset with Mr. Rickards.

“Can you imagine getting mad at a weather forecaster for advising of the very high likelihood of an F5 tornado hitting tomorrow (when every other was forecasting sunny weather), but then being upset because she was off on how long it would be on the ground? Yikes!”

The 5: I’ll say just one more thing on the subject and then move on: I should have been more diligent on Wednesday finding out just how the recommendations were performing, and more insistent on getting a timely comment from Jim and his team. That part’s on me, and Election Night sleep deprivation is no excuse…

“Time to lay OFF Trump,” a reader writes. “You got it!?

“We’re sick of it. Some really do want Trump, and your getting rough on him is NOT COOL!”

Adds a reader from Australia, “Not so long ago, everything that was wrong in the U.S. was ‘Putin’s fault.’

Suddenly, anything going wrong is Trump’s fault — even his own brand of inflation – ‘Trumpflation.’ This, of course, is completely unrelated to actions that may or may not have been taken by the Fed or global central banks.

“C’mon, give him a chance to get into office and actually do something before it’s his fault.”

The 5: Too late already.

First, on a macro level, anyone who seeks the power that comes with the presidency is by definition a sociopath. (Ron Paul ran for the office, but he was not seeking the power that comes with it.) So no, we won’t lay off Trump or anyone else — creepy mafioso-style threats notwithstanding.

And on a micro level, look at all the sleazeballs Trump’s already surrounding himself with. “The Trump transition team,” writes Lee Fang at The Intercept, “is a who’s who of influence peddlers, including: energy adviser Michael Catanzaro, a lobbyist for Koch Industries and the Walt Disney Co.; adviser Eric Ueland, a Senate Republican staffer who previously lobbied for Goldman Sachs; and transition general counsel William Palatucci, an attorney in New Jersey whose lobbying firm represents Aetna and Verizon.”

Please don’t feign surprise. Really, how can you “drain the swamp” when the transition team is headed up by the manifestly crooked Chris Christie?

Happy Armistice Day,

Dave Gonigam
The 5 Min. Forecast

P.S. On the subject of “draining the swamp,” today’s New York Times has a hilarious passage quoting Trent Lott, the hacktastic Senate majority leader during the late Clinton and early Bush years.

“‘Trump has pledged to change things in Washington — about draining the swamp,’ said Mr. Lott, who now works at Squire Patton Boggs, a law and lobbying firm. ‘He is going to need some people to help guide him through the swamp — how do you get in and how you get out? We are prepared to help do that.’”

We’re sure they are.

Meanwhile, every American who really wants to drain the swamp needs to read David Stockman’s book Trumped! A Nation on the Brink of Ruin… and How to Bring It Back. It’s your guide for the next four years.

Order through us and you’ll get an exclusive bonus chapter identifying the No. 1 investment to own during the first hundred days of the Trump presidency.

It’s available from no one else — and for only $4.95. Grab your signed copy here.


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