The Trump era is officially upon us. Take note, we are politically independent here. We do not support either major American party formally. However, we believe Trump’s election and inauguration last Friday is part of a larger worldwide trend. This trend in the emergence of “no confidence” votes against the mainstream political establishments. Manifesting here in the United States, Trump’s tenure should be a particularly unique period of history around the world. Let’s discuss Trump and the Federal Reserve.
Case in Point
Trump is the first President in modern history to openly criticize the Federal Reserve for its money-printing practices. Trump says Fed chairwoman Janet Yellen should be “ashamed” of keeping interest rates too low. (Which requires printing money to buy short-dated bonds). He also accuses the Fed of creating a “false economy” and engaging in “political things.” This is unprecedented rhetoric coming from a presidential candidate during a primary campaign.
The Chinese proverb says: “May you live in interesting times.” Indeed.
Trump and the Federal Reserve and the White House
The last president to openly criticize the Fed is likely to have been George H. W. Bush. He spoke about the central bank after his 1992 defeat.
Ironically, Bush blamed the Fed for not printing enough money. He stated: “I think that if the interest rates had lowered more dramatically that I would have been re-elected President. Because the [economic] recovery that we were in would have been more visible.”
Fast forward to last September. Hillary Clinton perfectly illustrated the relationship between the White House and the Fed over the preceding generation. She said: “You should not be commenting on Fed actions when you are running for president or president.”
So now we have Trump who indeed seems comfortable commenting on Fed actions. This is while running for president. Will he consider criticizing the central bank while actually in office?
Consider that Rebekah Mercer, daughter of billionaire hedge-fund CEO Robert Mercer, sat on the executive committee of Trump’s transition team. She expects to play a vital role in fostering Trump’s agenda during his presidency. Her father, Robert Mercer, was the chief backer of the Jackson Hole Summit in August 2015. They are a private financial symposium. They to stand in contrast to the Fed’s conference held at the same time and place. Robert also is head of the famous Renaissance Technologies fund.
The principle themes of the Mercer-funded summit?
The abolishment of the Federal Reserve and a return to the gold standard.
Trump has the advisory and financial backing of billionaires with anti-Fed leanings. Will Trump be the first president in modern history to question the seemingly omniscient central bank during his term?
And how would most Americans respond to a president questioning the institution that issues our fiat currency? Most Americans are largely unaware that the US dollar and tangible asset does not back the US dollar.
A move of assets into gold and silver by a substantial portion of the United States (or world) citizens would cause a price acceleration. This would be unlike anything witnessed thus far in our analysis.
We endeavor to profit from the shorter-term swings in price that occur. However, we always advocate that investors hold a certain portion of their assets in a core metals position. Investors should store as far outside the banking system as reasonably possible.
And so as Trump begins his first full week in office. The first active president to openly criticize the central bank in modern history. We once again try to filter out the charged rhetoric that appears in the mainstream financial and political press. Instead, we turn as always to the charts.
US Dollar Update
In a confounding example of either early-presidential double-talk, Mr. Trump stated on Tuesday that the US dollar was “too strong” Perhaps it was a reference to the singular currency-devaluation policies of China. Mr. Trump spoke so harshly of Federal Reserve money-printing on the campaign trail.
The result on Tuesday was to send the dollar back to 100.2 on the Dollar Index. It is down over 1% for the day against a basket of foreign currencies.
It is here that words from politicians can become misleading. We must focus on regular identification of key zones on the charts:
The dollar has been weak over the last month. It has a rough correspond to gold’s price rise from the December lows. This price action must still show within the context of the breakout. This is from the 2-year consolidation shown above– between 92 and 100 on the index.
What we see thus far is simply a higher retest of the breakout zone.
We must respect the dollar breakout until proven otherwise. It will tend to exert a negative drag on the precious metals in a typical trading environment.
The move in the dollar will fail and thus constitute an ominous long-term “false breakout.” This is if the index closes below 99.5. Which is the spike low seen on December 8. Such a failed advance can typically lead to a strong reversal in the opposite direction.
Of course, the dollar and precious metals do not always move in opposite directions. Sometimes highly correlated, a topic we will examine in more depth in the near future.
Happy investing this week. We enter what should be a fascinating time to be a market observer. We will see if the new president does openly decide to criticize the Fed at any point during the next four years.
Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. This is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.
Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature.
His strategy of blending behavioral and technical analysis has helped him and his clients. It helps to identify both long-term market cycles and short-term opportunities for profit.