Trump's Unexpected Victory

Donald Trump clinched an unexpected victory for the US Presidential election on Tuesday. Therefore, it sent major world markets into a temporary panic. 

Gold surged, and stocks dropped limit-down in the overnight hours. So, it appears gold was on the verge of the technical breakout from the long-term downtrend. This downtrend is what we have been monitoring for almost half a year now.

Tune here for gold and silver technical updates. Yet just 12 hours after the election results became known, the markets saw quick reversals of the previous movements. Investors went to dumb precious metals and other safety assets. Investors instead went to buy risk assets including broad stocks and industrial commodities.

Gold and Silver Technical Updates

We remain long-term bullish on precious metals for the fundamental reasons that we all know to be true. First, central bank money is printing. Second, government bailouts of private corporations. Third, uncontrollable debt and negative interest rates are in several major nations worldwide.

Yet the challenge at this moment is to come back to a central investment principle: do not fight the market. What this means is that, as individuals and investors, we may have opinions on what the market should do.

We may have vital data from sound research to back up those opinions. We may have done thorough due diligence. Yet, despite all this, the market might move opposite to our fundamental research. So, we must consider that there is more information impacting the market than we are factoring into our equations. The old investment adage is helpful to remember: "The market can stay irrational longer than you can stay solvent."

Markets Turn After Trump's Victory

Immediately in the aftermath of the Trump election victory, most major world markets reversed course abruptly and sharply. Gold and silver reversed suddenly and finished lower for the week. Gold and silver which were up significantly in the hours after Trump's win, Gold hit a high of $1,335 in the early morning hours on Wednesday. Then, only to close the week near $1,225. This was almost a $110 drop in just over 48 hours.

US Dollar

Similarly, the US dollar and the US stock market reversed course, and both finished higher by over 1%, respectively. The dollar and market were showing 2.5% and 5% losses in the overnight hours after the election. These are notable intra-week swings. But it was not only gold and precious metals that fell after the initial surge on Tuesday night. Long-term 20+ year US bonds also dropped. They fell over 6% in the last three trading days of the week. This is a massive drop for the bond market. This is to the extent that 20-year interest rates rose from 2.26% to 2.58% in just one week. This is one of the most massive single-week drops in bond prices / increase in bond interest rates seen in the last 20 years. In sum, after the initial fear reaction as a result of Trump's victory, most significant markets did a 180-degree turn and reversed. Safety assets sell across the board. Risk assets recovered to turn positive. Let us switch the above chart to view the action in metals only. We are including both precious and industrial metals in the following chart.

First, we see that copper was the outstanding performer this week. This indicates demand for industrial metals was positive after the Trump election. Palladium came in second. Which is, of course, a precious metal with primary industrial demand. This is primarily from the automotive industry.

In contrast, gold, silver, and platinum all fell. The first two were the historic monetary metals.

It appears that markets are pricing in increased industrial demand from the Trump administration. There is a lesser need for safety assets. We can only speculate as to the reasons for this. So, we wonder (half-jokingly): is the wall that Trump intends to build along the US-Mexico border going to be made primarily of copper? Silver is the outlier.

As we know, silver's demand equation still is composed of roughly 80% industrial usage. Why did silver fall more than gold? Why did it not finish the week somewhere in between gold and copper? (as it "should" when safety assets fall, but industrial assets rise) What happened to the industrial silver buyers? Let's put manipulation theories aside. (we do not entirely discount them, but do not consider them sufficient for making investment decisions).

We base on the declines seen in US bonds, gold, and platinum, we can only conclude that silver saw massive selling from those who were previously holding the metal for its safety / monetary role. We may not agree with their decision to sell. Yet, to sell is what they did. A quick view of the copper chart from 2010 through the present reveals the significance of the surge seen in the primary-industrial metal this week.

There is no less than a breakout from the long-term declining trendline since the 2011 highs. [Note: this is the same relative trendline that has been so elusive for gold. Which has failed to break higher for the past five months. From the copper surge seen this week it should be apparent why we emphasize the potential breaking of these long-term trends.]  

In sum, copper was up an incredible 10.7% for the week. It looks like it is entering a new bull market after five years of declines.

Gold Analysis

For the week, gold price per ounce fell $80 (6.1%) to finish at $1,224. Yet more significant was the nearly $110 swing from $1,335 on Wednesday to the Friday close.

The Wednesday reversal consisted of the highest ever single-day volume of contracts traded on the New York COMEX exchange. Which was 780,000. This is nearly four times the average daily volume. This important volume occurred on a reversal day. The $1,335 high is going to require multiple attempts. Or, an equally high record-breaking volume surge to break through this level on any subsequent rally.

Viewing gold technically, the metal is making a lower low within the strong support zone. We would expect to hold if gold is still in a new bull market. This zone extends down to $1,200, precisely.

The "Must Hold Zone", as defines by $1,173. The 61.8% Fibonacci retracement of the advance would be the lowest level that we have observed new bull markets to fall. This is while still being in a primary overall advance. A break below that level and quick retests of $1,045 would occur at a minimum.  

Christopher Aaron, 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 to identify both long-term market cycles and short-term opportunities for profit. This article is a third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consider it as financial advice in any way.