How to Trade Gold on a Trump Victory

Pencil ‘Wednesday’ into your diary.

Either Hillary Clinton or Donald Trump will become the next US president.

About 50 million Americans have already voted. The rest have some serious thinking ahead of them.

Will Hillary be impeached for corruption charges if she does become the next president?

Does ‘The Donald’ have enough composure to lead the ‘free’ world? Or is he too much of a hothead?

We’ll leave these questions on the back-burner for now. Instead, let’s focus on the likely result: a Trump victory. That’s right. Despite what you may have been reading in the mainstream, I believe that Trump will win based on the anti-establishment vote.

And if Trump wins the election, gold should surge temporarily.

What’s the best way to trade the result?

Will history repeat?

To start, it’s worth winding back the clock to the Brexit. The turmoil during the British vote to leave the EU can provide some useful context on how gold could trade during the final days leading up to the US election.

The International Business Times reported on 24 June:

Gold prices rose Friday by the most since the 2008 global financial crisis, after Britain’s vote to exit the European Union drove traders to the so-called safe haven mineral. As financial markets convulse this year in response to the Brexit, gold may continue to prove a reliable hedge, analysts said.

Gold climbed as much as 8.1 percent to almost $1,359 an ounce in early trading Friday before settling around $1,317 an ounce by 10:30 a.m. EDT. Prices have already rallied 20 percent since the beginning of this year amid growing concerns of a broader economic slowdown and a stronger U.S. dollar. 

“In periods of uncertainty, gold is often one of the few perceived ‘safe haven’ assets with liquidity,” James Steel, chief precious metals analyst at HSBC Securities (USA), said in a research note Friday. “The uncertainty spurred by this [Brexit] vote will likely elicit sufficient gold purchases to buoy prices.”

If you bought shares in junior gold miners the day before Brexit, you would have made about 10% on the day. That’s not bad. The biggest gold miners were up about 4–5%. For example, Barrick Gold [NYSE:ABX] and Newmont Mining [NYSE:NEM] were both up more than 4%.

The yellow metal was quiet at first. In fact, gold was trading at US$1,256.50 an ounce — a two-week low — heading into the referendum. According to the mainstream polls, the ‘remain’ vote was almost guaranteed.

I was on board with that at first. I thought that the government would ‘rig’ the vote, and was originally short on gold.

When the results came in, gold started to turn and I changed my position to long. Gold was swinging US$10-30 per ounce depending on the vote by midday.

I made a lot of money. I also got stopped out a few times, losing some of my gains.

I decided not to trade it anymore and clear my head. The volatility was relentless. I thought, what’s the point in trading if I get stopped out again?

With hindsight, I should have stuck with the trade.

When the ‘leave’ result became clear, gold rocketed about $100 per ounce in less than an hour. One futures contract could have banked you US$10,000 on the long side (assuming you sold at the top). If you’re not familiar with futures contracts, they’re simply a leveraged financial instrument to the underlying asset (in this case gold). For a small amount of money, you can obtain a decent exposure to gold. The leverage means that you can generate higher returns…and significant losses, if you’re wrong.

It was mesmerising stuff and taught me a good lesson: A good trader has to be cold-blooded. Losses are part of the business. If you can’t take a loss as a trader, you’re finished from the start.

Looking forward

The point is: If you’re planning on trading the US election, don’t be scared to lose money. That sounds like a self-defeatist statement, but it makes a lot of sense.

Jim Rickards, our in-house macro strategist, said at Port Phillip Publishing’s Great Repression investment conference in Port Douglas, ‘If Donald Trump wins, stocks could fall 10% on the day and gold could surge.

If Jim’s correct, expect a volatile day for gold. That means, even if you’re on the right side of the trade, you could easily get stopped out. So don’t set your stops too tight. Also, if you get stopped out, don’t be scared to re-enter the trade (assuming that Trump could still win).

The mainstream media — such as The New York Times, CNN, CNBC, MSNBC, The Washington Post, The Age, and The Sydney Morning Herald — are all convinced that Hillary Clinton will win. In my opinion, most of the mainstream is bought and paid for by the political and banking elite. If you’re listening to these news channels, you may be in for a big shock. They all got the Brexit wrong too.

Donald Trump could easily win the election on the anti-establishment vote. If it happens, gold’s likely to shoot up temporarily.

The real question is: How high will gold jump on the day?

In my view, a Trump victory is starting to be priced into the market. The gold price has surged from US$1,270 to above US$1,300 per ounce. I’d be looking at taking a position now to capture more of the upside, if you haven’t already.

While a Trump victory would surprise the masses, it doesn’t have the same feeling as Brexit.  Remember, Brexit was totally unexpected by most. In the case of the US election, we are expecting the unexpected.

Looking at the gold ‘Trump Trade’, the yellow metal probably won’t hit a fresh high. At a maximum, I’d be looking at a retest of the Brexit high of US$1,359 per ounce. That’s considerably above today’s price, meaning there’s still a lot of money on the table.

If you haven’t already, now is the time to consider taking a position in gold.

Regards,

Jason Stevenson,
Resources Analyst, Money Morning

PS: President Donald Trump could be days away. That’s why we advocate the ‘Trump Trade’ — buying an asset we view as the best place to protect your wealth in a volatile market. Details here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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