As President Trump Touts Stock Market, Precious Metals Suffer

The mainstream media offers little apparent choice other than the right or left Democrat or Republican; and typically, our political philosophies are decidedly independent. However, we are occasionally compelled to comment on political posts when they directly relate to or influence the capital markets and precious metals industry.

S&P 500 / US Stock Index

It is increasingly obvious and certain that the exponential and parabolic rise in the U.S. stock market is unevenly drawing from the liquidity which would be otherwise be flowing into other global markets, such as precious metals. Take, for example, the graph pictured on the right: it shows a nearly 1 to 1 inverse relationship between the stock market and gold over the past six months as the parabola increases.

The U.S. stock market is just now beginning to enter a “parabolic curve trajectory”. This type of curve is the hallmark of an asset class which is reaching an unsustainable momentum, and will soon enter into a “bubble” phase. Although the tipping point may be some time away, the parabolic curve clearly illustrates the unsustainable nature of the advance ahead of time.

Linear market transitioning to parabolic:

Note below how the market has been advancing higher for nearly nine years (magenta color) and is actually breaking upward and now accelerating even higher (red callout). This is the visual perspective of the beginning stages of a linear market transitioning to parabolic:

 

 

 

Trump Urges Investors to Buy Stocks

         This week, President Trump added fuel to the fire by tweeting the following comment to publicly to his 54.2 million followers:     

What makes this noteworthy is that this is first time in recent history that a sitting President has been actively “cheerleading” a stock market bubble. For an asset class that is already 300% higher than the 2009 lows, it is remarkable that the commander-in-chief of the free world is encouraging the average person to chase the market higher. One thing that is certain, is that President Trump’s encouragement is NOT a “value proposition”, which is statement intended to convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings will.

Politicians Cause Market Imbalances

Historically, when a politician tries to influence an asset class to trend higher (i.e. the current market) or tries to suppress an asset class lower (i.e. gold or gasoline prices in the early 1970’s) they tend to cause more market imbalances and an eventual overshoot in the polar opposite direction than they intended.

Markets tend to adhere to Newton’s law in that whatever goes up, must come down. President Trump and his touting of the stock market is causing the average investor in the United States to pour even more capital into an overvalued asset class.

When the tables turn and the last of the buyers eventually purchase at the top of the bubble, the reverse dynamic will begin to exert itself. Selling will beget selling, and all those who bought into Trump’s proclamations and near-guarantees of higher stock prices and investment success will grow to distrust him. This will cause a far more volatile decline than would have occurred had the President not began publicly promoting stocks in the first place.

 

Takeaway on Trump, the Stock Market, and Gold

Essentially, politicians do not create wealth; they can only redistribute it. No matter what political ideology one adheres to, the lesson to be learned is that politicians should stay out of the capital market advisory business.

If the recent inverse correlation between stocks and gold holds, then precious metals stand to be a primary beneficiary when the stock market advance reaches its terminal stage.

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