The elections proved what we already knew. Trump’s re-election would be good for the dollar, at least in the short-term, whereas a Biden win is distinctively negative:
Why? More stimulus is great for stocks, precious metals—everything except the dollar. Both Trump and Biden planned to massively increase spending, but Biden is expected to spend so much more than Trump on everything from clean energy, to free education, healthcare, infrastructure, welfare payments, and artificial intelligence. This means another massive increase in debt, which the IMF forecast two weeks ago. Who is going to pay for all of this new debt? The Fed, of course, by printing more dollars out of thin air. This is extremely negative for the dollar.
The dollar remains near perfectly negatively correlated to Gold. What is bad for the dollar is good for Gold, Silver, and the miners:
It is clear that a Biden victory is therefore the best news for precious metals and miners. While I am cautiously optimistic that the lows have been seen in the precious metals space and the mega-rally has begun to new highs, there are several key issues to consider:
- Trump has not conceded. Quite the opposite. He plans to challenge the legitimacy of critical Biden ballots all the way up to a Supreme Court dominated by Republican appointees.
- The Democrats lost seats in the House, but more importantly, the Senate remains in Republican hands. Even if Biden is confirmed, the stalemate on stimulus could continue for quite some time. The recent euphoria could be reversed somewhat as that reality settles in.
The biggest risk, but a low probability, is that the markets get carried away with a Biden presidency and Trump ultimately wins out, courtesy of the Supreme Court. This would cause a massive reversal of all the market moves post election day, not to mention widespread social unrest.
On the technical front, the dollar was sent packing at the 50-day moving average and established a lower high. However, we haven’t seen a lower low yet. Support at 92.47 has held now for the third time. A fourth test likely signals lower lows below 91.75.
Gold has clearly broken its downtrend in bullish fashion, its first higher high since its peak in August. We now have a higher low followed by a higher high. The short-term trend is UP. Any break back below the upper trendline would suggest this was a fake breakout. Until then, the bulls are clearly in the ascendency.
Silver had its best day today since August. However, I’d still like to see 26 get taken out and a close or two above there to set up a test of ~30 next.
GDX broke its prior high but did not close above it. It has broken and closed above its trendline and now needs to either shoot higher or consolidate its position above there before soaring. A break back below the trendline would suggest a fake breakout, but until then, like Gold, the bulls are in charge.
SILJ often charts the best of all the metals and miners. It now looks like we have confirmation that the low back on September 24 was THE low, and we have a i-ii setup in place and we’re in wave iii of a potentially huge rally to higher highs. Again, a break of the yellow downtrend line would be a warning sign that we’re not done on the downside. Otherwise, all systems are green.
Although risks remain, on balance, it sure looks like the bottom is in and we’re off to new highs in metals and miners. At the end of the day, regardless of who is the next president, I still expect metals and miners to skyrocket higher either way, sooner or a little later.