Get Ready for Gold as the Trump Rally Loses Steam

DoubleLine Capital’s Jeffrey Gundlach, who predicted the Donald Trump victory, nailed the upturn in US Treasury yields and called the post-Trump market rally, has now changed directions according to media reports today; he is no longer exuberant about the impact of Trumponomics.

Speaking to Reuters, Gundlach said that markets could reverse the recent momentum in equities at any time (something they appear to be doing today), and at the very latest by U.S. President-elect Donald Trump’s Jan. 20, 2017 inauguration. As I recently pointed out, the Reagan election rally of 1980 ended on November 30 and did not resume until well into 1982, as investor enthusiasm over Reaganomics outran the facts.

Gundlach said that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar since Trump’s surprising presidential victory more than three weeks ago look to be “losing steam,” Gundlach told Reuters in a telephone interview.

“The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high,” Gundlach said. “There’s no magic here.”

Putting money where his mouth is, Gundlach, who has been bearish on bonds for the past three months, said he has purchased Treasuries and Agency MBS as yields rose.

In terms of specific forecasts, Gundlach said that the “dollar is going down”, bond yields and stocks have peaked, and gold will move up in the short term.

I agree dear reader. The market response to Trump is based on fantasy only and is a mania, as I have written. Many sentiment readings are near all-time positive highs for stocks and the selling in gold has taken sentiment and market positioning data to the levels where a turn is near. I see a great opportunity in the gold stocks in the near term. It might be wise to wait for the December 14 Fed meeting to be sure, but my bet is that we will get the low in gold before then. Just like last year in December when the Fed raised rates for the first time in nine years, you were a winner in gold if you sold the rate hike rumor and bought the news.

As I will explain in my next post, Fed rate hike cycles are good for gold, unlike what your favorite uninformed broker may be telling you.