This isn’t why Gold is rallying

Gold is jumping again after a crazy weekend that saw Donald Trump miraculously surviving an assassination attempt.

But anyone thinking that’s why gold is moving higher is missing the big picture.

The hyperbolic polarization of America’s politics culminated over the weekend with an assassination attempt on Donald Trump.

I won’t comment on that event as I have nothing to add to the flood of information, speculation, and commentary that you have no doubt endured from mainstream and social media.

I’ll focus instead on the implications for the markets, particularly the metals and miners. And here we’re seeing some major misunderstanding of what is truly driving metals prices higher.

Pricing in the inevitable

As I write, gold is up about 1%, while silver is up only about half of that on a percentage basis.

The yellow metal was actually down in overnight trading, despite the attempt on Trump’s life over the weekend. This was a sensible reaction since, as I’ve repeatedly said, geopolitical issues should have no real effect on the gold price.

In short, gold isn’t rising because of the assassination attempt.

But gold began to rise later in the morning as mainstream financial news sources speculated about the implications of a Trump presidency, which now seems all but assured. They noted that Trump would likely fire Powell in favor of someone more politically malleable and amenable to easier monetary policy.

So gold took off.

Whether that view is proven correct or not (and it does seem likely to me), gold began moving higher two weeks ago because investors were beginning to price in up to two Fed rate cuts this fall.

Those rate cuts have been inevitable, for all the reasons I’ve been outlining in these letters. This reaction to the upcoming rate moves is not surprising.

Between my presentations, interviews, and discussions with attendees and other speakers, I feel like I summarized my views on the market over a hundred times. But it was a good exercise in that it led me to reflect on what’s next for the market...what the next big driver will be.

Of course, the obvious choice is the Fed pivot, which I believe is being priced in at this moment, in not only gold and silver but all the risk assets. After the relatively benign CPI numbers, two Fed rate cuts are now being priced in for this year, with the first projected to come at the September meeting.

As I recapped, ad nauseum, the market drivers so far of central bank and domestic Chinese buying, I also shared with my listeners the fact these factors had put us in a very good place as the biggest driver — a Fed pivot — still lay ahead.

If someone had told us early in the year that not only were we not going to get five rate cuts in 2024 but that sentiment would shift toward no cuts at all, we would have expected gold to lose $200-$300 in price. Instead, we gained $400!

In the complete absence of Western buying, Eastern buying had propelled the price much higher.

This was weird, and truly unprecedented, in that Eastern buyers had always come in on gold-price declines, while Western investors had always chased the price upward. Now it seemed that Western buyers were waiting on a theme that they could understand and project forward, that being the Fed pivot.

Then it hit me: Who’s to say that, as the Fed shifts to the rate-cutting side of the cycle, that both Eastern and Western buyers won’t come in at the same time?

This would not only be unprecedented, (but) the gold-price response would be extraordinary.

And while there’s no assurance this will happen, there’s also no good reason why it wouldn’t. Remember, Asian buyers have just demonstrated their proclivity to follow the price upward, and central banks have been largely price-insensitive in their buying.

I don’t believe many are considering the possibility that both Eastern and Western buying will swamp the gold market in the near future.

It’s something to seriously consider.