Wiemann: A very sensible piece of analysis. I have been thinking along similar lines.
At the minute, the markets are assuming Trump will put into effect a massive fiscal stimulus package with ease, but there are numerous obstacles he will have to overcome. You pick out a number, including the implicit tightening caused by a strengthening dollar and the loss that will be incurred in the bond market.
I would add to this the risk of a broader financial asset slump. If we move from a 'fiscal policy tight, monetary policy easy' situation to a 'fiscal policy easy, monetary policy tight' one, then it will not only be bonds that will need to be rerated. The public and private equity markets and the real estate markets have been buoyed by, in effect, the availability of free money (after taking into account inflation) since the Great Recession of 2008/09. But if interest rates go positive in real terms, which is likely to happen if the Fed was forced to head off inflation, then for the first time in 7 years, debt will actually cost money to service. This will cause a massive downward rerating on all risk assets.
What is more, the trickle down into the service economy from massively inflated financial assets has been the only thing that has kept the US out of recession over the last few years. Should this all go into reverse, the Trump administration will face a huge headwind.
To navigate through such choppy waters, the Trump administration and the Fed will have to work hand in glove to get the right balance between fiscal and monetary policy. Given how Trump's inner circle has disdain for the Fed, I don't see that happening.
Gold usually thrives on uncertainty, but for the minute the markets are giving Trump the benefit of the doubt and are assuming that he can deliver on his policies. Should that be put into question (and I think it will), uncertainty will return with a vengeance. And that will set the foundations for the next gold rally.
MOY Price at posting:
25.5¢ Sentiment: Hold Disclosure: Not Held
