Why I sold some of my gold when Donald Trump won

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Gold and gold stocks are on a short-term “sell” signal

From an investment point of view, I must confess I have been wrong-footed by the Donald Trump win. I had a bet on him, so that was a nice win (almost a five-bagger). But the reaction since then – that, I did not see coming.

The stockmarket rally I get, but the sell-off in gold I’m more ambivalent about. And that’s the focus of today’s Money Morning…

Why I sold gold when Donald Trump won

Broadly speaking, the post-Trump market action has been as follows: stockmarkets have rallied, bonds have sold off, gold has sold off.

The fact that Trump is not in bed with Wall Street, doing highly-paid speeches for Goldman Sachs and all the rest of it, might have led one to think the stockmarkets would react badly to a Trump win, but the fact that they have rallied is not that much a surprise.

Focusing on what Trump has said, his policies – increased infrastructure spending, deregulation, lower taxes and so on – are actually business-friendly, which is what you would expect from a businessman.

Nor has the sell-off in bonds been such a surprise – at least in retrospect. On the one hand, his infrastructure spend will need to be paid for somehow, so that means more debt. On the other hand, he attacked the low-interest policies of his predecessors and of the US Federal Reserve during his campaign.

It’s also worth reminding ourselves that the sell-off in bonds actually began in the summer. The decline, which follows Trump’s election, is the continuation and acceleration of a trend that was already in place. Such has been the noise about bonds, it may even be that the sell-off is done, at least in the short term.

So what’s going on with gold? Given Trump’s unpredictability, you might think gold would have reacted more positively than it did. And I do think that you can make the case that the sell-off in bonds is related to the sell-off in gold. If the market is factoring in higher rates, perhaps that is what is motivating sellers.

But last week the selling was just brutal. We saw almost $130 an ounce knocked off the gold price in just three days.

I was one of those selling.

I made quite a nice call on gold a month or so ago, and made some good gains. I didn’t want to see those gains turn into losses, so I was taking profits wherever I had them.

I closed my spread bet. I sold some of my more liquid gold stocks.

And then I thought: “I have had a good year in gold stocks, and I don’t want to give back the gains I made”. So my selling became increasingly aggressive by early on Friday.

At one point, I was even on the verge of selling some of my physical gold.

The gold price is reported in dollars, so we tend to think about the dollar price of gold. But, in fact, in the UK we should be thinking about the sterling price of gold. Sterling is what we will use to buy gold, and when we come to sell, sterling is what will receive in exchange, in most cases.

Sterling gold is up over 45% this year. It has broken the £1,000 an ounce barrier for the first time since early 2013. I want to protect the gains that I have made.

I was looking at the chart and thinking: that wants to go back below £900.

sterling price of gold

Anyway, I didn’t. I decided I was being too emotional and walked away. It is better to sell from a position of strength.

Time to wait for the next “buy” signal for gold

Over the weekend I thought about my positions and decided that I had sold enough. Longer-term I still have gold on a “buy” signal and my physical gold is a long-term position. I mustn’t let my short-term thinking interfere with that.

From a shorter-term perspective, I have now sold enough and built up a big enough cash position to wait for the next buy signal.

Gold has buckets of support in the $1,200-$1,230 area. It made its March and May lows there earlier in the year. The relative strength index is below 30 – meaning it is coming into the “buy” zone. Gold stocks were up 5% yesterday while gold was stable – that is often a bullish divergence.

So it’s very possible that gold could be making an intermediate-term low in these parts. If I sold everything now and it turned around and rallied, I’d feel like a right bozo.

The fundamental reason I own gold is that it is my hedge against governments. From a political upheaval perspective, 2016 has been the year that keeps on giving. I don’t see that changing. For all the volatility, you want a considerable long-term core position.

But this whole episode has been a valuable lesson in how, once you get swayed, it is very easy to get carried away.

I’m now comfortable with my position. From a risk-management point of view, I want to have some physical gold, some cash and some stocks. I have that.

But I want to see clearer signs before I go all in again. I don’t have that. Gold and gold stocks are still on a short-term “sell” signal for me.

I’m watching and waiting for my indicators to turn, and then I’ll go back in. If that means buying at a slightly higher price than I sold – annoying, but so be it. If it means buying at a lower price, all the better.

  • Tawse

    Was 99% convinced that Trump would win but as 100% convinced that stocks would crash as a result and that it would be a fantastic buying opportunity. The rally took me completely by surprise but I am not chasing here.

    The US Fed looks almost certain to raise rates in Dec – that is bound to have an affect on gold, silver and even base metal commodities. Just watching at the moment.

  • Jeepers

    Mistakenly thought I would get some timely advice from MW and instead its retro analysis. Good to hear you banked some profit – I certainly have not having followed your advice in mid Oct.. Gold is becoming an unpredictable investment and funds such as Blackrock Gen Gold is only for those who enjoy rollercoasters.

  • Chris Bond

    So much for the ‘expert’ advice…

    Tuesday 8th November:
    A Trump victory would be good for gold.

    Wednesday 16th November:
    Why I sold some of my gold when Donald Trump won
    (and gold sold off big time).

    Hmm…

    • bibblies

      My thoughts too. To be fair, Dominic hasn’t yet done a piece on “Why I sold some of my sterling” after his “If Britain leaves the EU, sterling is a screaming buy” tip from June.

      Remember that episode of Seinfeld where George realises his whole life he’s been making the wrong decisions and he decides to do the opposite to his instinct and flourishes? 😉

    • Fred

      I sold gold too, the day before because I believed Hillary would win…
      I really don’t understand anything anymore in Finance

  • Momoko Miyamoto

    Timing the market of such a volatile commodity without privileged info is a fool’s game. Loss aversion is common sentiment amongst investors and one that generally ends up costing them in the long term. The only thing I agree with here is that gold is a hedge against everything else going belly up – so one should hold some without regard to the spot price. Personally I think gold mining companies are the way to go as they leverage exposure to the spot price without tying up a disproportionate chunk of your portfolio capital. Losses are obviously amplified if the price falls but then the rest of the long portfolio should be doing well to more than compensate.

  • Jef

    Nice to have some gold to sell.