Gold surged on Trump talks despite Gaza War ceasefire

·       Trump urged the Fed and all other major global central banks to cut rates substantially lower to promote economic growth amid falling inflation

·       Previously Trump also raised doubts over the sustainability of 1st phase of the Gaza war ceasefire, boosting Gold

·       But Fed Chair Powell may not be influenced by Trump’s attempt to control everything from monetary to fiscal policy by mere rhetorics

·       Trump can’t ensure MAGA or the US Golden Age narrative by simply threatening tariffs, cutting rates and taxes; needs a China-like industrial ecosystem for Make in America theme

Wall Street Futures surged earlier this trading week  (ended 24th Jan 25) on moderate Trump 2.0 optimism, but Gold also got some boost later as Trump said he was ‘not confident’ the Gaza hostage-ceasefire deal will hold through all three phases. These statements come amid a backdrop of significant policy shifts. On his first day back in office, President Trump lifted sanctions imposed by the previous administration on Israeli settlers involved in violent activities in the West Bank. This move signals a strong pro-Israel stance and has raised concerns about potential escalations in the region.

The Gaza ceasefire's fragility is further underscored by recent events. An Israeli military operation in the West Bank city of Jenin resulted in six deaths and numerous injuries, even as the truce in Gaza entered its third day. Such incidents highlight the complex and volatile nature of the situation, casting doubt on the ceasefire's sustainability. Trump also suggested that if the reconstruction plan proceeds effectively, Gaza could transform into a more prosperous area given its favorable location and climate.

In his recent virtual address to the World Economic Forum (WEF) in Davos, US President Trump outlined several economic initiatives aimed at revitalizing the U.S. economy and influencing global financial dynamics.

Lowering Oil Prices: Trump announced plans to request that Saudi Arabia and other OPEC nations reduce oil prices. He emphasized that decreasing oil prices could help curb inflation and potentially pressure Russia to end the conflict in Ukraine by diminishing its oil revenue.

Interest Rate Reductions: Trump stated his intention to demand immediate interest rate cuts by not only the Fed but also by others/globally (like ECB/BOE/PBOC), criticizing previous policies for leading to high deficits and economic challenges.

Interest Rates and US Investment: Trump called for global interest rates to be reduced, urging countries to channel investments into the US by offering favorable tax rates and deregulation. He specifically targeted the Fed, led by ‘less dovish’ Chair Powell-advocating for immediate cuts to interest rates to align with lower global rates.

Deregulation: Trump reiterated his commitment to deregulation, particularly in the banking sector, advocating for looser rules that he argued would stimulate economic growth and investment in the U.S.

Tariffs to Encourage Domestic Production: Trump reiterated his strategy of imposing tariffs on goods produced outside the US to incentivize companies to manufacture domestically. He suggested that businesses could benefit from lower taxes by producing within the U.S., but would face tariffs if they chose otherwise.

These comments by Trump have had some effects on financial markets:

Gold surged to $2790, almost life time high ($2795) and the highest in twelve weeks despite the Gaza war ceasefire/Hostage deal and talks of Ukraine war ceasefire as Trump raised some doubts about the longevity of the Gaza war ceasefire and also pressured Fed and virtually other major global central banks to cut rates more to fund not only consumer spending but also government deficit spending at relatively lower borrowing costs. Gold is a major beneficiary of global geopolitical uncertainty/conflicts like the Gaza war, but also the vicious cycle of increasing public deficit, debt and devaluation of paper currency. Also, Trump’s policy of higher tariffs and lower immigration may be positive for inflation (higher prices of imported goods and labor market tightening).

Oil has the first weekly decline in five weeks after Trump took charge of the WH; the prospect of increased production from major oil producers, as encouraged by Trump, contributed to this decrease. Trump pressured OPEC to lower oil prices, asserting that this would help reduce inflation and facilitate lower interest rates. Trump emphasized the U.S.'s vast oil and gas reserves, stating that increasing domestic production would bolster the manufacturing sector and support emerging technologies like AI and cryptos.

Stock Market impact: Trump’s proposed aggressive economic policies, including potential tariffs and interest rate cuts, have led to mixed reactions among investors. While some view these measures as stimulative for the U.S. economy, others express concerns about potential inflationary effects and disruptions to global trade dynamics. But overall, Trump’s bellicose policies/threats like additional tariffs and deportations may be negative for stocks, especially China-savvy US MNCS.

European Stock Markets: Following Trump's inaugural and Davos WEF speech, European stock markets experienced significant gains. The banking sector was particularly buoyant. Trump's comments at Davos have set a tone of optimism in European markets, primarily driven by his calls for lower interest rates and increased investment in the U.S.

Crypto Impact: Trump's announcement regarding cryptocurrency regulation created disappointment among BTC enthusiasts, as it did not include the establishment of a Bitcoin reserve as previously hinted.

Relevant Full text of US President Trump's Davos WEF address on 23rd Jan’25:

“This has been a truly historic week in the United States.  Three days ago, I took the oath of office, and we began the golden age of America.  The recent presidential election was won by millions of votes and all seven — every one of them — all seven swing states.  It was a massive mandate from the American people that hadn’t been seen in many years.  And some of the political pundits, even some of my so-called enemies, said it was the most consequential election victory in 129 years.  That’s quite nice.

 What the world has witnessed in the past 72 hours is nothing less than a revolution of common sense.  Our country will soon be stronger, wealthier, and more united than ever before, and the entire planet will be more peaceful and prosperous as a result of this incredible momentum and what we’re doing and going to do. My administration is acting with unprecedented speed to fix the disasters we’ve inherited from an inept group of people and to solve every single crisis facing our country.

This begins with confronting the economic chaos caused by the failed policies of the last administration.  Over the past four years, our government racked up $8 trillion in wasteful deficit spending and inflicted nation-wrecking energy restrictions, crippling regulations, and hidden taxes like never before.  The result is the worst inflation crisis in modern history and sky-high interest rates for our citizens and even throughout the world.  Food prices and the price of almost every other thing known to mankind went through the roof.

President Biden lost control of what was going on in our country, in particular, with our high-inflation economy and at our border.  Because of these ruinous policies, total government spending this year is $1.5 trillion higher than was projected to occur when I left office just four years ago.  Likewise, the cost of servicing the debt is more than 230 percent higher than was projected in 2020.

The inflation rate we are inheriting remains 50 percent higher than the historic target.  It was the highest inflation probably in the history of our country.  That’s why, from the moment I took office, I’ve taken rapid action to reverse every one of these radical left policies that created this calamity — in particular, with immigration, crime, and inflation.

On day one, I signed an executive order directing every member of my Cabinet to marshal all powers at their disposal to defeat inflation and reduce the cost of daily life.  I imposed a federal hiring freeze, a federal regulation freeze, and a foreign aid freeze, and I created the new Department of Government Efficiency.

I terminated the ridiculous and incredibly wasteful Green New Deal — I call it the “Green New Scam”; withdrew from the one-sided Paris Climate Accord; and ended the insane and costly electric vehicle mandate.  We’re going to let people buy the car they want to buy.  

I declared a national energy emergency — and it’s so important — national energy emergency to unlock the liquid gold under our feet and pave the way for rapid approvals of new energy infrastructure.  The United States has the largest amount of oil and gas of any country on Earth, and we’re going to use it.

 Not only will this reduce the cost of virtually all goods and services, it will make the United States a manufacturing superpower and the world capital of artificial intelligence and crypto. My administration has also begun the largest deregulation campaign in history, far exceeding even the record-setting efforts of my last term.

 In total, the Biden administration imposed $50,000 in additional regulatory costs on the average American household over the last four years.  I have promised to eliminate 10 old regulations for every new regulation, which will soon put many thousands of dollars back in the pockets of American families.

To further unleash our economy, our majorities in the House and Senate — which we also took, along with the presidency — are going to pass the largest tax cut in American history, including massive tax cuts for workers and families and big tax cuts for domestic producers and manufacturers.  And we’re working with the Democrats on getting an extension of the original Trump tax cuts, as you probably know by just reading any paper.

My message to every business in the world is very simple: Come make your product in America, and we will give you the lowest taxes of any nation on Earth.  We’re bringing them down very substantially, even from the original Trump tax cuts.  But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff — differing amounts, but a tariff — which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt. Under the Trump administration, there will be no better place on Earth to create jobs, build factories, or grow a company than right here in the good old USA.

Already, American’s economy — and you can see this, I think, maybe even in your — in your wonderful, wonderful room that you’re all gathered together — so many of my friends — but, Americans, the economic confidence is soaring like we haven’t seen in many, many decades, maybe not at all. Upon my election, it was just announced that small-business optimism skyrocketed by 41 points in a single month.  That’s the highest ever.  There’s never been anything like that.

SoftBank has announced between a $100 and $200 billion investment in the U.S. economy because of the election result.  And just two days ago, Oracle, SoftBank, and OpenAI announced a $500 billion investment in AI infrastructure.  Other companies, likewise, have announced billions and billions and billions — adding up to trillions — of investment in America, in the United States.

And it’s also reported today in the papers that Saudi Arabia will be investing at least $600 billion in America.  But I’ll be asking the crown prince, who’s a fantastic guy, to round it out to around $1 trillion.  I think they’ll do that because we’ve been very good to them.  And I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil.  You got to bring it down, which, frankly, I’m surprised they didn’t do before the election.  That didn’t show a lot of love for them not doing it.  I was a little surprised by that.

If the price came down, the Russia-Ukraine war would end immediately.  Right now, the price is high enough that that war will continue.  You got to bring down the oil price; you’re going to end that war.  They should have done it long ago.  They’re very responsible, actually, to a certain extent, for what’s taking place — millions of lives are being lost. With oil prices going down, I’ll demand that interest rates drop immediately.  And, likewise, they should be dropping all over the world.  Interest rates should follow us. All over, the progress that you’re seeing is happening because of our historic victory in a recent presidential election, one that has become quite well-known throughout the world.

I think a lot of things are happening to a lot of countries.  They say that there’s light shining all over the world since the election.  And even countries that we aren’t particularly friendly with are happy because they understand that — there is a future and — how great the future will be.

Under our leadership, America is back and open for business.  And this week, I’m also taking swift action to stop the invasion at our southern border.  They allowed people to come in at levels that nobody had ever seen before.  It was ridiculous.  I decided a — and very, very importantly — a national emergency on our border; immediately halted all entry of illegal border crossers, of which there were many; and began properly returning the illegal trespassers to the place from which they came.

That action, as you’ve probably seen, has already started very strongly.  I have deployed active-duty U.S. military and National Guard troops to the border to assist in repelling the invasion.  It was an invasion.  We will not allow our territory to be violated.  After four long years, the United States is strong and sovereign and a beautiful nation once again. It’s a strong, sovereign nation.

In addition, I’m pleased to report that America is also a free nation once again.  On day one, I signed an executive order to stop all government censorship.  No longer will our government label the speech of our citizens as misinformation or disinformation, which are the favorite words of censors and those who wish to stop the free exchange of ideas and, frankly, progress.  We have saved free speech in America, and we’ve saved it strongly.

With another historic executive order this week, I also ended the weaponization of law enforcement against the American people — and, frankly, against politicians — and restored the fair, equal, and impartial rule of law.

My administration has taken action to abolish all discriminatory diversity, equity, and inclusion nonsense — and these are policies that were absolute nonsense — throughout the government and the private sector.  With the recent, yet somewhat unexpected, great Supreme Court decision just made-America will once again become a merit-based country.  You have to hear that word: merit-based country.

And I’ve made it official — an official policy of the United States that there are only two genders, male and female, and we will have no men participating in women’s sports, and transgender operations, which became the rage, will occur very rarely.

Finally, as we restore common sense in America, we’re moving quickly to bring back strength peace and stability abroad.  I’m also going to ask all NATO nations to increase defense spending to 5 percent of GDP, which is what it should have been years ago — it was only at 2 percent, and most nations didn’t pay until I came along; I insisted that they pay, and they did — because the United States was paying the difference at that time, and it’s — it was unfair to the United States.  But many, many things have been unfair for many years to the United States.

Before even taking office, my team negotiated a ceasefire agreement in the Middle East, which wouldn’t have happened without us, as I think most of the people in the room know.  Earlier this week, the hostages began to return to their families.  They are returning, and it’s a beautiful sight.  And they’ll be coming in more and more.  They started coming back on Sunday.

Our efforts to secure a peace settlement between Russia and Ukraine are now, hopefully, underway.  It’s so important to get that done.  That is an absolute killing field. Millions of soldiers are being killed.  Nobody has seen anything like it since World War II.  They’re lying dead all over the flat fields.  It’s a flat field — farmland, and there’s millions of Russians and millions of Ukrainians.  Nobody’s seen anything like it since World War II.  It’s time to end it.

And here in America, we have big events coming up.  Next year we have the 250th anniversary of America’s founding.  I’m so honored to be president during that.  That’s been a big event.  They’ve been talking about it for 10 years.  We also have the World Cup, and I understand Gianni — Gianni is in the room — Infantine.  He was very instrumental in helping us get it — he’s there with you someplace, I think — and I want to thank him for that.

And then we have the Olympics coming up, which I was instrumental in getting, also, in my first term.  And who would have known that by skipping a term, I would get the Olympics?  I was upset.  I said, “You know, I got the Olympics to come and I won’t be president.”  But it turned out, through a stroke of luck or whatever you might call it, that I’m going to be president during the World Cup and the Olympics and the 250th anniversary.  So, that’s going to be three big events.

And we’ve accomplished more in less than four days — we have been working — four days — than other administrations have accomplished in four years, and we’re just getting started.  It’s an amazing thing to see, and the spirit and the light over our country have been incredible. Under the last administration, our nation has suffered greatly, but we are going to bring it back and make it greater, bigger, stronger, better than ever before.”

Highlights of Trump’s comments: 23rd Jan’24 (Davos WEF and Fox News interviews)

·       Biden lost control of inflation and the border

·       I've taken rapid action to reverse radical left policies

·       The US has the largest amount of oil and gas of any country and we are going to use it

·       US House and Senate will pass Trump 2.0 tax-cut measures

·       Congress will pass the largest tax cut in American history

·       The message to business is to make your product in America

·       If you don't, you will have to pay a tariff

·       There will be no better place to create jobs and build factories than the US.

·       I will ask OPEC to lower oil prices

·       Trump Asks For Cheaper Oil From OPEC

·       I will ask Saudi's MBS for $1T in investments in the US just to round up the amount from his plan of $0.6T

·       I'll ask Saudi Arabia to 'round out' investment pledge in the U.S. to $1 trillion.

·       If oil prices came down, the war in Ukraine would end immediately

·       I will demand lower interest rates

·       Efforts to secure a peace settlement between Russia and Ukraine are now hopefully underway.

·       The EU treats the US very badly

·       EU tariffs make it very difficult to bring products into Europe

·       I will do something about the trade deficit with the EU

·       The EU should not be going after US companies

·       I'll 'demand that interest rates drop immediately

·       I would guarantee US energy supply security to Europe

·       We need double the energy we have in the US for AI to be as big as we want it

·       I am going to give emergency declarations so the building can start

·       We are going to allow very rapid plant building; they can fuel it with anything they want

·       I will bring the corporate tax rate to 15% if the product is made in the US

·       We are going to be demanding respect from other nations, including Canada

·       We can't continue the current trade deficit levels with Canada

·       I say to Canada, you can always become a state

·       I will meet Putin soon to end the war in Ukraine

·       I really would like to be able to meet with President Putin soon to get that war ended.

·       I want to obliterate US debt, which will happen rapidly

·       I see the US-China relationship as being very good

·       I hope China can help stop the war in Ukraine

·       China has a lot of power over Russia

·       Zelensky told him he’s ready to make a deal

·       Putin liked the idea of cutting way back on nuclear

·       I will approve power plants for AI through an emergency declaration

·       Ukraine peace efforts 'hopefully underway'

·       I'm signing action related to AI

·       Trump signing order related to establishing a Commission on Science and Technology

·       I’m not sure we should be spending anything on NATO

·       I expect the Fed to listen to me on interest rates

·       It would be nice if issues with Iran could be worked out without Israel striking military facilities

·       China is already paying a lot of tariffs because of me

·       Trump reiterates February 1st date for Canada and Mexico tariffs

·       Trump signs action to form internal working group on Crypto

·       Trump's action to prohibit a US Central Bank digital currency (CBDC)

·       Trump's crypto working group to study a US digital asset stockpile

·       Trump signs executive order promoting crypto, paving way for digital asset stockpile

·       Crypto Rips As Trump Signs EO Creating "Presidential Working Group On Digital Asset Markets"

·       Trump White House Shuts Down Spanish-Language Website And Social Media Accounts

·       Trump mistakenly threatened a Spanish journalist in his inaugural presser about ‘100% tariffs’ for being a BRICS member, thinking about USD alternative

·       I will put out a windmill order

·       I had a 'friendly' talk with China's President Xi

·       I would rather not have to use tariffs on China

·       Trump asked if he can make a deal with China's Xi: I can do that

·       Trump prefers to avoid imposing tariffs on China

·       Trump hopes to lead negotiations to settle conflict in Ukraine

·       Trump threatens 'massive' tariffs and sanctions against Russia if war continues

·       Trump to Contact North Korea's Kim

·       Trump says would rather not have to use tariffs on China

Conclusions:

Trump is using tariffs on US imports as leverage on exporting countries for various issues ranging from illegal immigration, drug trafficking, US trade deficit, the Make in America theme, the MAGA (Make America Great Again) narrative and also diplomatic/geopolitical issues. Trump may be using ‘tariffs’ rhetoric too much and may soon lose its importance/relevance. No exporters will pay additional tariffs on US exports; it’s US importers, who have to pay these tariffs, which will push up the cost of imported goods despite stronger USD as a trade war currency.

Although Trump sounded less hawkish on Chinese tariffs as China is a critical supply chain for the US, helping price ability, Trump’s suspense and the intention to use them as a deal-making weapon may add more uncertainty together with immigration policies, which may affect inflation and the labor market and Fed’s task more difficult. Fed may be on hold in Q1CY25 to see & assess actual Trump policies.

Also, Trump can’t make the US a major manufacturing hub overnight replacing China and other vital exporters simply by threatening or even putting additional tariffs on those exporting nations as the US lacks China's massive industrial and logistic ecosystem. Also, being a developed economy, labor costs are much higher in the US than in China and other EMs. The US middle class still now afford a moderate cost of living because of cheaper imports from EMs; otherwise, it can’t afford costly consumer durable products if those were completely manufactured in the US. The US needs cheaper imported goods and also services to maintain price stability and the Goldilocks nature of the economy. Trump can’t manage inflation by simply imposing additional tariffs on imported goods & services and cutting taxes to encourage Make in America policy.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42200) now has to sustain over 41800-41600 for any recovery and rally to 43000/43350-43800/45000* and 45500 in the coming days; otherwise sustaining below 41600, DJ-30 may further fall to 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (20990) has to sustain over 20700-21000 for recovery and rally to 21500/21900-22250/222500 and further 22700-23000/23300 in the coming days; otherwise, sustaining below 20700, NQ-100 may further fall to 20500/20300-20100/19250 in the coming days.

Technically, SPX-500 (CMP: 5865), now has to sustain over 5950 for any further recovery/rally to 6025/6050-6150/6200 and 6350/6500 in the coming days; otherwise, sustaining below 5925-5900, SPX-500 may further fall to 5800-5775 and 5700/5600-5475 in the coming days.

Also, technically Gold (CMP: 2690) has to sustain over 2705 for a further rally to 2725 and further 2740/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2700-2685 may again fall to 2655/2620-2605/2600 and 2595/2575-2535/2435 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.