Gold took a hammering from the strong dollar, losing US$80 an ounce in the hours after Trump stormed back into the White House, copper fell by US20c a pound US$4.21/lb and silver dropped by US$1.53 to US$31.17/oz.
It might not stay like that because President-elect Trump is the wild man of global politics. He is also a man on a mission determined to finish what he started in 2016, only to be derailed by Covid and his own behaviour.
The next four years promise to be a roller-coaster ride of the sort tipped by analysts at Citi, a top U.S. investment bank, who were quick to warn that a “red sweep” of U.S. government would ease the passage of new laws.
High on Citi’s watch list is a Trump plan for a hefty cut in corporate tax and a tariff increase across the board of 10%-to-20% on all imports.
“Treasury yields increased on the news (of Trump’s return),” Citi said. “But we continue to think Federal Reserve policy rates will follow existing macro fundamental trends rather than political developments.
“The labor market is softening, inflation has cooled, and the Fed will proceed to cut rates this week, and likely beyond.”
Australia, because of its high spending government, will have to wait until well into next year to see interest rates fall.
The key to Trump 2.0 is that this time around he really is an old man in a hurry, returning as a 78-year-old, unable to stand again and even if he could, he would be 82.
That means Trump has nothing to lose and no-one else to blame if he makes mistakes with control of every level of government in the U.S. which means that Trump 2.0 will be a full-on, hard right, pro-business, government.
In theory and barring external events such as a worsening of wars in Ukraine and the Middle East, or a flare up in Korea, it could be a hugely profitable time for business and investors – as happened during Trump 1.0, from 2016 to 2020.
History never repeats exactly, but it is interesting to look back at how the Australian stock market performed in Trump’s first four-year term because it really was a good time to be an investor, especially one with a resources focus.
In the four years to early 2020, when Covid changed everything, the ASX metals and mining index rose by 62%, meaning even Blind Freddie and his dog should have been making money.
The gold index did better, up 98%, tracking the gold price which rose by 51% during Trump’s first four years as president rising from US$1282 an ounce to US$1938/oz. Even the all-ordinaries had a reasonable run, up 31%.
It is too early to predict the results of Trump 2.0 but the man himself, and what he stands for (good and bad) hasn’t changed. He really is the devil we know.
In other words, investors can expect financial market turbulence but can also be confident of the trend (which is always your friend) which will unquestionably be pro-business.
If there is a worry for Australia its Trump’s threats to whack China with punitive tariffs which could hurt Australian exports but even on that score there is comfort in the views of Fortescue boss Andrew Forrest who this week described Trump as “a pragmatic economic guy.”
There is more to worry about on the left of politics and believers in the package of theories promoted as ESG (environment, social and governance).
The Australian newspaper’s editor at large Paul Kelly succinctly summed up the left’s problems, which are those of the Australian Government, because the return of Trump is a defeat for “progressives and their economic priorities of climate change action and identity politics”.
Locally, the Australian market largely took Trump’s re-election in its stride, rising by 1% in a week interrupted by the running of the Melbourne Cup as well as the U.S. election.
Gold stocks had the worst of trading with their index down a thumping 9.7%. The broader metals index held up surprisingly well with a fall of just 1%.
A theme which is likely to emerge over the next few weeks is investor interest in Australian stocks with U.S. assets, a trend driven by Trump policies favoring home made goods and services.
Woodside Energy was an example of what’s to come with its increasing exposure to the U.S. helping lift the stock yesterday (Thursday) by 40c (1.7%) to $23.89 on a day when the oil price fell.
South32, a diversified miner with growing U.S. exposure, lost 1c yesterday but added 14c (3.7%) over the week to close at $3.75 taking its rise since early August to 32%, largely thanks to its exposure to aluminium and alumina, two late arrivals at the clean energy party, and an emerging U.S. copper/zinc project.
A negative highlight has been the personal meltdown of Mineral Resources chief executive, Chris Ellison, whose past misdeeds have come home to roost, costing him his job at a business he created, and all shareholders a 50% share price fall over the last six months – a loss of roughly $1 billion for Ellison.
This week saw a continuation of the MinRes crash, down $1.36 to $37.74 despite a modest rise of 48c yesterday as some fearless speculators tested the old adage about not trying to catch a falling knife.
Gold, as mentioned earlier, had a tough week, as did most miners of the metal. Sector leaders such as Northern Star and Evolution were down, 80c and 36c to $16.55 and $4.75 respectively.
Other moves included St Barbara, down 4.5c to 33c after announcing a $110 million capital raising. Emerald Resources, down 40c to $3.76 despite a buy tip from CG Capital Markets and price target of $5, and Rox Resources, down 1.5c at 17c despite CG tipping a future price of 55c.
The big boys of Australian mining were the stars of a tricky week, led by BHP which rose by 66c to $43.03. Rio Tinto also enjoyed modest demand, adding $2.60 to $121.50.
Champion Iron, which has its operations perfectly positioned in Canada for shipping across the border into the U.S., was the pick of the iron ore stocks with a rise of 27c to $6.15. Fortescue, which is more dependent on China as a market, rose by 31c to $19.42.
Sandfire did best among the copper stocks with a rise of 17c to $10.47 over the week but was weaker in the immediate aftermath of Trump’s election.
FireFly, the hottest of the new copper players, ran out of puff, easing back by 5c to $1.24, but remains up 40c on where it was six months ago.
Lord Resources, a microcap, was steady at 2.9c but caught the eye of seasoned copper watchers with an announcement that it has struck a deal to explore beneath the historic Ilgarari copper mine in the north-west of WA.
Other news and market moves this week included:
- Nickel Industries rising by 2c to 93c after attracting positive comments about its third quarter report. Morgan Stanley reckons it will rise to $1.10.
- Lynas Rare Earths adding 52c to $7.98 but on the receiving end of a backhander from Macquarie Bank which reckons the stock is “priced for perfection” with the price likely to fall to $7.50, and
- Weakness across the uranium sector thanks to a slight fall in the price of the nuclear fuel. Boss lost 23c to $3.18 and Paladin was down 41c at $9.61.
