I have been bullish on gold for months now, warning it would break out last month. That shouldn’t be a shock if you’re a regular reader of Markets & Money. If you aren’t, CNBC summed up our view for 2019 a few weeks back (my emphasis added):
‘Investors and businesses may have overlooked one big risk that could come out of Washington next year: The possible impeachment of U.S. President Donald Trump.
‘Whether or not the impeachment process gets underway, it’s likely to feature highly in U.S. political discussions and cripple Washington’s ability to get things done — that in itself is a big risk for businesses, said Steve Okun, senior advisor at U.S.-based geopolitical consulting firm McLarty Associates.
‘“Democrats will do something on impeachment next year,” he told CNBC’s Nancy Hungerford on Dec. 26.’
With the Mexican border wall the talk of the town today, impeachment is likely to be next on the agenda. The Democrats won the US House of Representatives in the mid-term elections last November, dealing a blow to President Donald Trump. Of course, as you’re probably aware, the Republicans held onto control of the Senate. That’s why few people expect Donald Trump to be impeached.
I understand. It makes sense.
But, I believe people are giving those in power too much credit…
The price of gold is starting to take notice
Donald Trump, in my view, stands for the people’s interests. That’s why he got elected in 2016. Career bureaucrats and politicians despise his agenda. The US President isn’t a socialist either. He stands for lower taxes to stimulate the economy and tougher immigration laws. Trump wants to ‘drain the swamp’ and is a strong isolationist. That’s demonstrated by his recent decision to pull troops out of Syria.
So, while it’s likely to be a roller-coaster ride of a year, the Democrats can use their new-found power to send subpoenas, letters requesting documents, and invitations to officials to get grilled before a Democratic-led committee at the very least. And, assuming the clouds around Washington become darker, there’s a chance a number of Senate Republicans could turn against the US President in the months ahead.
CNBC noted late last year (my emphasis again):
‘Justice Department special counsel Robert Mueller is reportedly nearing the end of his investigation into whether Russia interfered with the 2016 presidential elections. He’s expected to submit a report to the attorney general as early as mid-February, NBC News reported.
‘“Washington is going to shut down, literally … because the president is not going to be able to focus on anything but that. I think that is a huge risk going into 2019,” [Steve Okun] added.’
‘“I think 2019 is going to make 2018 look tame in comparison … I’ve never seen such nervousness in the U.S. business community as I’ve seen now,” he said.’
Whether the political elite will get their wish and impeach the US President is unknown. But it could happen, if Robert Mueller’s investigation reveals any elements of corruption and perjury. With a potential crisis in government brewing, the price of gold is starting to take notice.
That shouldn’t be a shock for regular readers.
I warned for several months that the yellow metal would break out in December last year.
The question is: what happens next?
In short, as pressure and tensions build against Trump in the months ahead, the gold price could surge sharply higher. The political elite seem desperate to dethrone the US President, after all. That suggests it could be a good year for gold.
Why gold could surge higher
Remember, during the Watergate scandal, gold surged between 1972 and 1974. US President Richard Nixon was named as an unindicted co-conspirator in the indictment of seven former aids. He knew he was guilty. The US President resigned in August 1974. That’s why he didn’t get impeached:
Source: Market Watch
Here’s what happened to the gold price:
Source: Lombardi Letter
You may have seen this chart before. I have shown it a few times now. The yellow line shows the gold price. The black line shows the US Dow Jones Industrials Index. Gold tripled from its low of $60 per ounce. It hit a high of US$180 per ounce during the Watergate scandal. Mind you, the yellow metal crashed by 50% from 1974 to 1976. That’s when a deep recession hit the US.
The constitutional crisis was also over.
Looking at history, I believe gold could see a final bear market rally into 2020. If my analysis is correct, the crisis in government is likely to push the yellow metal higher this year. That shouldn’t be a shock. The same thing happened during Watergate. The public become increasingly frustrated with the status quo.
I believe there is a political agenda at play today, as well. It’s to get rid of Donald Trump.
If correct, gold could skyrocket into 2020/21. That’s when the next major political crisis could blow up based on my analysis. Remember, as explained many times, the yellow metal rallies into major crises and crashes during/ following them.
For example, gold rallied during the Watergate scandal. The crisis caused a significant amount of uncertainty. The yellow metal peaked when Nixon was named as an unindicted co-conspirator. That’s when the uncertain became certain. Nixon stepped down because he knew he did wrong.
I don’t think it will be the same fate for Trump, mind you.
The US President is caught in the fight of his life against the ‘Washington Swamp’. That much is clear. There’s a good chance, assuming things turn dirty, ‘The Donald’ won’t go down without a fight.
Think about it: the amount of political chaos that would create would be unprecedented. If the political witch hunt heats up, gold could take off in the months ahead. That’s why a portfolio of precious metal stocks, with the most potential, could deliver superior gains and outperform the market.
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