'Buy America', Keep Gold as Insurance, and…

Globe and Mail

27-05-2025

The 'sell America' trade is getting a lot of attention these days, but it seems that enough is enough.
The about-to-be-hiked tariffs for the EU were delayed by a month (precisely: to at least July 9), and it looks like we're getting the same kind of story as we've seen recently. First, a threat, then, escalation, which is followed by delay, putting pressure on the other side.
Where does it all lead to? Likely to trade agreements that have ultimately increase the level of tariffs. I already wrote about the implications for the world trade (it's going to decline), for the stock markets (as above, they are likely to decline based on the trade obstacles), and I wrote about the fundamental implications for the U.S. dollar (they are bullish – with lower demand for foreign currencies given increase in their purchase prices due to tariffs).
Today, I'd like to discuss one other aspect that remains unclear. It's about the coordinated response by the world economies to U.S. tariff hikes vs. independent reactions.
In 1-on-1 talks, the U.S. has the advantage – it's the world's biggest economy, after all.
But, if the rest of the world was to team up (or at least several major economies) and negotiate on the same front (like a trade union), the power would no longer be on the U.S. side. After all, despite the U.S. is the biggest economy, it's not as big as several of the other big economies taken together.
The most detrimental situation to the U.S. would be having to negotiate with multiple economies at the same time that are already making deals among themselves.
Trump knows this, which is why he's isolating the discussion. China was isolated first, and the entire focus / tariff burden was on it. With arrangements in place, time has come for the EU. Maybe Japan comes next (with implications for the Japanese yen)?
So far, it seems that this policy is working – at least as far as we know based on the official communication. It's also possible that there are discussions being held to which the U.S. is not invited, but right now the former, straightforward interpretation seems more likely.
If this continues, the terms for the U.S. will be more favorable, BUT the entire world trade, world economies and world stock markets are still likely to take a hit due to 'operation tariffs'.
Is this how the markets perceive the situation? Absolutely not.
It's 'sell America' all over the board. The world stocks are performing better than the U.S. stocks and the USD Index was slammed since the tariffs were announced.
Does it make sense?
Did the U.S. stop being the world's most powerful economy after April? With the most powerful army? With the biggest tech hub in the world, ready to capitalize from the AI growth (yes, the pricing of AI equities is likely too much, but the AI revolution has only begun)?
No – what happened was that the non-U.S. produced goods will be more expensive for U.S. consumers. This will make them more expensive to U.S. companies and U.S. buyers, pushing inflation higher (which is likely to prevent the Fed from cutting rates). At the same time, the declining demand for non-U.S. products, would also diminish the demand for foreign currencies. Lower demand for them, means their lower values (compared to the value of the U.S. dollar). So, the U.S. dollar should move higher given the overall tariff increases.
But no – the emotional reaction took precedent.
Can the emotional reaction to events last? For some time, yes, but the time is against this kind of reaction, as the market is likely to come its senses.
When? Perhaps when the statistics for May will start to arrive and we'll see the first signs of slowdown. This might affect stocks and commodity prices, and by 'affect', I mean that they could start to decline and then plunge.
Won't the troubling statistics impact the USD? Back in 2008 and 2020, the troubling statistics benefitted the USD – it was only after massive money printing was announced that the USD declined in 2020.
Won't the USD Index just keep on declining based on whatever is going on with the markets emotionally?
No – at some point, enough is enough, and we have the technical analysis to tell us how far is too far and where are the levels that are likely to hold. (chart courtesy of http://www.GoldPriceForecast.com)
The USD Index moved close to its recent low, but it doesn't seem to matter, as this year's bottom formed at a super-strong support area. Only one of the following support levels would be enough to trigger a major reversal and shift the sentiment, and we've got not one but three of them. Here they are:
The rising support line based on the 2011 and mid-2021 bottoms
The 38.2% Fibonacci retracement level based on the 2008 – 2022 rally
The 61.8% Fibonacci retracement level based on the 2018 – 2022 rally
All this, while we're relatively close to the middle of the year – which is when the USD Index tends to form major bottoms. I marked it on the above chart.
The USD Index did not rally for the second month in a row, which might seem bearish, but it's not. If you look at how the USD Index performed before launching its biggest rallies in the previous years, you'll see that what we see now is in perfect tune with those patterns.
In each case – when we saw those major bottoms in the USDX – the precious metals sector and copper declined profoundly.
There's one case that's a bit different than the other ones – the 2021 bottom was a double-bottom pattern, so which bottom should we take into account? In my view, the second one as it's aligned seasonally – that second bottom formed in May, 2021.
We've Been Net Long Gold, Remember?
Before summarizing, I would like to emphasize something that many people seem to get wrong about my analyses. Namely, people sometimes say that I've been shorting gold, which is completely not true. There were a few local short trades in gold and there were a few local long trades in gold, but almost all of the time in the past months and years, I haven't been trading gold at all. In fact, we've been long gold for years through the insurance part of the portfolios.
At the end of each Gold Trading Alert, there's a summary section, and one of its components is:
'Insurance capital (core part of the portfolio; our opinion): Full position. If you'd like to buy gold or silver (for example through your IRA – you get a guidebook on that over here), I suggest that you do so through one of the top gold dealers. '
This has been kept at 'full position' since its inception many years ago. Furthermore, if you click the 'portfolio' link above, you can read inside of the report that the insurance part of the portfolio (being long gold) should be kept intact 'even when you think that gold and silver may decline.'
While I'm not telling anyone how much they should invest, the above report provides three sample portfolios (beginner, trader, and long-term investor), and they have the following sample weights:
Beginner: 44.1% as insurance (being long gold), max. loss per trade 0.1% of capital (so, even if the size of the trade was put at 300% of the above, it would still be max loss of 0.3% of the capital)
Trader: 17.6% as insurance (being long gold), max. loss per trade 2%
Long-term investor: 33.6% (being long gold), max. loss per trade 1%
Yes, I am writing in my analyses about gold, silver, and mining stocks, and I'm usually writing about gold as that's the simplest way to discuss the short- or medium-term outlook. However, it doesn't mean that I think that being out of the gold market completely is a good idea! Or that if I'm being bearish on gold, that I'm shorting gold, and not something else from the precious metals market (like miners or silver, which is the case right now).
The bottom line is, if someone followed by Gold Trading Alerts indications, they were pretty much always net long gold with periodic hedges through mining stocks, and sometimes other assets.
If this is surprising, please feel free to review ANY of the Gold Trading Alerts that I have posted in the recent years. The portfolio report is not linked once, but three times in each summary.
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Thank you for reading the above free analysis. And for staying up-to-date with my thoughts on the market – I appreciate you taking them into account while making your own investment decisions.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief