Maybe we shouldn’t be surprised.
This now seems like an old negotiating tactic; President Trump yesterday did a U-turn on previous threats and said He will not use force to invade Greenland or impose tariffs on European countries that resist the U.S. takeover of the Danish territory, but will accept “additional discussions.”
The market breathed a sigh of relief. S&P 500 futures are up 0.64% this morning, following yesterday’s 1.16% gain, which puts it back in positive territory so far this year (up 0.44%).
Traders inevitably flock to “Trump TACO Trade” — the notion that “Trump is always timid.” The TACO trade (buying the dip when Trump says something terrible and then enjoying the upside when he compromises) has been so reliable over the past year that Some traders are worried Markets will become complacent about Trump’s more outlandish threats.
this In fact, the S&P fared worse Trump 2.0 performed better than Obama, Biden, and Trump 1.0. Over the past 12 months, the U.S. dollar has fallen 9% against foreign currencies. Both suggest global investors are more wary of U.S. assets than before.
One group of financial institutions is actively hedging against Trump’s ability to inject volatility into global markets and cause the dollar to weaken: Central banks are hoarding gold.
Traditionally, central banks use dollars to add to their reserves. While they still do this, they have also stepped up their gold purchases. Analysts say there are two main reasons for this. The first was Europe’s decision to seize $300 billion in reserve assets from the Russian central bank as sanctions for the invasion of Ukraine. This is “an event that reshapes the concept of monetary security” Adam Turnquist and Thomas Shipp of LPL Financial said.
The second is “macro policy risk,” which is the polite term Wall Street uses to describe events like Trump’s that scare everyone.
Goldman Sachs this morning raised its year-end gold price forecast to $5,400 per troy ounce. This morning, the Comex gold contract was trading at $4,828.40, just below its all-time high. Gold is up 11.24% year to date, far better than the S&P.
Daan Struyven and Lina Thomas of Goldman Sachs gave three main reasons why they believe gold has further gains: the continued influx of gold ETFs; high-net-worth households buying gold to hedge against uncertainty; and central banks.
Before 2022, central banks will purchase an average of 17 tons of gold per month. Today, Goldman Sachs analysts said the 12-month average production was 60 tonnes per month.
“The U.S. election process in November 2024… will push real gold prices higher towards our model-implied estimates based on observed flows in October 2024, but prices will quickly fall back once the November election results provide a clear resolution,” they told clients this morning, carefully avoiding the use of the “T” word.
Since then, “the rise in macro policy risks has not reversed in 2025. Perceptions of these macro policy risks appear to be more sticky. Therefore, we assume that (gold-based) hedging of global macro policy risks remains stable, as these perceived risks (such as fiscal sustainability) may not be fully resolved in 2026,” they said.
LPL teams have noticed the same trend.
“While we do not believe the U.S. dollar is at risk of losing reserve currency status — given the lack of viable alternatives — central banks continue to diversify away from the U.S. dollar and U.S. Treasuries,” they wrote. “Gold’s share of global reserves has now surpassed U.S. Treasuries and the euro to become the second largest asset after the U.S. dollar.”
LPL Finance
Here’s a snapshot of the market ahead of the opening bell in New York this morning:
- S&P 500 Index Futures were up 0.64% this morning. It closed up 1.16% on the previous trading day.
- Stoxx Europe 600 Index It rose 1.36% in early trading.
- UK FTSE 100 Index It rose 0.83% in early trading.
- Japan’s Nikkei 225 Index down 0.41%.
- China CSI 300 Very flat.
- Korea Composite Stock Price Index up 0.87%.
- Indian NIFTY 50 down 0.3%.
- Bitcoin Up to $89.9K.