KINGSTON, NY, 25 JULY 2018—Monday the Nasdaq hit a record high. Tuesday the Dow jumped 200 points led by Google-parent Alphabet's strong earnings. Today the Dow closed up 172 points.
As for gold, now trading in the $1,230 range per ounce, and down over 10 percent from its mid-April high of $1,365.23, investors and hedge funds are betting prices will fall even lower.
Which trends will continue? Which will reverse?
ON THE MARKET FRONT
Globally, the nine-year market surge was fueled by a historic cheap money binge that is beginning to dry up.
In the U.S., as a result of generous corporate tax breaks, equities this year were boosted by a record setting $437 billion dollars in stock buybacks. And the markets would be in negative territory if it were not for Amazon and four tech companies' soaring stock prices.
On a grander scale, we warned in one of our Top Trends for 2018, "Mass Murder, Market Shock," that a U.S./Israel/Saudi Alliance forming against Iran would destabilize markets worldwide.
The first measures were taken in May when President Trump exited the 2015 Joint Comprehensive Plan of Action in which Iran agreed to limit its nuclear activities, and in return sanctions against Iran would be removed. Shortly following the exit, the Administration declared economic war by putting new sanctions on Iran, vowing to get its oil "imports as close to zero as possible."
And in the span of just 24 hours this week, our forecast of escalating overt and covert threats against Iran continues.
On Sunday, in response to Iranian President Hassan Rouhani's earlier warning to President Trump not to "play with the lion's tail," Trump tweeted:
"NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE."
Also on Sunday, U.S. Secretary of State Mike Pompeo played the covert card. He announced that the U.S. would launch a 24/7 Farsi-language channel to give "the long-ignored voice of the Iranian people" America's version of how to Make Iran Great Again.
Clearly, should the threat continue and oil prices sharply rise, equity markets and economies will crash.
ON THE GOLD FRONT
As we had long forecast, the higher U.S. interest rates rise and the stronger the dollar grows, gold prices, along with other interest-rate-sensitive assets, such as housing, would decline.
Indeed, Trump, a seasoned real estate investor who understands the adverse effects of high interest rates on the industry and economic growth, recently stated he's "not thrilled" with the U.S. Federal Reserve's aggressive interest rate hikes.
TREND FORECAST: While there will be continued upward swings to U.S. equities, the Trump Rally, as we forecast in January, has peaked. As for gold, prices approached the $1,200 level we predicted. Thus, we forecast gold's upside potential is much greater than the downside risk.