July 14, 2025

QuickTakes

Russian Roulette, The Dollar & Gold

The US stock market held up very well today in the face of Trump's escalation of his trade war with the world over the weekend. Maybe that's because he threatened that his latest tariff salvo won't be fired until August 1 (i.e., Liberation Day II). So there is still time to negotiate trade deals. Today, he also threatened to impose 100% "secondary" tariffs on any country doing business with Russia if a Ukraine ceasefire isn't secured within 50 days.

Secondary tariffs are duties imposed on third countries that do business with a sanctioned nation and are designed to isolate that nation economically by targeting its trade partners. So Trump’s latest threat amounts to another round of tariffs on countries that import Russian oil, like India and China. The European Union also buys oil and gas from Russia, totaling $24 billion last year.

We don't like to draw too many conclusions from one day's trading, but we noticed that the price of gold edged down and the value of the dollar edged up on Trump's latest “tarrifying” news. Everyone is bearish on the dollar, except us (it seems).

From a contrarian perspective, today's Wall Street Journal included an article titled "Plunging Dollar Leaves American Travelers With Less Buying Power This Summer." Such headlines often occur at turns in the dollar. That would be consistent with the DXY dollar index’s rebounding off the bottom of its upward channel (chart).

We are still bullish on gold, though we think that the current consolidation may continue through the summer. The price has continued to be contained by its ascending channel (chart).

We haven't expressed an opinion on the silver price, partly because it is highly correlated with gold's price but is more volatile (chart). We also note that a June 19 WSJ article was titled "Surging Silver Prices Prompt Americans to Empty Jewelry Boxes and Coin Jars." So far, that article hasn't worked as a contrarian sell signal. Neither have numerous recent articles recommending buying silver worked as contrarian indicators, so far.

The big banks report their Q2 earnings on Tuesday and Wednesday mornings. They should be strong, on better-than-expected trading profits (chart). That should make for a good start to the upcoming earnings reporting season. Tomorrow morning's CPI report for June could be a downer for the stock and bond markets if it is hotter than expected, i.e., with a gain of 3.0% y/y or more for the core inflation rate.

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