Trump's TACO strategy: Which will see a real correction first, gold or US stocks?
2026-01-16 22:00:41
With the easing of tensions in Iran, strong US economic data, and escalating geopolitical tensions in Greenland, gold has entered a stabilizing phase after hitting a record high, maintaining a range-bound trading pattern in the short term. The market may be trading now as Trump appears at the Davos Economic Forum next week, and given the recent disputes caused by the US, Trump may be facing another TACO (Taco) situation.
Earlier this week, gold (XAU/USD) surged to a record high of around $4,643, driven by escalating geopolitical tensions and market concerns about the Federal Reserve's independence. On Friday, prices retreated and consolidated, testing the 5-day moving average as of this writing. A slight weekly gain is still highly probable, but given the recent volatility in the equity market, a correction along with the equity market may be imminent.
Easing tensions in Iran and strong US economic data have significantly suppressed gold prices. The recent continuous sell-off of US Treasury bonds indicates that the market is reducing its risk reserves, while the high-level fluctuations in global stock markets have also suppressed the risk appetite that supports the high levels of gold and silver prices.
The current market focus is on statements from Federal Reserve officials, traditional geopolitical dynamics (such as Iran) and new geopolitical variables (Greenland), as well as the impact of equity markets. These key factors will jointly dominate the short-term trend of gold prices.
Specifically, marginal changes in the situation in Iran are one of the key factors suppressing gold prices in the short term: previous reports indicated a decrease in violent protests and a halt to executions in Iran, coupled with a softening of rhetoric by former US President Donald Trump towards Iran, which eased market concerns about an immediate military conflict between the US and Iran, and consequently reduced the geopolitical risk premium.
However, the United States announced a new round of sanctions on senior Iranian officials and entities involved in handling the protests on Thursday, and the situation in Iran remains uncertain, not completely losing its potential support for gold prices.
The yields on US 2-10 year Treasury bonds clearly show that after gold hit new highs recently, Treasury bonds were sold off continuously. This indicates that the market believes that the geopolitical risks have been fully priced in after gold reached new highs, or that the market's demand for safe-haven assets has weakened.
The newly emerging geopolitical tensions in Greenland are a key reason for the recent record highs in gold and silver prices, with the market already pricing in the worst-case scenario.
President Trump has made it clear that, based on national security strategic considerations, the United States intends to gain control of Greenland and has hinted that it will not rule out using both economic and military means to advance this goal. This is very similar to the TACO (Trump always chickens out) strategy of applying maximum pressure from the beginning.
It should be noted that Greenland is an autonomous territory of Denmark, a member of NATO and the EU. If the US were to take any military action rashly, it would pose a fatal blow to the foundation of NATO's survival and trigger a crisis of confidence in the transatlantic alliance.
Currently, many European political leaders are seriously examining Trump's threatening remarks, but it is difficult to judge his true strategic intentions. Some people believe that this is a straightforward demand from the US, while others see it as a bargaining chip. The real purpose may be to strengthen military deployments in Greenland, control the rights to rare earth resource mining, or force European allies to bear more security and defense costs.
In terms of response strategy, Europe will most likely resort to diplomatic channels and employ a combination of "carrot and stick" tactics (bribery and deterrence).
Meanwhile, in order to alleviate Trump's security concerns and weaken the legitimacy of the US's forced takeover, Europe may push NATO to increase its participation in Greenland and the Arctic region.
At the same time, Trump is accustomed to starting with a strong deterrent, but as he gains more bargaining chips, he eventually reaches TACO. The attitude of the United States in Davos, with its strongest team in history, is likely to send a goodwill signal for TACO.
Aside from geopolitical factors, US economic data and Federal Reserve policy dynamics remain the core variables influencing gold prices. US economic data has been stronger than expected, with several key figures released this week confirming the economy's resilience.
The robust economic data, coupled with hawkish signals from Federal Reserve officials, has fueled market expectations of a delayed interest rate cut—a significant negative factor for gold, which offers no interest income.
In terms of monetary policy, the market has already fully priced in the possibility that the Federal Reserve will keep interest rates unchanged at its January meeting. According to the CME FedWatch Tool, traders point to June as the most likely time for the first rate cut this year, with a probability of about 46.6%, further solidifying the expectation of "gradual rate cuts rather than aggressive easing".
Recent statements from Federal Reserve officials have been mixed but generally hawkish: Chicago Fed President Goolsby maintained his expectation of a rate cut this year, but emphasized that further data is needed to confirm the downward trend in inflation before there is "considerable room for a rate cut," and reiterated the core importance of the 2% inflation target; Atlanta Fed President Bostic pointed out that inflation is still too high and a restrictive policy stance needs to be maintained; Kansas City Fed President Schmid advocated maintaining "moderately restrictive" measures to consolidate the downward trend in inflation; and San Francisco Fed President Daly believes that current policy is in an appropriate range and there is no need to rush into adjustments.
The previous surge in silver prices spurred the rise in copper and gold prices. One underlying reason at the time was that, under the AI narrative, the industrial demand for precious metals was highly elastic, but the supply elasticity of precious metals was very low, which created a huge contradiction between supply and demand. At the same time, after precious metals outperformed the equity market this year, the overall market liquidity and risk appetite would affect the precious metals market, thus creating a resonance phenomenon in which the equity market and the precious metals market influenced each other.
The positive performance of the equity market has boosted market risk appetite and indicates ample liquidity. Furthermore, the recent rise in the equity market, mainly driven by industries such as AI, indirectly confirms the increased industrial demand for precious metals.
However, the recent volatility in equity markets, with many stock indices consolidating after reaching new highs, has also put downward pressure on precious metals.
In short, precious metals are adjusting due to the sell-off of US Treasury bonds and the decrease in geopolitical risks. This also suggests that global equity markets may adjust. If equity markets strengthen instead, it will support gold. Meanwhile, marginal changes in geopolitics are also an important point to observe for gold's strength.
The market may currently be pricing in Trump's statements regarding Venezuela, Greenland, Iran, and the Fed's TACO strategy, leading to a decline in the pricing of geopolitical risks. At the same time, adjustments in equity markets have tightened risk appetite, putting downward pressure on gold. Subsequently, rising US Treasury yields and positive US domestic data have boosted the dollar, further suppressing gold prices.
Going forward, we need to observe the statements made by Trump's team at the Davos Economic Forum, and also whether the equity market can continue to rise after a false drop. Recent performance of gold and silver suggests that the equity market may be undergoing a genuine correction after a struggle.
Finally, we need to observe the US dollar index. Currently, the US dollar index has risen to a key resistance level. Although there is a need for adjustment, it is still in a strong range.
Technically, both spot gold and spot silver are testing the 5-day moving average. If they fail to close above the 5-day moving average, it indicates the beginning of weakness and may be the start of a correction. If they close above the 5-day moving average, coupled with a rebound in the equity market, the precious metals market will continue its upward trend.
(Spot gold daily chart)
(Spot silver daily chart, source: EasyForex)
At 21:58 Beijing time, spot gold was trading at $4,601.4 per ounce.
Earlier this week, gold (XAU/USD) surged to a record high of around $4,643, driven by escalating geopolitical tensions and market concerns about the Federal Reserve's independence. On Friday, prices retreated and consolidated, testing the 5-day moving average as of this writing. A slight weekly gain is still highly probable, but given the recent volatility in the equity market, a correction along with the equity market may be imminent.
Easing tensions in Iran and strong US economic data have significantly suppressed gold prices. The recent continuous sell-off of US Treasury bonds indicates that the market is reducing its risk reserves, while the high-level fluctuations in global stock markets have also suppressed the risk appetite that supports the high levels of gold and silver prices.
The current market focus is on statements from Federal Reserve officials, traditional geopolitical dynamics (such as Iran) and new geopolitical variables (Greenland), as well as the impact of equity markets. These key factors will jointly dominate the short-term trend of gold prices.
The situation in Iran is easing on the margins, but the implementation of sanctions remains uncertain.
Specifically, marginal changes in the situation in Iran are one of the key factors suppressing gold prices in the short term: previous reports indicated a decrease in violent protests and a halt to executions in Iran, coupled with a softening of rhetoric by former US President Donald Trump towards Iran, which eased market concerns about an immediate military conflict between the US and Iran, and consequently reduced the geopolitical risk premium.
However, the United States announced a new round of sanctions on senior Iranian officials and entities involved in handling the protests on Thursday, and the situation in Iran remains uncertain, not completely losing its potential support for gold prices.
The yields on US 2-10 year Treasury bonds clearly show that after gold hit new highs recently, Treasury bonds were sold off continuously. This indicates that the market believes that the geopolitical risks have been fully priced in after gold reached new highs, or that the market's demand for safe-haven assets has weakened.
Tensions are escalating in Greenland, but the possibility of Trump taking Taco remains.
The newly emerging geopolitical tensions in Greenland are a key reason for the recent record highs in gold and silver prices, with the market already pricing in the worst-case scenario.
President Trump has made it clear that, based on national security strategic considerations, the United States intends to gain control of Greenland and has hinted that it will not rule out using both economic and military means to advance this goal. This is very similar to the TACO (Trump always chickens out) strategy of applying maximum pressure from the beginning.
It should be noted that Greenland is an autonomous territory of Denmark, a member of NATO and the EU. If the US were to take any military action rashly, it would pose a fatal blow to the foundation of NATO's survival and trigger a crisis of confidence in the transatlantic alliance.
Currently, many European political leaders are seriously examining Trump's threatening remarks, but it is difficult to judge his true strategic intentions. Some people believe that this is a straightforward demand from the US, while others see it as a bargaining chip. The real purpose may be to strengthen military deployments in Greenland, control the rights to rare earth resource mining, or force European allies to bear more security and defense costs.
In terms of response strategy, Europe will most likely resort to diplomatic channels and employ a combination of "carrot and stick" tactics (bribery and deterrence).
Meanwhile, in order to alleviate Trump's security concerns and weaken the legitimacy of the US's forced takeover, Europe may push NATO to increase its participation in Greenland and the Arctic region.
At the same time, Trump is accustomed to starting with a strong deterrent, but as he gains more bargaining chips, he eventually reaches TACO. The attitude of the United States in Davos, with its strongest team in history, is likely to send a goodwill signal for TACO.
Economy and Policy: Solid US data and a hawkish Fed stance suppress expectations of interest rate cuts.
Aside from geopolitical factors, US economic data and Federal Reserve policy dynamics remain the core variables influencing gold prices. US economic data has been stronger than expected, with several key figures released this week confirming the economy's resilience.
The robust economic data, coupled with hawkish signals from Federal Reserve officials, has fueled market expectations of a delayed interest rate cut—a significant negative factor for gold, which offers no interest income.
In terms of monetary policy, the market has already fully priced in the possibility that the Federal Reserve will keep interest rates unchanged at its January meeting. According to the CME FedWatch Tool, traders point to June as the most likely time for the first rate cut this year, with a probability of about 46.6%, further solidifying the expectation of "gradual rate cuts rather than aggressive easing".
Recent statements from Federal Reserve officials have been mixed but generally hawkish: Chicago Fed President Goolsby maintained his expectation of a rate cut this year, but emphasized that further data is needed to confirm the downward trend in inflation before there is "considerable room for a rate cut," and reiterated the core importance of the 2% inflation target; Atlanta Fed President Bostic pointed out that inflation is still too high and a restrictive policy stance needs to be maintained; Kansas City Fed President Schmid advocated maintaining "moderately restrictive" measures to consolidate the downward trend in inflation; and San Francisco Fed President Daly believes that current policy is in an appropriate range and there is no need to rush into adjustments.
Risk resonance in the equity market
The previous surge in silver prices spurred the rise in copper and gold prices. One underlying reason at the time was that, under the AI narrative, the industrial demand for precious metals was highly elastic, but the supply elasticity of precious metals was very low, which created a huge contradiction between supply and demand. At the same time, after precious metals outperformed the equity market this year, the overall market liquidity and risk appetite would affect the precious metals market, thus creating a resonance phenomenon in which the equity market and the precious metals market influenced each other.
The positive performance of the equity market has boosted market risk appetite and indicates ample liquidity. Furthermore, the recent rise in the equity market, mainly driven by industries such as AI, indirectly confirms the increased industrial demand for precious metals.
However, the recent volatility in equity markets, with many stock indices consolidating after reaching new highs, has also put downward pressure on precious metals.
Summary and Technical Analysis:
In short, precious metals are adjusting due to the sell-off of US Treasury bonds and the decrease in geopolitical risks. This also suggests that global equity markets may adjust. If equity markets strengthen instead, it will support gold. Meanwhile, marginal changes in geopolitics are also an important point to observe for gold's strength.
The market may currently be pricing in Trump's statements regarding Venezuela, Greenland, Iran, and the Fed's TACO strategy, leading to a decline in the pricing of geopolitical risks. At the same time, adjustments in equity markets have tightened risk appetite, putting downward pressure on gold. Subsequently, rising US Treasury yields and positive US domestic data have boosted the dollar, further suppressing gold prices.
Going forward, we need to observe the statements made by Trump's team at the Davos Economic Forum, and also whether the equity market can continue to rise after a false drop. Recent performance of gold and silver suggests that the equity market may be undergoing a genuine correction after a struggle.
Finally, we need to observe the US dollar index. Currently, the US dollar index has risen to a key resistance level. Although there is a need for adjustment, it is still in a strong range.
Technically, both spot gold and spot silver are testing the 5-day moving average. If they fail to close above the 5-day moving average, it indicates the beginning of weakness and may be the start of a correction. If they close above the 5-day moving average, coupled with a rebound in the equity market, the precious metals market will continue its upward trend.
(Spot gold daily chart)
(Spot silver daily chart, source: EasyForex)
At 21:58 Beijing time, spot gold was trading at $4,601.4 per ounce.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
