Prior to the election, I discussed the possible ramifications on the economy and the financial markets.  I said that if Trump were to win, that the markets would likely resemble what happened in the U.K. after Brexit.

I stated: “The polls suggested that the Brexit vote would fail.  When it actually passed, stocks fell, including outside of Great Britain.  But after the dust settled a bit, stocks recovered.”

I thought it would be the same with a Trump victory.  In a sense, I was correct, but I certainly underestimated the speed at which stocks would recover.

When the results started hinting at a Trump win on Tuesday night, the Dow futures were down over 800 points at one time.  By the next morning, the Dow was nearing new all-time highs.  In the period of about 14 hours, the Dow shifted direction by about 1,000 points.

Fortunately I did not short any stocks in anticipation of a Trump victory.  It could have only been profitable if I had been trading futures in the after-hours.

As fickle as the voters are, apparently investors are even more fickle.  Investors called it wrong on Trump’s victory.  Otherwise, it would have already been mostly priced into the market.  But once a Trump victory was apparent, investors didn’t know which way to go.

In a way, I don’t blame them because Trump really is a wildcard.  We don’t know what we are going to get.

Trump has been more critical of the Federal Reserve than any incoming president, at least within the last few decades.  Is Janet Yellen going to change policies at all because of the election outcome?  I really don’t know, and apparently investors have no idea either.

The 10-year yield spiked up this week, closing at about 2.15%.  But it is hard to say what exactly is driving this.  Are investors preparing for further rate hikes by the Fed that we have all been waiting for?

But bonds weren’t the only loser this week.  Gold prices were crushed.  They initially surged higher on Tuesday night, but then shifted dramatically on Wednesday.  After being over $1,300 per ounce, the price finished at about $1,227 for the week.

The only thing that did worse than gold was gold mining shares.  They were absolutely crushed, especially on Thursday and Friday.

I think it will take a little time for everyone to digest the news of a Trump presidency.  And we really don’t know what we are going to get.  Maybe his cabinet picks will give us a little better sense.

Either way, he is inheriting a mess.  The economy still has a lot of misallocations from the easy Fed policies of 2008 to 2014 when the Fed approximately quintupled the adjusted monetary base.  In addition, the government continues to spend about $4 trillion per year.

If Trump really wants to help the economy, aside from repealing Obamacare, he would find other regulations to repeal and he would cut the federal budget.  I doubt the budget will be cut, but that is really one of the big long-term answers to making things better.

For every dollar the government spends, whether it is through taxes or debt, it is misallocating wealth.  It is spending money on things that were not a top priority for consumers and investors.  It hurts the process of generating new wealth.  Government spending needs to be reduced.

While Yellen and company may be less anxious to help out Trump with a recession, they aren’t going to purposely allow things to fall apart on their watch.  In other words, if we have a deep recession, you should still expect more monetary inflation from the Fed.

Therefore, while gold prices could take a hit in the short run, the main reasons for owning gold are still in place.  Gold is a hedge against a depreciating dollar, courtesy of the Fed.

In fact, if you were looking to get into some gold or gold stocks, I think now is a good entry point.  Again, it could still fall more in the short run, but it is better to buy on the dips.  And it was a massive dip this week for gold stocks.

Unless Trump changes things drastically, it will still ultimately be the Fed that determines the course of the economy and the price of gold.  When you hear talk about QE4, then you can expect the gold price to skyrocket higher.