Geopolitics Review - 12th May 2025
The Donald Diaries: The Financial Market Response
Contents
Introduction
Gold’s Charge
The VIX Rips
Trump’s Oil Gift And Energy Policy
Concluding Remarks
Bitesize Edition
Since January, we’ve seen elevated levels of volatility in financial markets as a consequence of Trump’s ranging, rapid-fire policy strategy. This has been represented in the sharp rise in the VIX.
This volatility has also been seen in Gold’s charge upwards, while on the flip side, the price of oil has been falling. For what potential reasons have these moves occurred? And what could be some of the long-term impacts of such movements?
Introduction
Trump’s wider policy decisions have provided the stock market with plenty of reasons to fluctuate. Benjamin Graham stated that the stock market in the short term is a “voting machine”, and is a “weighing machine” in the long term. This has been clear since Trump re-entered office, with short-term price action driven by sentiment and emotions. With Donald spouting enough words every day to constitute a thousand word salads, this has led to a lot of market volatility in our headline-driven markets. So, what has been driving markets since January, and what potential reasons could we have to explain the largest moves that have occurred? Are these short-term fluctuations, or are more long-term issues coming to the surface and affecting the stock market’s role as a “weighing machine”? Let’s dive in.
Gold’s Charge
Gold reached an all-time high of around $3500 per ounce in April. For anybody who bought Gold before the charge began in 2023, investments could be up close to 100%, or double in price. Why have we seen such a historic charge in the price of Gold? The reasons are a combination of geopolitical, economic, and financial factors that have all aligned simultaneously. The potential factors in determining Gold’s rise are the following:
Central Bank Purchases
Geopolitical Volatility and Rising Tensions
Rising Government Debts
Inflation and Monetary Policy
Chinese Consumer Purchases
Collectively, many of these reasons above for Gold’s price rise can be boiled down to uncertainty. When the United States confiscated Russia’s FX reserves held in dollars when Russia invaded Ukraine, the entire world took note, but especially the BRICS nations. If it can happen to Russia, it could happen to anybody else. The dollar won’t die overnight, far from it, but this has started a trend where nations are seeking hedges and safe havens. One of the safest of safe havens is Gold, and so central bank purchases have risen dramatically. The precious metal used to be a huge part of the global financial system back when we had a hard-backed currency system. This means that a currency, the dollar in this case, could be exchanged for a fixed amount of whatever backed that currency; in the case of Bretton Woods, that was Gold. The dollar then became the king of the hill in a floating currency system that fluctuates depending on supply and demand, and it maintains this status as global reserve currency today.
There are multiple theories as to whether the dollar will end with skyrocketing demand, known as the Dollar Milkshake Theory, proposed by Brent Johnson, or if it will end with dropping demand as trade in alternative currencies arises. I’ll dive into trade in alternative currencies on Thursday, but know for now that Gold will play a vital role in such a transition to a new system.
In the long term, this is one key narrative that frames where our global financial system could be heading. However, is there an alternative approach that the Trump administration is pursuing? For those who have read this series from the beginning, you’ll likely gauge where I fall on most issues involving the Trump administration’s approach to leading the United States. But what can’t be denied is that the current system needs to change, and for a system to change, sometimes parts need to be cut off and reattached in a new form. The Trump administration is pursuing such moves. The success of this will be told with time, but it’s clear with rising government debts and inflationary issues that change is required.
If there is a grand strategy play being made here, what evidence could support this? Firstly, Trump has imposed tariffs on every sweet in the candy store, but he hasn’t touched Gold. Why would Trump not impose tariffs on Gold? The reason could be two-fold. Firstly, because Trump doesn’t plan on selling U.S gold, and secondly, because the Trump administration sees the unhappiness of many nations in the global system, and they are in pursuit of creating a fairer system.
What impact could this have on the United States? Firstly, it seems that Trump is trying to redirect flows of dollars into the United States. As I stated last week in my discussion on tariffs, a rising dollar makes exports more expensive and imports cheaper. Trump has made imports more expensive via tariffs, but his strategy here is once again twofold. By pushing for a cheaper dollar, he can make exports cheaper, which incentivises a boost to U.S. manufacturing that Trump wants. Part of this also involves potential currency deals with other nations, which would see the value of their currencies rise against the dollar.
The tariffs also play into this further. Trump wants more investment via infrastructure, weapons, factories, tariffs, or gold. Regardless of Trump’s messages to “buy stocks now” in the last few weeks, this investment being redirected to more physical assets would reduce investments in the U.S. financial markets, which would reduce dollar flows into the United States that prop up the value of the dollar so heavily. We saw this effect during COVID when the DXY rose as the United States Dollar acted as a safe-haven asset. Luke Gromen stated on an episode of Macro Voices a few weeks ago, “Nixon closed the Gold window, and Trump is closing the financial markets window.” This would be a world where the dollar, stocks, and bonds fall, and gold rises as the best safe-haven asset.
Of course, this could backfire. Trump could get played. He has increased negative rhetoric of the Russians in recent weeks because they aren’t playing ball in the pursuit of a Ukraine ceasefire, and the Chinese could heavily benefit from such a system where more trade is facilitated in offshore Renminbi. But the Chinese currently have their own problems with deflation and a lack of domestic consumer demand, which is a system they want to pivot to. There is a deal that can benefit both the United States and China here, and the cut to tariffs reported today is a promising start to the talks between the two superpowers.
Gold’s rise has the potential to improve the financial situation of the Chinese consumer, while also internationalising the RMB. This would give the U.S. and China another lever to pull in managing the Yuan-Dollar cross rate, which will likely grow to be one of the biggest financial tools in our future world.
If we come back to focus on Trump and the United States individually, we should ask what is his overall aim here? Sure, he could say it’s for a fairer world, but Trump loves a deal; he will have to gain something too. This could well be connected to the fact that Trump wants to eliminate income tax for those from lower economic backgrounds. As we discovered when I explored voter demographics in the United States, Trump’s typical voter is uneducated, rural, religious, older, and male. It’s this exact demographic that would benefit from an elimination of income tax for those who earn below $200,000. However, this would also help expand Trump’s support outside of this demographic, especially when the cost of living and inflation remain issues that continue to affect consumers.
Trump has also stated he is interested in a third term. This could be to ruffle the feathers of the Democrats, but what incentive does Trump have to peddle such a narrative? It’s because he wants to remain relevant and powerful. Time will tell how this narrative unfolds, but if he pulled off such a strategy, his opinion amongst Americans could improve dramatically, and who knows where we could be when the next election rolls around.
The VIX Rips
The VIX is a measure of market volatility, tracking expected volatility over the next 30 days in the S&P 500. When it spikes, it means the daily candle on financial charts has a much larger average range from top to bottom. During COVID, the VIX spiked to above 80, and as we can see above, volatility spiked sharply during April 2025. Trump’s sweeping tariffs led to market turmoil and triggered a rapid global selloff seen especially in the S&P and the Nasdaq, which both experienced their steepest two-day declines since COVID in 2020. The worry here was that Trump was hoping to raise money through tariffs, but the financial markets erased $6.6T in market value. This could potentially explain why Trump is calling for investors to “buy stocks now”, because if the money he is trying to save through DOGE, tariffs, and other strategies is written off by stock market losses, what was the point in any of this?
Over the following weeks, volatility remained high as China and the United States retaliated against one another, and fears of a trade war part two emerged. With the trade relationship between the United States and China being one between the world’s two biggest economies, fears of a global recession and supply chain disruptions naturally emerged.
However, over the past month, the VIX has fallen. In early May, the United States and Chinese officials were engaged in trade talks, which led to a dramatic stock market rebound. Keep an eye on the VIX as a proxy for the success of these trade talks, but uncertainty remains in the markets. More spikes in the VIX can’t be ruled out, especially with Trump’s volatile approach to foreign policy and trade.
Trump’s Oil Gift And Energy Policy
One of the biggest issues that is most difficult to comprehend is why Trump wants $50 oil. I know lower oil prices would lead to cheaper gasoline and energy bills for Americans, while also acting as a reduction in inflationary pressures that could emerge in specific sectors from Trump’s tariffs. It would also reduce input costs in sectors such as chemicals, steel, and transport, which could incentivise an increase in manufacturing. Furthermore, cheaper oil could also hurt geopolitical adversaries such as Russia, Iran, and Venezuela.
But most shale producers struggle to be profitable when crude is below $60. We’re now hovering around that area, so Trump could have a balancing act on his hands. Perhaps he could achieve this via tax incentives to the oil and gas industries, regulatory reform, or an increase in energy exports, especially to Europe. Trump has also been in discussion with the Russians about restarting gas flows to Europe from Russia. It’s debatable if the Europeans would even accept such an offer, but maybe Trump is in pursuit of cheap energy independence for the United States, which he then wishes to export to the rest of the world.
There is a rather large elephant in this room, though. Why is OPEC going along with this? Specifically, OPEC wouldn’t have done this unprompted. Cheap oil weakens their income, which is especially notable when many OPEC nations rely heavily on oil incomes. So what deal did Trump make with the Saudis? He did pursue a ceasefire with the Houthis in Yemen, but this can’t explain why one of the world’s biggest oil giants would go along with such a deal.
The United States has been pushing for an expansion of the Abraham Accords. Currently, Trump and Netanyahu aren’t the best of friends, with Trump believing Netanyahu is attempting to “manipulate him”. This is a possibility. With Netanyahu remaining in office through his far-right coalition, which is pushing for war with Iran, Netanyahu has to push himself and his coalition further and further down this far-right political scale. Nothing would help appease his coalition more than war with Iran, backed by the United States. Regarding the potential for a deal with the Saudis, I believe this is unlikely to be a part of such a deal. The Saudis have stated that Palestinian statehood is required for any expansion of the Abraham Accords that would involve them. With Israel stating its plans to take control of the entire Gaza Strip, this distances us further from Palestinian statehood, making this an unlikely deal today. Israel’s current decisions are taking us further away from this, not closer.
Another potential explanation could be that the Saudis have been pushing for a security guarantee for years, which Trump has shown interest in pursuing in the past. This would give the United States a footprint in the Middle East, but they are currently attempting to withdraw. However, there is room for a potential deal here, especially if it’s in the form of weapons or investment deals.
A final potential place where a deal could be formulated is Saudi nuclear enrichment. In the past, this was conditional on a normalisation with Israel, according to the United States. But Trump announced a few days ago, this is no longer the case.
We might never know the nature of this deal for reduced oil prices, but Trump will visit the Middle East this week, and if such a deal does exist, he could let something slip during this trip. It could also be that OPEC doesn’t actually have as much pricing power as was previously believed.
On the energy front, the energy sector is broadly in agreement that Chris Wright is one of the most qualified energy secretaries the United States has ever seen. He is a key part of the necessary nuclear push and states that the current policies aiming at reducing the impact of climate change, namely renewables, are misguided. If this pursuit of lower oil prices involves Chris Wright, there will be reasoning behind it.
Concluding Remarks
In this new, uncertain world we’ve entered into, Trump is certainly having an impact on markets. But this impact is less about the financial aspects, and is more a consequence of Trump’s wide-ranging policy, all of which can be summed up as a grasp for power as we enter into this new power-based world order. But geopolitics is a game of high stakes, and on occasion, even a dealmaker can get outplayed, especially when his focus is so stretched.
Next time, I’ll delve into the wider effects of some trends we’ve seen emerging in the stock market, while also exploring crypto, the spike in some Asian currencies, and the chances of recession in the near future.
In the longer term, I’ll specifically explore whether this is the end of globalised trade, or is it being redrawn? Also, I’ll dive deeper into China’s role in the global financial system. Are they formulating a new alternative system to the dollar, or is this all part of a master plan with both the United States and China on the same page? I’ll explore this and much more starting on Thursday.
News In Geopolitics This Week:
Africa
Asia
Europe
EU Set To Tariff $113B In US Goods If Trade Talks Break Down
German Parliament Backs Merz As Chancellor At Second Attempt
Labour To Restrict Visas From Nationalities Most Likely To Stay
Nobel Prize-Winning Economist: UK-US Trade Deal Not Worth The Paper It’s Written On
Romanian Prime Minister To Resign After Far-Right Candidate Simion Wins First Round
Slovakia’s Fico Hits Back At EU Criticism For Attending Russian V-Day Parade
UK Sent Israel Thousands of Military Items Despite Export Ban
UK Trade Deal Involves Cut Tariffs on UK Autos, Steel, and Aluminium
Middle East
Hamas and U.S. Reach Deal To Release American-Israeli Hostage
Houthis Confirm Ceasefire As Trump Declares “Mission Accomplished”
Israel Approves Plan To Seize All Gaza and Hold It Indefinitely
North America
35 House Democrats Join Republicans To Oppose Biden’s EV Targets
House Committee To Boost Oil and Gas Drilling On Federal Lands
Judge Blocks Department of Education From Cancelling COVID-Related Aid
Multiple People In Custody After Pro-Palestine Demonstration Outside Columbia University Library
Nuclear Stocks Surge On White House Report On Accelerating Nuclear
States Sue Trump Administration Over Cut Funding For EV Charging Stations
U.S. Electricity From Fossil Fuels Dips Below 50% For The First Time
U.S. Transfers and Upgrades Missile Defence System From Israel to Ukraine
White House Leans On Congress For Millions In Kennedy Space Centre Renovations
South America
Other
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Sources:
https://apnews.com/article/gold-prices-new-record-trump-tariffs-0082e0040fb6095497ba93ee6454255b
https://abcnews.go.com/US/chris-wright-wrong-about-clean-energy-transition-experts/story?id=115971534
https://en.wikipedia.org/wiki/Gold_standard
https://www.independent.co.uk/news/world/americas/us-politics/stock-market-today-trump-tariffs-china-b2727712.html
https://www.macrovoices.com/1414-macrovoices-478-luke-gromen-trump-tariff-policy-will-drive-gold-even-higher