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Could gold fall to $850 an ounce if Trump made America great again?

It’s a competing scenario, but one worth reviewing

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By Nigam Arora

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Trade imbalances

At present, the U.S. runs a very large current account deficit. In simple English, we buy more from other countries than we sell to them. This causes dollars to flow out of the U.S. and, thus, weaken the dollar. A major priority for President Trump would be to renegotiate trade deals. The renegotiated trade deals would likely reduce the current account deficit. That would make the dollar stronger and gold weaker.

Make America work again

Trump is talking about bringing manufacturing back to the United States and eliminating illegal immigration. Even marginal success on those fronts would increase employment. As employment increases, the Federal Reserve would run out of excuses for not raising interest rates. When the Fed raises interest rates, the dollar would go up and gold would weaken.

Make America great again

Is not the hallmark of a great America a strong dollar?

Gold at $850 an ounce

Every seasoned gold investor knows there is truth to the old adage: “Gold goes up the stairs but comes down the elevator.”

Gold is a relatively small market compared to equities, bonds and currencies. Comparatively it takes very little money flow to move gold by a large amount.

Based on the number of emails I receive, gold investors’ losses after the precious metal peaked at $1,904 in 2011 are still on their mind. It would not take much for gold to fall into negative momentum, just as it did got swept up in positive momentum this year. Amateurs will buy gold near old lows under $1,100 with stops under $1,000, making them easy prey for professionals and algorithms that take out the stops. As a result, a quick spike down to $850 can as easily occur as a move up to $1,850.

What to do now

It is important to understand both $1,850 and $850 gold scenarios ahead of time. That way, investors will be able to act with conviction once hard data become available.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions in stocks described in this article any time. All recommended positions are reviewed daily at The Arora Report and subscribers may receive additional information in real time not available to the readers of this article.

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