Send this article to a friend:

January
21
2017

Opinion: Gold prices could soar if Donald Trump says any one of these five things
Nigam Arora

A safe-haven effect could kick in if he tweet-storms his foreign policy once he takes office

Gold prices could extend their gains after Donald Trump's inauguration if he continues to make statements as president that prompt investors to enter safe havens.

As president-elect, Trump has angered China, India and Mexico, some NATO countries and, just this long weekend, Germany (over its luxury cars), to name a few. Gold prices in New York trading have risen 11.9% since Nov. 8.

However, the assumption is that once Trump takes office, he will either be more restrained or advisers around him will dampen whatever he says. Based on Trump's more than two dozen tweets since Saturday, there is a high probability that that assumption is wrong.

Five particular statements from Trump could send gold soaring. But first, let’s review the technical position of gold at this time.

Gold chart

This annotated chart is of SPDR Gold Trust the widely held exchange traded fund. I’m using this ETF since it’s the most popular way for investors to invest in gold. Similar observations can be made of the iShares Silver Trust and the Market Vectors Gold Miners ETF

Please click here for the annotated chart of gold.

The following are key observations from the chart:

• Even though spot gold has rallied about $80 from its recent low and has penetrated the important “psychological” level of $1,200 an ounce, it’s still far away from the first resistance shown on the chart.
  
  
• In 2016, gold decisively broke to the upside from the downtrend line, shown on the chart if you refer back to 2011.
  
  
• The rally failed before reaching the 38.2% Fibonacci level. This foreshadowed the big drop in late 2016.
  
  
• The current rally is still far away from 23.6% retracement level shown on the chart.
  
  
• And the current rally started when gold was still far away from the strong support shown on the chart; that indicated short-term strength.

In plain English, gold's technical position today is such that it can be easily pushed hard in either direction. For this reason, statements from Trump on or after the inauguration could easily send gold higher.

Five Trump statements

Trump is unpredictable — that much we know. But regardless of his target — a country, a company or a person — gold is one of the few investments that act as a safe haven from turmoil in the world of politics or investing.

Here are the five statements that could send gold soaring:

1. Trump declares his intention to name China a currency manipulator. ETFs of interest are iShares China Large-Cap ETF  ProShares UltraShort FTSE China 50  and Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF

2. Trump declares his intention to abandon the so-called one-China policy.

3. Trump states an intention to declare artificial islands built by China in the South China Sea as illegal.

4. Trump makes more statements that are seen encouraging European Union (EU) member countries to leave the trade pact. ETFs of interest are iShares MSCI Germany Index SPDR Euro Stoxx 50 ETF WisdomTree Inter Hedged Equity Fund Vanguard FTSE Europe ETF

5. Trump provides support for quickly doing a trade treaty with the United Kingdom, encouraging the U.K. to do a “hard” exit from EU. ETFs of interest are iShares MSCI UK  and Guggenheim CurrencyShares British

Those statements could also send the popular SPDR S&P 500 ETF Trust  lower, and the iShares Barclays 20+ Year Treasury Bond ETF higher. Favored sectors, and corresponding ETFs, in a Trump rally have been Financial Select Sector SPDR SPDR KBW Bank and SPDR KBW Regional Banking ; due to their overbought condition, they are at risk of a shallow correction, which would be a buying opportunity. On the other hand, the PowerShares QQQ Trust (technology stocks) and the iShares Russell 2000 Index (small-cap stocks) are most at risk.

The flip side

Please note that in the longer term, if Trump succeeds in “making America great again,” gold could fall to about $800.

Critical juncture

We’re at a critical juncture for gold. Gold investors ought to be nimble, pro-active and listening to analysts with a consistent track record of calling gold correctly in both bull and bear markets. Consider running away from gurus who are saying they know for sure that gold is going to rise much higher. The truth, affectionately dubbed Nigam's Second Law of Investing, is highly applicable to gold today: “No one knows with certainty what is going to happen next.”

Precious-metals ratings

The Arora Report’s precious-metal ratings are used by bullion dealers, jewelers and investors across the globe.

Here are our current ratings:

• Suspended in the very, very short term; a lot depends on Chinese day traders. There is simply not enough data to rigorously model their behavior.
  
  
• Positive in the very short term.
  
  
• Neutral in the short term.
  
  
• Neutral in the medium term.
  
  
• Mild negative in the long term.
  
  
• Positive in the very long term.

Those ratings are reviewed daily and changed frequently to help both long- and short-term investors and traders. For definitions of time frames, please click here.

The first ratings cut on gold and silver at The Arora Report is generated by complex algorithms that automatically change with market conditions. Then human judgment is added before publication. Inputs to our algorithms include relationships among currencies, interest rates, sentiment, money supply, the global geopolitical picture, global GDP growth, inflation in key countries, leading indicators of inflation, risk appetite, mine production and jeweler demand, smart-money actions, speculators’ actions and our proprietary technical indicators.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].

The Trading Deck is a section of Marketwatch.com dedicated to trading ideas, opinion and conversation from markets professionals who bring the perspective of those with skin in the game, such as money managers, analysts, brokers/dealers, financial advisors, portfolio modelers, researchers, etc. These professionals offer insight from a different vantage point than staff journalists or other paid freelance commentators, which we hope readers will find a valuable addition to the breadth of information MarketWatch provides. The opinions expressed are the writers’ alone. Trading Deck contributors are selected and edited by senior MarketWatch editors, and they agree to strict terms of service to help ensure a high-quality, high-integrity section. We welcome suggestions and feedback on The Trading Deck.

www.marketwatch.com