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The Real Reason The Rally In Gold After Trump Election Got Quashed Sending Gold Into A Tailspin

Before the election, it was almost universally predicted that if Trump was to be elected, gold would jump $100 - $200 right away.  There was a prediction from a prominent analyst that gold would jump to $1,850.  I never bought into the hype because the hard data that our algorithms depend upon was showing that any bounce would be met with selling.  These are that same algorithms that gave a signal to backup the truck and buy silver at $17.73 before the big run to $50. The algorithms then gave a signal to sell all of the silver at $48.50.  These algorithms also gave a backup the truck signal to buy gold in the $600 range with an average of $663 before a run to $1904.  Then correctly gave a signal to sell half of the gold at the exact top at $1904 and put a stop on the remaining at $1750, subsequently gold fell to the $1000 range.

After the election results started leaking out, gold jumped to $1339 before crashing to about $1250.  Through my extensive global resources, I was quickly able to figure out the real reason and shared it in our regular Morning Capsule with paying subscribers.  In the meanwhile, the media in the western world apparently did not get the memo and continues to show bewilderment as to what really happened.  For this reason, I decided to share the real reason with gold investors who are not our paying subscribers. 

The Annotated Chart Tells The Story

The real reason for gold’s fall after the initial rally on Trump election is shown on the chart.

Click here to see the annotated chart of gold futures showing what really happened.  

The chart shows how Trump buying was met by Modi selling.  Modi selling finally overtook Trump buying.  A subsequent budding rally attempt failed as interest rates rose and dollar strengthened. 

How Modi Killed The Rally

India is often the biggest source of demand for physical gold.  Indian Prime Minister Modi has directed  that 500 and 1000 rupee notes be banned.

This is a huge deal.  These notes represent 20% of cash value in circulation and 80% of cash outstanding.

Indian economy has long suffered from black money.  Only 49 million out of 473 million working Indians pay taxes.  A common method to convert black money into white money has been to slowly buy gold by paying cash using large bills.  As large bills become worthless, this important source of demand for physical gold will disappear.

This is the real reason that gold reversed after rallying to $1339 on Trump election and subsequently fell to about $1250.

Current Ratings On Gold And Silver

Here are our current ratings from The Arora Report precious metals algorithms.

  • Suspended in the very, very short-term, a lot depends upon Chinese day traders. There is simply not enough data to rigorously model their behavior.
  • Negative in the very short-term.
  • Negative in the short-term.
  • Negative in the medium-term.
  • Negative in the long-term.
  • Positive in the very long-term.

Inputs to algorithms include technicals, relationship between currencies, interest rates, sentiment, money supply, global geopolitical picture, global GDP growth, inflation in key countries, leading indicators of inflation, risk appetite, etc. 

Some of the inputs are adaptive, i.e., their weight changes based on conditions and co-relations. The adaptive nature of the algorithm has been the most important reason behind consistently accurate calls on gold and silver by The Arora Report over the years.  Experience has shown that algorithms that are static stop working after a while because market conditions change.   For this reason, investors and traders should avoid algorithms that are fixed.

These ratings are reviewed daily and changed frequently for subscribers to The Arora Report to help both long-term investors and short-term traders.  These ratings are used by bullion dealers, jewelers and investors across the globe.  For definition of time frames, please click here.

Full Disclosure: As appropriate, subscribers to The Arora Report are provided precise buy zones and sell zones as appropriate.  Further, subscribers to The Arora Report may undertake short-term trading positions in addition to the very long-term generational opportunities.

By Nigam Arora
Chief Investment Officer


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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