Apparently, the buck stops with Donald Trump.
Since the 1990’s, administrations have fought to keep a strong dollar policy to keep interest rates low, to keep inflation under control and to keep our buying power stronger.
But that’s quickly changing.
After an incredible 13% run from May 2016 lows, the U.S. dollar is under pressure, having just broken below long-term support to the downside.
At this pace, the dollar could challenge a December 2016 low of less than 100 – a near 50% retracement from the January 2016 high.
All as President-Elect Donald Trump called the U.S. currency “too strong.”
In part, he blames China, which is reportedly holding down its currency. “Our companies can’t compete with them now because our currency is too strong,” he noted. “And it’s killing us.”
While there are advantages to a strong dollar, there are more disadvantages. Remember, while a strong U.S. dollar may sound like a good thing, we have to consider that everything priced in dollars is expensive for foreigners.
At the same time, everything priced in foreign currency is cheap in the U.S.
That means lower priced foreign goods lead Americans to import more and buy even fewer things made in the U.S.
Trump isn’t the only one warning of the rise in currency, though.
Private equity firm, Carlylye Group has noted the strength of the U.S. dollar is a great risk to the overall economy, as well.
That’s because dollar strength has the potential to hurt U.S. companies that sell products abroad by making their goods more expensive, as noted by The Wall Street Journal.
While it’s true the dollar is far too strong, such comments aren’t commonplace from a U.S. president. In fact, they will typically refrain from offering views on the strength or weakness of currencies out of fear of influencing the direction of markets.
Regardless, one of the biggest beneficiaries of a weaker dollar has been gold.
In fact, since the New Year began, the yellow metal has now surged from a low of 1146 to 1212. And there are no signs of slowing. It could soar even more if Trump names China a currency manipulator, or says he intends to abandon the one-China policy.
With Trump likely to weaken the U.S. dollar a bit more, gold is a safe bet these days.
We’re about to issue even more trades on the metal in Stealth Stock Trader.