March 21, 2017
Despite last week’s move by the U.S. Federal Reserve, America’s central bank, to tighten monetary policy a notch, gold prices surprised many observers of and participants in the gold scene who had expected the quarter-point increase in short-term interest rates would be sufficient to knock the metal into a still-lower trading range under $1,200 an ounce.
After all, higher interest rates are widely perceived as a negative or bearish influence on the gold price. But, as noted below, it is really the “notional” real “inflation-adjusted” rate of interest, that matters, not the “nominal” rate as might be quoted by a bank or other lender.
Not only did the Fed dial up short-term rates by a quarter percentage point, it suggested further tightening might come later this year and next, depending on economic performance and inflationary tendencies in the months ahead. Yet, contrary to popular expectations, gold prices still moved higher despite the Fed tightening.
It just might be that inflation expectations are suddenly on the rise, as financial markets get a grip on the Trump Administration’s economic and protectionist trade policies.
Having fallen briefly a tad under $1,200 an ounce in the days leading up to the Fed’s policy announcement last Wednesday, the yellow metal ended last week at $1,230 an ounce – a gain of some 2.5 percent over the prior week and 15 percent from year-end 2016.
And, by today (Tuesday, March 21st), gold has advanced to more than $1,240 an ounce!
Moreover, it now looks like prices are set to move still higher. In the short run – measured in hours, days, and weeks – hedge funds, commodity funds, and other institutional speculators are both reacting to and contributing to the market’s upward momentum.
Traders don’t want to miss out on a good party, let alone a major move up into a higher bracket. As they wade deeper into the market, stepping over and breaking through important trading levels, the market’s upward momentum is attracting still more buying, advancing the rally still further. Before long, a growing number of traders will see more than just another rally but a firm resumption of the long-term bull market.
Indeed, the market is now at an important juncture with key fundamentals and technical trading setting up the possibility of a self-fulfilling prophecy where buying begets more buying – all of which is fueled by increasingly bullish fundamentals.
First and foremost, despite the rise in nominal interest rates, as “real” or “inflation-adjusted” interest rates continue moving lower, gold looks increasingly more attractive to investors, large and small, around the world.
In other words, as inflation expectations rise, the real rate of interest moves lower and lower – making gold look increasingly more attractive. And this, along with technical factors, market psychology, and the looming possibility of a political crisis in the United States is pushing gold prices higher.
February 17, 2017
Gold prices of late have been testing support just under the market, if you will, preparing for a healthy rally into higher territory. As I see it, a relatively small group of hedge funds and institutional speculators have been calling the tune for gold, trading the recent range, buying on dips, selling on rallies, and gradually adding to their ...
January 3, 2017
Last year’s big surprise in the world of gold was the failure of prices to move higher. Even strong physical demand for the metal and election-related uncertainties following Trump’s surprising victory could not underpin a sustainable rise in the price. Instead, expectations of higher interest rates, an appreciating dollar, and record-high equity ...
December 13, 2016
Contrary to expectations, ours and nearly everyone else’s who pay attention to the price of gold, the yellow metal has, since Election Day, shed nearly 15 percent of its value in U.S. dollars. According to the pundits who pay attention to such matters, the election of Donald Trump should have pulled the rug out from under stock prices, hammered ...
November 4, 2016
Regardless of who moves into the White House this coming January, gold prices are set to zoom in the years ahead – in my view, more than doubling during the next President’s term. What many Western investors – particularly Americans – still fail to realize is that investment demand for gold knows no boarders. Indeed, it will be the growth in ...
October 9, 2016
Gold has once again surprised. This time, news from “outside the market” set in motion a chain reaction that knocked gold for a loop. First, the British confirmed the country was withdrawing from the European Union . . . and sooner than most had expected. This triggered an instant devaluation of the British pound and a corresponding rise in the ...