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This Week Gold Lower on Upcoming Rate Hike – Fed Behind the Curve?

12 Mar

This Week Gold Lower on Upcoming Rate Hike – Fed Behind the Curve?

Gold Market Discussion

Gold Lower on Upcoming Rate Hike and Animal Spirits, but is the Fed Behind the Curve?

John Maynard Keynes
John Maynard Keynes, Economist who coined the term “Animal Sprits” in 1936

Gold prices were weighed down heavily this week mostly due to the upcoming rate hike.. The dollar is maintaining its strength right now, which is pushing down gold prices. Moreover, strong indications that the Federal Reserve will hike rates a quarter point next week were also negative for gold for now. Finally, the animal spirits are strong right now with the stock market showing positive trends. Investors are still hoping for some steam, as the stock market appears to be continuing its bull run for now.

Charts are showing that the Fed may be behind the curve with this rate hike though. The rate is not where it should be for inflation levels. The last time this happened was in 1977. See more in this video.

What this means for investors: Probability of a rate hike is at nearly 100% now, and investors are reacting as expected. They are moving into interest-bearing assets right now rather than precious metals, and the lower demand is depressing the price. It is an expected pattern for gold in these circumstances.

There is a rat among the animal spirits though. Gold is still up 7% for the year, which indicates that all is not optimistic looking ahead. Investors are still buying up gold as a safe haven against uncertainty. Furthermore, these physical gold acquisitions are in significant part by central banks (notably Russia, China, and Germany) as well as private individuals. When gold goes “on sale” during these dips, it is a prime opportunity to protect against the future.

Falling Crude Oil Prices Weigh on Metals

Crude oil pricesoil falling plunged this week and pulled the whole commodity sector along. This also contributed to the pull back from gold and silver. Oil and gold prices often show correlation, so it is not surprising gold pulled back with some bear-ish signs from oil.

What this means for investors: There is an oversupply of crude oil right now. This is due in part to a spike of U.S. shale production and additionally, reduced demand.

Weak oil price is just one of many factors sending ripples through the gold market, though. There are still strong indications that inflation and correction are approaching. The gold market could remain in this holding pattern in the near-term, but certainly not forever. There are too many fiscal policy risks and political unknowns around the globe.

 

Following on Last Week’s Debt Ceiling Discussion…


As anticipated in last week’s post, treasury Secretary Steve Mnuchin started the conversation last Thursday about Congressional approval to lift the debt ceiling. The deadline is fast approaching, and the debt limit will have to be raised to accommodate President Trump’s spending plans.

What this means for investors: See last week’s analysis on what a debt limit crisis could mean here.

Market Uncertainty Ahead with Brexit Deadline and Dutch Elections

Uncertainty could be rattling the markets next week with events coming out of Europe. Great Britain is approaching its deadline to trigger Article 50 (in order to leave the European Union as decided by the Brexit referendum last year), and is still running into legislative hold ups. The EU looks like it will be keen to demand a hefty fine for the divorce.

Eyes are on the Netherlands as well to see if the country follows the current sociopolitical, populist trend that events like Brexit and Trump’s election are indicative of. Geert Wilders is a right wing, anti-EU, anti-immigration, populist candidate that is taking a lead in the race. His election would probably be another beat of doom for the EU. More significantly (because it was a founding EU member and one of the largest economies), France faces a similar upcoming presidential race soon.

What this means for investors: There might be a spike in precious metals prices next week if this demand for security from volatility happens in Europe. The fact that two founding members of the EU – not to mention the populist, right wing resurgence in multiple other EU members – are so dissatisfied with the EU after approximately 50 some years speaks to the massive global shift that is occurring right now.

 

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 Here are some articles from the web discussing the topics in this week’s post:

Gold Lower on Upcoming Rate Hike and Animal Spirits, but is the Fed Behind the Curve?

Read Here

Falling Crude Oil Prices Weigh on Metals

Watch Here

Last Week’s Debt Ceiling Discussion

Read Here

Market Uncertainty Ahead with Brexit Deadline and Dutch Elections

Read Here


As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at  602-955-6500 or toll-free at 877-354-4040.

“I’ll be keeping a sharp eye on the market and I encourage you to do the same!”

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