Gold Weakens

Commentary for Friday, December 15, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $4.70 at $1,163.70 but keep in mind this close happened before the FOMC announced its expected ¼ point increase in interest rates. So basically this market closed on an upbeat note perhaps because traders believed – contrary to major opinion that the Fed would once again stand pat. Well they did not and the aftermarket moved down about $11.00 into the $1,153.00 range. This will be seen domestically on the open tomorrow.

So where are we now? Well most have already suggested that a small rate hike was assured going into this last FOMC meeting of 2016. So let’s look at what they put on the table besides the obvious higher interest rate.  The dot plot which is a Fed member forecast of the envisioned future rates went to 1.4% by the end of 2017 which implies they are thinking about 3 more interest rate hikes next year. But let’s take a deep breath before jumping out the window – remember last year at this time (using the same dot plot) the Federal Reserve suggested that 4 additional interest rate hikes might be appropriate – we actually saw one.

Still the specter of higher interest rates is anathema to the price of gold – so the theory goes. And this latest rate hike or ¼ point will tell us a lot about what to expect but we will have to wait and see how this all plays out before the tea leafs become readable.

My feeling for now is that higher interest rates will keep a lid on gold prices but will create less change than most believe. This is the way it always happens – as soon as the majority gets on board the opinion train the result changes. Watch the Dollar Index today for clues – it was flat around just under 101.00 before the FOMC announcement and jumped to 101.76 after the news was released.

It’s common sense this index would move higher over the ¼ point hike but keep an eye on it over the next few days – this may reveal a more important picture. If this jump is not maintained – gold could easily recover and we are back to where we started. Gold prices would remain defensive, perhaps trend lower but not fall out of the bed waiting on recovering physical demand. Watch the stock market – stocks moved lower on this latest FOMC move – they already have steam coming off them – setting new records so an aggressive Fed might create an unstable situation which could help the price of gold. Remember this loose monetary policy is an experiment – not an exact science – they don’t know exactly what will happen after such a long period of time inflating the money supply.

Silver closed up $0.24 at $17.22.

Platinum closed up $4.10 at $940.80 and palladium closed up $1.95 at $732.55.

With a stock market out of control and the dollar getting even stronger how does gold fit into this picture? Like I said Tuesday – gold fits nicely, it’s just a matter of price.

This is important for a number of reasons. First there is the lagging demand from China and India – this will reinvent itself and move much higher once both countries believe prices are not going to move lower. Second, there is the contrarian investor – folks who believe that when everyone is “in” on any particular investment it’s time to be “out”.

Contrarians were undoubtedly sellers when gold topped $1,800.00 in 2010. Believe me – they will buy with both hands when everyone thinks there is no place for gold bullion in today’s financial climate. Third, do not believe that inflation is gone forever – it is not and with President Elect Trump at the controls the inflation plane will come out of the clouds most likely in 2017. This is not to say we will wake up and inflation will be 8% – it will creep into the picture about the time oil stabilizes in my opinion.

And finally we appear to have a president coming into office who will just say what he thinks. This seems to be part of the Trump New Deal to channel FDR and could lead to trouble. This from CNN – “China has warned that it’s “seriously concerned” after President-elect Donald Trump questioned whether the United States should keep its long-standing position that Taiwan is part of “one China.” Trump has signaled a willingness to confront Beijing, and his latest comments in an interview with Fox News suggested that he won’t hesitate to anger China until the country comes to the bargaining table on trade and North Korea.

China’s response was measured but clear: co-operation with the US “would be out of the question” if Trump doesn’t adhere to the ‘one China’ policy — a cornerstone of bilateral relations since the establishment of diplomatic ties in the 1970s.”

Now before you say that these statements are just saber rattling consider that Trump is a new kind of animal, just like Reagan was – no one really knows where we are going here and hopefully he can deliver to a public who is sick and tired of being stuck in the mud. But this type of fire breathing has consequences and there is no doubt in my mind it will underpin gold and silver bullion as his term progresses – not just from an American perspective but from countries all over the world.

The walk-in cash trade was better than yesterday and the phones are picking up. What is interesting is that the public is not generally selling. They are waiting on the results of this latest FOMC hike in interest rates.   

Holiday Update – GoldDealer.com will be closed Fri (Dec 23rd) and Mon (Dec 26th) for Christmas. And a reminder that delivery times can slow by as much as a week during the season.

A special wish from our family to yours – that each of you enjoy a blessed season.

The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday.

The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 4) (last Friday – 5) (Monday – 4) (Tuesday – 4).

The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.

Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.

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