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Gold Forecaster – Weekly #577: The Fed kept dovish the dollar fell and gold rose!

Dear Gold Forecaster Subscriber,

Weekly Gold Review

World gold markets finished the week at $1,229.10 up $25 on the week recovering from where it fell last week.

It was an extraordinary week in which realities of life came home to roost. The first reality was the Fed. After the Jobs report had led markets to believe that growth was robust, expectations rose that there would be more, perhaps greater rate hikes in the future as the U.S. economy grew strongly. The dollar went stronger likely encouraged by the prospect that the ‘carry trade’ would repatriate loans from their interest arbitrage trades. So when the Fed did raise rates by 0.25% they accompanied it with a surprisingly cautionary statement indicating a total of three rate hikes in the year.

As expectations were disappointed the dollar retreated and the gold price jumped back on the upward path, where it is now. Markets have responded quickly to Trump’s election promises, perhaps too quickly as such policies could take a year or more to implement if opposition powers don’t slow the processes down even further.

What is expected around the autumn is a signal by the Fed that it will slow its re-investment policies in Treasuries as a start to improving the Fed’s Balance Sheet. This could take 10-year Treasuries to 3.10%. If they don’t it is expected 10-year Treasuries will end the year around 2.6%. We expect that by that time inflation will be higher than Treasury 10-year yields, which is positive for U.S. gold buying.

The gold price since the jobs report steadily recovered in all global gold markets ahead of the Fed’s announcement. The dollar went weaker against the euro and all other currencies, so it was truly dollar weakness.

But on the Friday before the Fed’s hike U.S. gold investors lost their nerve and were sellers in particular from the U.S. based gold ETFs. The sale of over 9 tonnes was, no doubt made by an investor to push prices down. But he/they must be regretting that now. To us, if such a sale could not drive the price down, then it must have reached a point where it was telling all it wanted to rise.

The purchase of over 6 tonnes on the Monday ahead of the Fed was an institution making its play for a future rising gold price after the hike. But we must point out that the purchase, like the sale before it had no impact on the gold price whatsoever. Dealers were being cautious and careful not to open themselves up to a move one way or the other.

Over in Europe, the fear of a popularism victory in Holland has gone, as the previous government looks as though it will keep ruling there. The voter turnout was huge leading many to believe that both in France and Germany similar election results will be achieved. We would be cautious about that conclusion. We don’t expect France to be that liberal. But we don’t see markets discounting a Le Pen victory or a Merkel defeat. Nevertheless, those ‘winds of change’ continue to blow!

Please open the attached PDF* for our full issue of The Gold Forecaster,
Julian Phillips and Peter Spina

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Download Issue #577

Gold Forecaster – Weekly #576: Build up in the hype around this week’s rate hike

Dear Gold Forecaster Subscriber,

Weekly Gold Review

World gold markets finished the week at $1,204.40, down $30 on the week. This week has started with Shanghai and London lifting gold prices.

But last week saw a very negative attitude to gold which, except for the sale on Friday of over 9 tonnes of gold from the two U.S. based gold ETFs we follow saw only a few small sales.

It was the build up in the hype around this week’s rate hike. In turn this was spurred on by the remarkable jobs report on Friday. Over the last week the Fed went public on a rate hike coming this week. The market has been quick to discount this. While the economy looks much better in the U.S. than it was, we feel it is too early to say the U.S. has robust growth warranting more than two or, at the most, three rate hikes in 2017. At the same time it is clear that in both the U.S. and Europe, inflation is taking off.

Certainly in Europe the E.C.B.’ interest rates are below inflation making real interest rates heavily negative except in the weaker nations of the E.U.

In the U.S. we have yet to confirm, but see that real interest rates may well also be negative. Inflation on both sides of the Atlantic is the bad kind caused by energy price increases and other cost increases. This is the sort that does not promote growth but can have a negative effect. For it to meet central bank objectives it should be driven by wage growth and capacity limitations indicating robust economic growth.

We watch Shanghai carefully, as you know and noted that from the middle of the week on, Shanghai saw falling prices, we believe relatively uninfluenced by the U.S. It was clear that Shanghai’s demand was falling later in the week as their prices fell back. The fall was in line with the Technical picture that issued a “High Pole Warning” [as you can see below in the Forecast section].

Over the last couple of weeks the dollar has looked strong as the prospect of a rate hike grew taking the gold price back to the $1,200 area and below. It reached $1.196 at the London Fix on Friday, but after the jobs report recovered over $1,200 remarkably.

Please open the attached PDF* for our full issue of The Gold Forecaster,
Julian Phillips and Peter Spina

https://goldforecaster.com/images/goldforecasterPDFdownloadsmaller.png

Download Issue #576