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