Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Bulls are Thanking the Fed

Commodities / Gold and Silver 2015 Mar 26, 2015 - 10:29 AM GMT

By: Harley_Salt

Commodities

Leading into the Federal Reserve March monetary policy meeting last week investors dumped gold sending it to a 4 month low, while at the same time trades went long dollars on expectation the Fed would suggest it will move as early as June on raising interest rates. While the Fed dropped the highly anticipated word ‘patient’ from their statement following the meeting, the statement however contained a number of surprises which have sent gold higher and the US dollar lower since its release.


The Fed statement saw it lower the GDP growth forecast and importantly also lower its forecast for inflation. This is important to financial markets as the Fed has said it will look to tighten rates when it is “reasonably confident” that inflation will hit its 2% objective over the medium term. With the lowering of its inflation forecast this will see it take even longer to get back to its 2% inflation objective. The Fed now sees inflation running at between 0.6-0.7% for 2015 and between 1.6-1.7% in 2016, still materially lower than the 2% figure the Fed has said it needs to be confident of hitting before it pulls the trigger on rates.

Export growth in the U.S. is also weakening according to the Fed which is an acknowledgement by the Fed of the recent strength of the US dollar. Even taking into account the dollars biggest weekly fall since 2011 the dollar is still strong by any standard. According to the Bloomberg Dollar Index, a measure against a basket of 10 currencies, the US dollar is trading near its highest level in at least 10 years. The dollar strength is something that is coming into consideration by the Fed, traditionally it steers clear of commenting on the dollar. Any rate increase by the Fed is expected to send the dollar even higher. The strong dollar is making imports cheaper, reducing inflationary pressures, something the Fed is trying to lift, while at the same time making exports more expensive which puts pressure on GDP growth. A high dollar should be of a concern to the Fed.

The consensus in financial markets suggests the Fed is on track to raise rates in 2015, however it now seems the market is expecting rates to move later (e.g. September instead of June) and possible not hit the high levels previously expected.  Leading Banks such as Bank of America Merrill Lynch and Deutsche Bank suggest the Fed will increase rates in September, while a recent Reuters poll of top Wall Street banks also favour a September rate increase. I still believe we will not see a US rate increase in 2015 and even more so after the Fed statement and continuing weak data that seems to be coming out of the US such as the recent worse than expected durable goods data. The Fed noted in its statement that “economic growth has moderated somewhat” since its January meeting, that is not a foundation for a near term rate increase. Federal Reserve Bank of Chicago President and a voting member of the Federal Open Market Committee Charles Evans said in a speech this week that he thinks “economic conditions are likely to evolve in a way such that it will be appropriate to hold off on raising short-term rates until 2016”. He suggests that inflation will not hit the 2% target until 2018 and that inflation is currently “uncomfortably low”.

The Fed’s monetary policy is very much driven by data flow and what is expected and what is actually delivered and at the moment most of the data coming out is not setting the markets alight. The longer the Fed holds off moving on rates the better it will be for gold demand given it reduces the opportunity cost between holding non-interest bearing gold and investing in interest bearing assets or term deposits. Gold also performs well in times of uncertainty so with the increased confusion as to when and by how much the Fed will increase rates, it is only going to add support to the price of gold. 

With weak data coming out of the US along with exceptionally low inflation rates, well below the Fed’s target of 2%, the Fed would be reckless to move on rates until they see solid evidence of underlying economic growth, positive wage growth and inflation heading to 2%. I do see that happening in 2015. The risks on moving too soon on rate hikes are too significant while the benefits remain relatively low which leads me to believe the Fed will be very conservative and hold off on raising rates until 2016. In the meantime while interest rates remain low and uncertainty is at the forefront of investors’ minds gold demand is going to increase.

Now that gold has broken through US$1,200/oz, the next upside target to watch is US$1,208/oz which is the 100 day simple moving average followed by US$1,22o/oz the 50 day simple moving average.  

Courtesy of:  www.BullionIndex.com.au 

Harley Salt is co-founder of www.BullionIndex.com.au a physical gold, silver and platinum trading and investing company located in Melbourne, Australia.

Bullion Index offers direct market access to 15 global physical bullion exchanges and storage facilities in key locations including London, Zurich, New York, Hong Kong, Singapore, Dubai and Sydney. Their clients from across the globe can trade bullion bars and investment grade coins simply and securely via the MetalDesk online trading platform.

© 2015 Copyright  Harley Salt - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in