Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What in the World Happened to Gold and Silver Prices Last Week?

Commodities / Gold and Silver 2016 Oct 11, 2016 - 10:03 AM GMT

By: MoneyMetals

Commodities By Clint Siegner : Gold and silver prices charged higher during the first 6 months of the year. They fell into a rut over the summer, and then hit the skids last Tuesday. Lots of bullion investors are wondering what in the world happened. There are three primary factors driving this price correction.


The first is the strength in the U.S. dollar. The DXY index, which measures the dollar against other major world currencies, hit its highest levels since July. This surge, however, is not driven by safe-haven buying as it was immediately following Brexit. That sort of fear driven buying would almost certainly be boosting precious metals as well. Rather, investors are looking forward to the Federal Reserve tightening monetary policy, which helps the dollar but hamstrings precious metals.

The gold bug’s old nemesis – the Fed – just keeps coming back. It seems nothing can kill the market’s expectations of higher interest rates. Despite years of meaningless threats to hike, slowing GDP growth, and other weak economic data, the consensus for a rate hike by year’s end is growing once again.

The second factor is related to the first. Longer-term interest rates are rising. The yield on 10-year Treasury bonds recently hit the highest levels since June. The bond markets largely ignored Fed jawboning in regards to higher rates during the late spring and summer, but now they are behaving as if a rate hike is a certainty. Rising real interest rates create headwinds for gold, which does not offer a yield.

The last factor is (or was) the extraordinarily high speculative interest in metals. Open interest in both gold and silver futures soared as metals ran higher and then peaked following Brexit. That speculative interest fell slightly as prices stalled during the summer, but less than expected. The markets entered

October with lots of traders still willing to hold out for higher prices as long as prices weren’t breaking down.
Across the table from them sat the bullion banks, heavily short and pushing for prices to fall. The impasse broke when the stronger dollar and higher rates pushed metals below technical support. Weak-handed speculators ran for the exits.

The good news, if any, is that flushing weak hands and reducing open interest will put markets in a better position to bottom and start a new leg higher. Of course, much will depend on what happens in the dollar and in interest rates.

Our view remains unchanged. The Fed is going to find it difficult to normalize interest rates and eventually markets will figure that out. Stimulus addicted stock and real estate markets achieved their current highs based on the flood of cheap money.

And the federal debt would take roughly a trillion dollars a year to service if the cost of funds heads north to 5%, which is closer to “normal.” That would mean debt service consumes more than 25% of the entire federal budget. Given the projections for rising deficits in the years ahead, it is safe to say normal rates cannot be tolerated and therefore the Fed will not allow them to occur.

The biggest question is whether officials will be able to make even one or two token hikes before having to reverse course and re-open the stimulus floodgates.

The last rate hike, a measly quarter percent in December of 2015, cratered the stock markets and immediately had officials back pedaling. Gold and silver prices soared. Investors should expect history to repeat this next time around.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2016 Clint Siegner - 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.


© 2005-2022 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