Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Gold Market 2017 Will We See a Replay of 2015 and 2016?

Commodities / Gold and Silver 2017 Nov 10, 2017 - 06:12 PM GMT

By: Arkadiusz_Sieron

Commodities

In both 2015 and 2016, the price of gold bottomed in December, as one can see in the chart below.

Chart 1: Gold prices (London P.M. Fix) from January 2015 to October 2017.



Will that pattern repeat itself this year? Well, there are some strong arguments in favor of that scenario. First, the price of gold actually started to decline in mid-October, in a similar fashion to 2015 and 2016.

Second, the previous lows occurred in December, as the Fed hiked interest rates in the final month of 2015 and 2016. As a reminder, the U.S. central bank is likely to raise rates in December 2017 as well. Actually, the market odds of such move are about 100 percent.

Third, there was a revival in the Trump’s trade, as the Senate passed a budget reconciliation bill in October, paving the way for tax reform. Such a rebound in investors’ expectations will support risky assets and hurt safe-haven assets such as gold.

Fourth, markets also expect that the FOMC will be more hawkish in 2018 than in 2017, due to the personal changes in the Board of Governors. Indeed, if the Senate approves Trump nominations, the new leadership at the Federal Reserve will be more hawkish than the Yellen-Fischer duo.

Fifth, the recent U.S. data was surprisingly positive. In particular, the GDP grew 3 percent in the third quarter of 2017, despite the negative impact of a few hurricanes. Actually, the current economic expansion is truly global – the IMF projects the world’s economy will grow 3.6 percent this year, the best result in a decade.

Sixth, the ECB meeting in October was more dovish than expected. Draghi adopted a less-but-longer approach, keeping a very accommodative stance. As we predicted in the September edition of the Market Overview, market expectations for the ECB’s pace of tightening were too elevated.

All of these factors are likely to support both the U.S. dollar and the U.S. real interest rates, which should add to downward pressure on the gold prices. As the next chart shows, the greenback and long-term real yield have been rising since mid-October (or, looking broadly, since September).

Chart 2: The U.S. real interest rates (red line, right axis, yields on 10-year Treasury Inflation-Indexed Security) and the U.S. dollar index (green line, left axis, Trade Weighted U.S. Dollar Index against Major Currencies) over the last twelve months.


Seventh, the geopolitical risk seemed to ease somewhat in October. But, as one can see in the next chart, the CBOE Volatility Index has actually increased in the previous month. However, it remains at very low level (the rise resulted presumably from the conflict about Catalonia and speculations about the next Fed’s Chair), while the credit spreads declined further.

Chart 3: The market volatility reflected by the CBOE Volatility Index (green line, right axis) and the credit spread reflected by the BofA Merrill Lynch US High Yield-Option Adjusted Spread (red line, left axis) over the last twelve months.


Given all these factors analyzed above, it is actually astonishing that the price of gold did not drop more. One of the possible explanations is the synchronized global growth we have already mentioned. Although gold does not shine during periods of decent economic growth and low inflation, the synchronization means that the U.S. economy is no longer the main engine of growth among advances countries. Indeed, the long-term interest rate spread between the U.S. and Germany has been declining recently, as the next chart shows.

Chart 4: The difference between 10-year U.S. and German interest rates from October 2012 to September 2017.


The economic revival of the Eurozone – despite all of its structural problems – may cause the euro to continue its upward trend in the medium-term. Importantly, the emerging markets have been growing as well. Thus, the U.S. dollar may remain under pressure, which should be fundamentally positive for the gold prices.

Having said that, the macroeconomic outlook for gold deteriorated in October. The mix of accelerating growth and lack of inflationary pressure is negative for the yellow metal. And we would not be surprised if we see a temporary bottom in gold prices in December in analogy to what we saw in the last several years. The market odds of a December hike are at about 100 percent, so their increase is fully priced into gold, and the potential for further downside movement (at least, due to the expectations of the future Fed’s stance) is somewhat limited. Still, if the moves in the interest rates continue to be similar to the previous series of hikes, then the USD could finally start a bigger rally and that would mean trouble for gold.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2018 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

6 Critical Money Making Rules