Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com Radio: John Embry and Charles Hughes Smith, and your host Chris Waltzek
By: radio.GoldSeek.com

The Dangerous Dream of Secession
By: George Smith

Amid Bad Fundamentals, Gold Sector Rally May Have Begun
By: Gary Tanashian

Bitcoin Proves You Cannot Have Your Digital Cake and Eat it Too
By: Nathan McDonald

Relief Rally in Gold Mining Stocks
By: Jordan Roy-Byrne CMT, MFTA

The Morgan Report's Weekly Perspective
By: David Morgan

Outlook for gold – 2018
By: Alasdair Macleod

Stephen Poloz Right To Be Worried
By: Peter Diekmeyer

The Yield Curve And The Boom-Bust Cycle
By: Steven Saville

Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Roughly 1% on the Week
By: Chris Mullen, Gold Seeker Report

 
Search

GoldSeek Web

 
Gold and another Fed rate hike


By: Steve Saville, The Speculative Investor

 -- Published: Thursday, 2 June 2016 | Print  | Disqus 

(This post is an excerpt from a commentary published at TSI late last week. Note that an explanation of why a hike in the Fed Funds rate no longer entails monetary tightening can be found in a March-2015 post at the TSI blog.)

In early-November of last year we predicted that a tradable gold rally would begin near the mid-December FOMC Meeting as long as the Fed did what almost everyone was expecting and implemented its first rate hike in more than 8 years. Our reasoning was explained as follows in the 4th November Interim Update:

Looking beyond the knee-jerk reactions to the news of the day, we see a gold market stuck in limbo. In this no-man’s land between a definitively-bullish and a definitively-bearish fundamental backdrop for gold, the US$ gold price works its way higher during periods when it seems that the start of the Fed’s rate-hiking is being pushed out and works its way lower during periods when it seems that the start of the Fed’s rate-hiking is being brought forward.

To get out of this ‘limbo’ and into a situation where a more substantial gold rally is probable, it appears that one of two things will have to happen. Either the Fed will have to take the first step along the rate-hiking path, or the economic/stock-market situation will have to become bad enough that additional monetary easing will be the Fed’s obvious next move. In other words, the Fed will have to stop vacillating and move one way or the other.

Although counterintuitive, there are two good reasons to expect that a Fed rate hike would usher-in a more bullish period for gold. The first reason is that it would potentially be a “sell the rumour buy the news” situation. We are referring to the fact that when a market sells off in anticipation of ostensibly-bearish news, the arrival of the actual news will often lead to a wave of short-covering and an upward price reversal. The second and more interesting reason is that it would spark the realisation that in the current circumstances a Fed rate hike does not entail monetary tightening.

As it turned out, the Fed went ahead and implemented its first rate hike in mid-December and a strong upward trend in the gold price got underway less than 48 hours later.

The reason for bringing this up isn’t to brag about getting something right; it’s to point out that gold now appears to be stuck in a similar situation to the one we described on 4th November. As was the case back then, to ignite the next tradable gold rally it appears that the Fed will have to stop vacillating. Either the Fed will have to take its second step along the rate-hiking path or the economic/stock-market situation will have to become bad enough that all thoughts of a 2016 rate hike are wiped out.


| Digg This Article
 -- Published: Thursday, 2 June 2016 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus


Regular financial market forecasts and analyses are provided at our web site. We aren’t offering a free trial subscription at this time, but free samples of our work (excerpts from our regular commentaries) can be viewed here.

E-mail: Steve Saville



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.