As predicted yesterday, the Federal Reserve raised their base interest rate by a quarter-point yesterday. Chairman Powell also noted he expected two more rate hikes this year, consistent with earlier statements. Typically the US Dollar rises and gold prices drop immediately following such announcements. Well, that happened, but the effect didn’t last, as the chart for GLD shows.
Rather than dropping and staying down, gold prices basically used the announcement as an excuse for a bounce, closing the day higher than where it was before the announcement.
The chart for the US Dollar looks like the mirror image of that – a sudden rise during the announcement, then quickly dropping off to close lower.
This is not the normal pattern, and in some ways goes against what “should” happen. Why might this be? Have economic fundamentals broken down?
This Gold Enthusiast doesn’t think so. As usual it’s never about just one thing. (Until it is, of course.) With interest rates rising in the US, and with a clear message that they will continue to rise for the rest of the year, investors are beginning to take notice of other factors that may dampen the current bull market. Such as the uncertainty in Italy after the recent elections. Or the extreme pessimism running rampant about the gold market, which is a contrarian sign that we may be near the bottom for gold. Remember what the smart investors say – buy when no one else wants to…
The Indian gold market is also starting to give off bullish signs, such as a widening spread reported yesterday. This indicates demand in India may be ramping up earlier than usual, which bodes well for the summer gold market there.
So there are tremors underfoot. But like Pompeii these things take a while to develop. For now we’ll stick with our prediction (if you can call it that) of a quiet gold market until at least the end of June. After that – well, we’ll see when we get there.
Signed, The Gold Enthusiast
DISCLAIMER: The author holds no position in any mentioned security. The author is long NUGT, JNUG, and a handful of small mining stocks, in small quantities not likely to budge any markets.
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