Following the volatility associated with last week’s U.S. rate hike, precious metals participants are left to ponder what comes next. In the remaining two shortened trading weeks of 2015, it would appear that the combination of physical demand and speculative short positions being covered are likely to keep our market steady with gold trading between $1,050.00 and $1,085.00 as volume and liquidity decrease by the day. As we begin to focus on 2016, all eyes and the headline story will be how often does the Fed raise interest rates and what will the impact be on all global markets. Early speculation is that the FOMC will raise rates by 100 basis points in 2016. This will be accomplished by four quarterly hikes of 25 basis points. If this turns out to be true, gold and company could be on the defensive for much of the year. If on the other hand, the Fed hikes less than 4 times and especially if there is no hike in the first quarter, I would look for our market to record gains for the first time in a few years in 2016.
This will be the last full week of trading in 2015 and it will be highlighted by the FOMC interest rate decision that comes on Wednesday. While it appears the first U.S. interest rate hike in over 9 years is coming this week it is news that is likely priced into all markets. Therefore, it will be the tone of Chair Yellen’s comments (dovish or hawkish) that will dictate the reaction of all global markets. Given the FOMC’s focus on being data driven, I expect the comments to follow the rate decision to be dovish. The sharp decline in oil prices (no inflation) and signs of weak consumer spending as witnessed by last week’s retail sales figures will make it very difficult (in my opinion) for additional rate hikes to follow anytime soon.
In early trading today gold and silver are being pressured by yet another drop in crude oil prices along with a marginally stronger USD. Platinum and palladium are higher but off the day’s best levels as reported physical buying out of China may have caused a few of the “shorts” to cover positions and lock in profits. In the short term, look for gold support from the mid $1,060.00’s through the mid $1,050.00’s. A break below could see a run at $1,025.00. Resistance at the moment looks formidable above $1,080.00. Silver may be the catalyst for what gold does in the coming days. While it continues to “feel” vulnerable and a look at $13.25 appears to be in the cards, a move back up towards $14.40 on the back of physical demand and short covering would not be a shock.
Precious metals have fought their way off the ropes the past few days as it was beginning to feel like the knockout punch was coming. A less aggressive stimulus package put forth by the European Central Bank yesterday caused the Euro to rally over 3 percent versus the USD which in turn brought broad based buying to our market. This morning’s U.S. Non-Farm payroll report came in close to consensus estimates of 200,000 as the U.S. economy generated 211,000 new jobs in November. The unemployment rate held steady at 5.00 percent which remains a 7 ½ year low. This would appear to be the last bit of positive data the FOMC needed to see before raising rates later this month. The big question that will linger over all markets early in 2016 will be when will the second rate hike come and what will the impact be on all markets. The expected hike to come this month now appears to be “priced in”.
As we continue to see, investors of all sizes continue to be attracted to our market on the dips. U.S. Mint data shows they sold 97,000 ounces of gold in November which was a huge increase of 185 percent from Octobers results. Silver Eagle sales posted a strong gain in November as well with 2015 sales of silver Eagles setting a new record at 44.67 million ounces.
As I finish today’s commentary, gold is leading the charge higher as physical demand is robust and shorts are covering. We are now at the top of the resistance band and testing $1,085.00.