Precious metals continued moving higher yesterday as gold and silver tested resistance levels at $1,125.00 and $14.50. Fueled by uncertainty over the health of the U.S. economy, many “experts” are now calling for no more than two rate hikes by the FOMC this year. Earlier consensus opinion along with comments by FOMC members had all markets pricing in four rate hikes in 2016. The result of fewer rate hikes should be favorable for gold and the commodity sector as a USD that does not rally, and perhaps actually weakens, would be very supportive for precious metals. The extreme volatility in the stock market may also be lending a hand in the recent rally as equity investors make changes to their portfolios. Month to date figures show ETF holdings in gold have risen almost 4.00 percent in January. Later today, we will get a statement from the FOMC as they conclude their first meeting of 2016. A dovish tone could send gold towards the 200 day moving average at $1,133.00 while silver takes a look at the 100 day average which is $14.65.
The trading week heads for the finish line and gold and silver continue to trade in a well-defined range as they react to the influences other markets exert. This morning’s headline of surprisingly weak U.S. economic data, as witnessed by a fall in retail sales and factory orders, has equity investors looking for the exit sign as the Dow Jones average is down over 400 points. With another sharp fall in the NASDAQ, it is now down over 10 percent in the first two weeks of January. The yield on the U.S. ten year bond, which was expected to rise on the back of Fed tightening, has done nothing but fall the past few weeks as the yield is struggling to hold above two percent. As expected, traders and investors alike are seeking “safe haven” as gold and silver have “come off the ropes” this morning and are up sharply in early U.S. trading as silver has once again broken above $14.00. Crude oil continues to weigh heavily as it has fallen below $30.00 with many commentators calling for the sharp decline to continue. Data released by the World Gold Council and Bank for International Settlements shows that Central Banks continued to be a net buyer of gold through the end of the year with China and Russia being the featured buyers. Make sure you have your seat belt on today, as I get ready to hit the send button silver has dropped sharply and is back at $13.95. Today could be a roller coaster ride for many of the markets.
This morning finds geopolitical events continue to dominate the headlines. Following on the heels of the losses in the Chinese stock market, tensions are at heightened levels in the middle east as Saudi Arabia and Iran have suspended diplomatic ties. This morning brings news that North Korea is claiming they have successfully tested a hydrogen bomb. The market reactions have been a global sell-off in equities while gold has benefited from those seeking a “safe haven”. While physical demand has been a bit disappointing to begin the new year, this morning’s news has propelled gold above resistance at $1,085.00 with additional gains likely to heat up our corner of the market. Silver continues to lag behind gold as witnessed by the gold / silver ratio which is moving towards 78.00. Platinum and especially palladium are taking it on the chin this morning as they follow crude oil which has fallen below $35.00 this morning and is down over three percent.
Recent U.S. economic data has been mixed with manufacturing and home sales missing economic forecasts while this morning’s ADP payroll report came in better than expected for December. Lastly, Fed Vice Chairman Fisher, in his first interview since the rate hike last month, indicated the FOMC is likely to raise rates four times this year. With all the uncertainty in the world, I would expect gold to continue benefiting from its safe haven appeal. If gold continues to probe higher, resistance can be expected at $1,111.50 which is the 100 day moving average. A continuation of USD strength and falling crude oil likely sends gold back towards $1,050.00.