Precious metals are holding above the key psychological levels of $1,200.00 gold and $15.00 in silver after the sharp sell-off earlier in the week. With short term technical support in gold coming from the 10 day moving average which hovers just above $1,200.00, short sellers are not likely to pressure the market unless this level is convincingly breached. While physical demand from our corner of the market has been quite good, overall market volume is falling as many traders and investors have either covered short positions or taken a profit on a long position. Thus, we have a market where “money” is on the sidelines waiting for a sign of where the next 5 plus percent move in the market will take us. Support and optimism for another move on the upside comes from the FOMC minutes from the January meeting where many of the voting members expressed concern over the state of the domestic and international economy along with the extreme volatility in many financial markets. This would seem to indicate the FOMC will remain on the sideline, continue to be data driven and, in my opinion, not raise rates until Q3 at the earliest. Crude oil has recently become a contra-indicator for the gold market, meaning a move up in crude which has historically been good for gold may no longer be the case. As I see it now, a move higher in crude will tell the FOMC the economy is improving and inflation is moving closer to their target which will support an increase in the Fed Funds rate which would strengthen the USD and depress gold. Crude oil continuing to probe lower sends the opposite signal, keeping rates low and unchanged, which supports gold.
The health of the domestic and global economy continues to be a growing concern for investors of all sizes. Adding to this are mounting geo-political concerns in many regions which have most market participants looking for the exit sign on equities while they move into U.S. treasuries and precious metals.
A few weeks ago, all markets were poised and pricing in a U.S. interest rate hike every quarter for 2016. In recent days, it now appears that any hikes are likely to occur no sooner than the second half of the year with many “experts” already calling for a single hike in Q4 or none at all for 2016. As sentiment has changed, investors have been purchasing U.S. treasuries which has pushed the yield all the way down to 1.75 percent which has further supported gold and company. Gold touched $1,200.00 yesterday as heavy, broad based buying continues to drive the market to levels not seen since June of last year. You have to look no further than YTD results in order to see why gold and company should be a part of every well balanced, diversified portfolio.
So far this year, the Dow Jones Industrial Average has fallen almost 10 percent while gold and silver have gained over 12 and 10 percent respectively. In the short term, gold may struggle a bit at $1,200.00 as producers do some hedging while speculators lock in profits but the landscape is changing for our market and I expect dips to be well supported by physical buyers with a longer term perspective on investing along with traders who will rotate into precious metals from a technical basis.
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