Commodity Trade Mantra

Gold Prices Bounce from Key Support – Bull Market Intact

Gold Prices Bounce from Key Support - Bull Market Intact

Gold Prices Bounce from Key Support – Bull Market Intact

Gold futures posted the biggest gain in almost four weeks as the dollar fell and investors bet the recent selloff was excessive. Weakness in the dollar tends to help commodities priced in the currency. Gold prices slumped below $1,200 last week for the first time since February. After declining more than 6 percent this month, gold’s 14-day relative-strength index was below 30 in the previous six sessions, signaling to some traders and analysts that gold was oversold. Gold futures for February delivery climbed 1.1 percent to $1,193.80 an ounce.

Gold prices have bounced back exactly as alerted last week (24 Nov): Gold Prices In Oversold Territory – US Dollar in Overbought; Need We Say More?

“The key will be $1,170. If gold prices can hold $1,170 then I think we could see the market bounce back. But if this price doesn’t hold then gold is in trouble. I think the US dollar has been too aggressive in pricing in Fed rate hikes and I think we are eventually going to see a pullback.”

Also as said in the article, the US dollar pulled back from 13-year highs, weakening against the yen and other major rival currencies on Monday as caution swept markets ahead of a busy week for economic data and potentially market-moving events. It is unlikely that traders will go short the dollar going into the end of the week when we are expecting a decent jobs report, Italian referendum and presidential elections in Austria over the weekend. However, the dollar is likely to strengthen against the euro as the European Central Bank is expected to extend their quantitative easing program while the Federal Reserve is expected to raise rates in December. The ECB meets on Dec. 8. The Fed holds its final policy meeting of the year on Dec. 13-14.

Believe It Or Not, Gold Is Still In A Bull Market

Technical analyst Jack Chan charts the latest moves in the gold and silver markets, which have been hammered badly since Trump’s surprise election.

chanhui10-29
The gold sector is on a long-term buy signal. Long-term signals can last for months and years and are more suitable for investors holding for long term.

chanhui2_11-26
The gold sector is on a short-term sell signal, however. Short-term signals can last for days and weeks, and are more suitable for traders.

A bull market in gold and silver has been confirmed. The cycle is down and the trend is down. The correction continues. Caution is advised.

Gold swings, market focus turns to OPEC

Reuters – 

“People will be likely watching the OPEC (Organization of the Petroleum Exporting Countries) meeting. If the meeting leads to higher oil prices, that should have some inflationary pressure across the global economies, especially the U.S. and that could lead to lower gold prices,” said Barnabas Gan, an analyst at OCBC Bank in Singapore.

Since gold and crude oil are dollar-denominated commodities, they are strongly linked.

“Gold could see a better tone this week assuming that the dollar takes a bit of a breather from its upward advance and if U.S. equity markets pause after several weeks of heady gains,” INTL FCStone analyst Edward Meir said in a note.

“The wild card remains oil. A failure by the OPEC to agree on a credible production cut could send prices (oil) sharply lower and drag down gold with it.”

“Conversely, we could see the dollar weakening as a result of oil selling off, so at this stage it is not necessarily clear what direction gold will take,” he said.

Oil prices fell early on Tuesday on doubts over a meaningful output cut during Wednesday’s meeting.

The dollar index, which measures the greenback against a basket of currencies, was steady at 101.260.

Global growth will pick up faster than expected in the coming months as the U.S. President-elect Donald Trump administration’s planned tax cuts and public spending fire up the U.S. economy, the Organisation for Economic Cooperation and Development said on Monday.

Also weighing on bullion was a highly anticipated U.S. interest rate hike in December by the Federal Reserve, which is due to next meet on Dec. 13-14.

“The probability of a rate hike is 100 percent. Market watchers are looking for a hike and that’s why prices are so weak – under $1,200,” OCBC analyst Gan said.

What Does Trump Mean for Investments?

As AO Markets forecasted Nov 2nd –

A Trump victory will cause tremendous anxiety in equities markets. This will in turn result in a weaker USD which will further propel demand for gold. As it stands, we are seeing tremendous momentum in gold demand in the US and elsewhere. Contrary to media pundits, Trump has a real shot at winning the US election and this is manifesting in a higher VIX and a rising gold price.

Money manager Adrian Day reports:

The market reaction to Trump’s election victory—stocks and the dollar up, gold down—was the opposite of what had been widely foreseen. 

At the core of the market reaction are interest rates. Bonds declined sharply on the Trump victory. They had already been falling for the last several months, and the growing conviction of a rate increase in December stepped up the decline. Trump, with his grandiose spending and debt plans, only exacerbated that decline.

But that made U.S. yields attractive (relatively) to foreign investors, and yield overrode the negative sentiment globally towards Trump. Thus, foreign investors bought U.S. bonds, which drove the dollar up, and pushed gold down (aggravated by massive sales by well-known investors including George Soros, Carl Icahn and Stanley Druckenmiller.

Likely outcomes in the period ahead
All of these moves are likely overdone in the immediate term. But if we look at a Trump administration, we will likely see:

  • Increased spending, including on infrastructure and defense
  • Tax cuts and less regulation
  • Higher interest rates
  • All in the context of continued easy money globally

This suggests a stronger dollar in the near term.

With regard to Yellen’s threat for a more “hawkish” Fed to counterbalance fiscal profligacy, we would retort, “I knew Paul Volker, and she’s no Paul Volker.” We do not expect sharply higher rates, and further out we will likely see higher U.S. debt (already high) and higher inflation (already stirring).

So the outlook a little further out—combined with easy money around the world, stronger Indian demand, possible geopolitical turmoil, and a decline in mine production—will be a higher gold price.

The question for us is, at what point does the near term turn into the further out. We will likely see a stronger dollar (and lower gold) heading into the rate hike, but that could well prove a turning point, as it did last December. We would also add that the withdrawals from gold ETFs are probably overdone, while stock valuations, among both miners and exploration companies, are very favorable.

Trump wants to abolish the Federal Reserve and return to the gold standard

Business Insider reports – As President-elect’s Donald Trump’s transition rolls on, more and more attention is being paid to possible selections for a variety of high-ranking positions and meetings that might help decide these appointments.

On Monday, Trump will meet with John Allison, the former CEO of the bank BB&T and of the libertarian think tank the Cato Institute.

There have been reports that Allison is being considered for Treasury secretary.

Trump’s has on the campaign trail questioned the future of the Federal Reserve’s political independence, but Allison takes that rhetoric a step further. While running the the Cato Institute, Allison wrote a paper in support of abolishing the Fed.

“I would get rid of the Federal Reserve because the volatility in the economy is primarily caused by the Fed,” Allison wrote in 2014 for the Cato Journal, a publication of the institute.

Allison said that simply allowing the market to regulate itself would be preferable to the Fed harming the stability of the financial system.

“When the Fed is radically changing the money supply, distorting interest rates, and over-regulating the financial sector, it makes rational economic calculation difficult,” Allison wrote. “Markets do form bubbles, but the Fed makes them worse.”

Allison also suggested that the government’s practice of insuring bank deposits up to $250,000 should be abolished and the US should go back to a banking system backed by “a market standard such as gold.”

Allison also argued for higher capital reserves of up to 20% of assets at banks. On the other hand, he also argued that the government should repeal three of the broadest banking regulations.

“We should raise capital standards, but it is even more important to eliminate burdensome regulations — including Dodd-Frank, the Community Reinvestment Act, and Truth in Lending,” Allison wrote. “About 25 percent of a bank’s personnel cost relates to regulations. Banks cannot pay the regulatory costs and have high capital standards.”

This is similar to Trump’s desire to roll back regulation — including Dodd-Frank — on financial institutions, though he has since backtracked somewhat.

It is unclear if any of Allison’s policy views will ultimately become a part of Trump’s plan, but given the unconventional nature of his ideas, the meeting is notable.

 

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