Gold investors know that the metal has been under pressure due to expectations of a FED rate hike in 2016. Many believe that an increase in the FED funds rate would support the dollar and send prices for precious metals lower. This has been a key driver of the decline in the gold price to support at $1,250, the 200-day moving average.
But the FED has been leading investors to believe a rate hike is imminent for the past 10 months and yet, they have been unwilling to increase rates even by as little at 25 basis points. Now that we are nearing year end, many have increased expectations for this elusive rate hike to finally materialize.
Janet Yellen gave a somewhat dovish speech today, in which she emphasized that low rates and stimulus may be the only way to heal the economy. She didn’t take a rate hike off the table, but it sure didn’t sound supportive of higher rates.
So, could the FED finally raise rates before 2016 draws to a close?
That sounds plausible in theory, but there are a number of factors that do not support a rate hike in the near term.
Given these data points, does this seem like a good time for the FED to finally raise interest rates? And if the FED disappoints everyone expecting a rate hike, including the masses of dollar bulls, what do you think might happen to the gold price? How about the recent dollar rally?
We can’t rule out the possibility of a rate hike. We are merely pointing out how the data does not support a hike and the FED has been continually pulling away the football at the last second.
But even if they do hike rates, this move is already largely priced into gold and silver. And we should question the rationality of this sell off. After all, the gold price often moves higher along with interest rates. This is exactly what occurred immediately after the FED last raised rates in December of 2015. It fact, it set off one of the most powerful rallies in gold in years. So, fear not the rate hike boogieman.
Courtesy: Jason Hamlin
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