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Gold prices fell again this week in anticipation of a Federal Reserve interest rate hike following the central bank meeting next week.
“Gold futures fell Friday, putting the metal on track for their fifth weekly loss in a row and the lowest finish since February as the dollar firmed ahead of next week’s Federal Reserve meeting. The U.S. central bank is expected to result in the second U.S. interest-rate hike in a year, which could weigh on dollar-pegged assets….” (“Gold trades lower, heads for fourth straight weekly loss,” MarketWatch, 12/9/16.)
Gold ended the week down $17.50, closing at $1,160.60. Silver prices closed at $19.62, down $0.10.
Case For Owning Gold Stronger Today - Felder
Money manager Jesse Felder wrote a commentary explaining why the recent consolidation in gold prices was positive for the long-term bull market.
“The precious metal needed a pullback before it would be able to embark on its next leg higher … To be clear, I still believe gold has started a new bull market. Furthermore, the case for owning gold has not diminished because of Donald Trump’s election victory. If anything, it has strengthened. The prospect of rising deficits and inflation enhance the bullish case for owning gold, especially when you consider the fact that the Fed, or any other central bank for that matter, is not likely to change dramatically from its incredibly dovish bias any time soon …
“What might matter most to the price of the precious metal, however, is the path of the dollar as they normally move inversely to each other. On a long-term time frame there are some significant bearish momentum divergences at play in the greenback. These are very similar to what we witnessed at the 2002 peak in the dollar …
“But the bullish case for gold does not just rest on the direction of the dollar. Gold is also an, “investment in monetary policy failure,” as Michael Lewitt wrote this week, or at least a hedge against it. And for anyone paying attention, it is becoming very clear that the “policy stakes are now very high,” to quote William White from a recent speech he gave in which he discusses in brilliant detail the waning efficacy and growing risks of the central bank experiment we have witnessed for the better part of the past decade. The bottom line is the case for owning gold has only grown stronger over the past few months even while prices and sentiment have reversed….” (“Gold has started a new bull market,” Business Insider, 12/5/16.)
Gold May Rally $200 In Coming Months – Money Morning
The editors of Money Morning issued their 2017 gold forecast, targeting a $200 increase in gold prices in the coming months.
“Our latest gold price forecast for 2017 shows the precious metal climbing double digits within the next few months, despite temporary downward pressure from several headwinds, according Money Morning Resource Specialist Peter Krauth …
"As the New Year approaches, however, there are many upcoming events and policies that will support a gold price rally. It's all here in our latest gold price forecast, along with our specific gold price target…
"A bottom for gold prices could be approaching, and that points to a future rally… Looking ahead, there are two likely positive catalysts for gold prices.
"One is the upcoming Federal Reserve interest rate hike on Dec. 13-14. While it isn't a sealed deal, there is an over 90% chance the Fed will raise rates, according to the CME Group's FedWatch Tool. ‘If history rhymes,’ Krauth said, ‘that could mark a turning point for the current correction. Around this same time last year, gold bottomed out at $1,050. What followed was a rally for the record books ...’
“Another possible catalyst is the mid-March 2017 debt ceiling deadline. The deadline could be a major discussion in gold's favor. Remember, any time uncertainty or panic strikes, gold is there to save the day with its safe-haven appeal. Taking all of these factors into account, gold prices could see a $200 rally within a few months, according to Krauth. ‘And while it still seems like a long shot from here,’ he said, ‘I also think $1,300 is still possible within the next few months….’” (“Our New Gold Forecast for 2017,” Money Morning, 12/8/16.)
Gold Prices To “Explode” Following Fed Rate Hikes – Ameduri
Daniel Ameduri, founder of the Wealth Research Group, sees gold prices “exploding” after the Federal Reserve’s second interest rate hike.
“Since launching Wealth Research Group at the beginning of 2016, I have dedicated a considerable amount of time understanding precious metals, and their relationship to other factors and assets … The narrative that investors are being fed with right now is that gold doesn't produce yield, so rising interest rates would absolutely be problematic for gold prices, but that's conventional wisdom, and everything I have learned about financial markets tells me that following it will surely lead to terrible results …
“There are two important factors to keep in mind: 1. Inflation: Interest rates are rising since the FED and the government see inflation starting to recede from historical lows, and with the proposed infrastructure plans, other construction metals have already began trading higher. What's paramount to understand is that rates rise, but so does inflation, so real rates remain low and even negative. In fact, Goldman Sachs turned bullish on commodities for the first time in years …
“2. Tightening Periods vs. Gold: Contrary to what the mainstream media is feeding the average "investor," here's what historically has happened during first and second rate hikes … it was the second rate hike period that caught investors unprepared. Between January 1977 and April 1980, the Fed Funds Rate increased by a total of 1,300 basis points from 4.61% to a high of 17.61%. During this cycle, the price of gold increased from $129.75 to a high of $850, a gain of 555.11%...
“The thing that nobody seems to mention is that gold has hit peak production … There is currently 90M ounces mined annually, but only 40M are being discovered. That's a 55% gap that is not coming back!
“The long-term picture is very bullish, and I am personally making big moves to position. Obama will be the first president to be at war for two full terms, and war spending is set to increase. Gold prices respond to increased war spending and federal budget deficits … The explosion in deficit spending derived by war costs absolutely decimated the U.S. dollar from 2001 to 2012, but it was a clear reason to own gold and part of the reason it rose higher….” (“Gold To Explode After Second Rate Hike,” Investing.com, 12/9/16.)
Trump Presidency Bullish For Gold – Yahoo!
A Yahoo! commentary sees gold rallying under a Mr. Trump’s presidency because of inflation, higher oil prices and larger deficits.
“November 2016 was a historic month in which two monumental market shocks took place – the election of Donald Trump to the U.S. presidency and the surprise deal reached by OPEC to put an end to the worst oil bust in decades. Both of those shocks will bring windfall profits to one sector in particular: gold. While investors are trying to figure out if defense manufacturers will be a good bet under a Trump administration, or which oil and gas company will get a boost from OPEC, they would be better off focusing on the gold sector, which will benefit from both the Trump presidency and higher oil prices …
“While Trump will likely bring a massive supply-side economic stimulus, he also promises a Keynesian-style spending spree. Trump’s gargantuan 10-year $1 trillion infrastructure plan to rebuild roads, bridges, tunnels, airports and the like could boost economic growth.
“But it would also fuel inflation. A spending stimulus made sense in 2009 when the economy was in freefall, but seven years into a recovery, spending $1 trillion could have some unintended side effects … The spending program alone would be enough to raise concerns about inflation, but doing it while simultaneously slashing taxes across the board will cause inflation to rise to heights not seen in years …
"The bottom line: Trump’s arrival in Washington DC will lead to more growth, but more debt and much higher inflation. Many can dispute the wisdom of such plans, but the undisputable fact is that it is all good news for gold. If the U.S. economy sees higher inflation and the value of the U.S. dollar falters, investors will flock to gold as a safe haven …
“Gold prices have been sinking for the last few weeks, but the long-term effects of the OPEC deal will be great news for gold. OPEC’s agreement has already added about 14 percent to the price of crude oil, and more gains are likely well into 2017. This is good for gold for a few reasons: - Higher oil prices will boost inflation, which is always good for gold (see Trump, above) - Higher oil prices can dampen economic growth, and gold can offer an alternative to investors looking for yield.
“Gold prices have been hammered over the past few months on the strengthening dollar, dropping to its lowest level in nine months below $1,200 per troy ounce at the end of November. But the gains for the greenback are likely at an end. The Fed will raise interest rates this month, but the tax cuts and higher spending levels from the Trump administration will weaken the dollar, laying the groundwork for a recovery in gold prices in 2017 and beyond….” (“Gold Prices Set To Spike Under Trump,” Yahoo! Sports, 12/7/16.)