ANOTHER WEEK OF TRYING TO PREDICT FUTURE FED ACTIONS
This week, Gold and Silver gave back a small portion of their recent gains. Last week’s negative global economic news boosted prices on expectations that the Fed would delay interest rate hikes. The markets continue to focus on what the Fed may or may not do and this week the sentiment turned to sooner rather than later [interest rate hikes]. All it took was a jobs report with claims lower than expected. Expectations are that Precious Metals and U.S. stocks will continue to go back and forth dependent upon predictions of which way the Fed winds will blow.
The renewed confidence in equity markets this week boosted the U.S. dollar. On Wednesday, a report came out indicating a stable and low inflation in the U.S. These two factors independently drive down Gold and together should have clobbered prices, but they did not. Why? Perhaps it was the news coming out of Russia that their central bank is stocking up on Gold. The Chinese central bank is suspected of doing the same thing along with India, as Gold demand is up for the Diwali festival. The Swiss Gold Referendum is also picking up support. If passed, this referendum would mandate Switzerland to purchase a very significant amount of Gold.
Mohamed El-Erian, former CIO Pimco, came out with an article on Monday that is worth noting, “4 Things to Remember after Wild Market Week”: “1. It doesn’t take much too severely dislocate markets, both down and up. 2. Liquidity is elusive when traders need it most, even when it comes to the deepest of all markets. 3. Market positioning and risk-taking are no substitute for solid fundamentals. 4. The Fed still doesn’t have much appetite for financial volatility, and markets will readily embrace its reassurances that it will try to act to counteract these gyrations.