The gold market has certainly seen renewed buying interest in recent weeks, although prices currently appear to be taking a breather. After rallying above previous resistance in the $1170 area, the gold market has pulled back slightly. This could be attributed to profit-taking by “paper” gold traders as well as willing sellers at current levels.
In our view, however, gold is likely seeing some position squaring and cautious trade ahead of next week’s FOMC meeting. While any action by the Fed next week is unlikely, anything is possible. Should the Fed remain on hold, a rate hike is not likely in our view until sometime in 2016.
Contrary to popular opinion, some feel that gold will rally further once the Fed does take action. In a recent Kitco interview, Phil Newman of Metals Focus discussed how the metals are currently being affected by the notion of a rate hike by the central bank. He went on to add “Of course, it’s a bit of a moving target. If you look at the sentiment in the market, it’s very much shifted for rates to be increased in 2016 now.”
In discussing the possible market action surrounding a rate hike by the Fed, Newman stated “We should probably see more weakness come back when the rate hike actually does happen. Once that’s out of the way, that should really clear the deck for prices to start moving higher in sort of a gradual way, more constructively for the longer term.”
Our sentiments exactly…
The reality is that due to the ongoing uncertainty surrounding the Fed and its plans, both potential gains and losses in gold may be somewhat limited until more clarity is seen.
Another reality is that once the Fed does hike, the retail investor may panic and sell gold. We suspect that an initial down move in gold could present a high quality buying opportunity that may not be seen again anytime soon…
And while we believe that gold represents an excellent value at current price levels, there may be one last chance to buy at even lower levels.
Talk about a bargain…
Let’s also not forget that a rate hike could potentially have a significant impact on the equity markets. In our opinion, markets love low rates and as rates begin to rise investors may elect to take profits in stocks. Higher rates can also potentially cut into corporate profits and drive individual stocks lower while bonds and interest-bearing instruments can become more competitive.
Should equities begin to falter following a rate hike, it stands to reason that gold and other alternative asset classes could potentially stand to benefit.
Based on recent price action in the gold market, we are of the opinion that the yellow metal is not likely to go significantly lower from current levels. While a retest of the recent lows, or even a new low is possible following a rate hike, we believe that savvy investors and larger market players will gobble up as much gold as they can.
An initial move lower in gold may prove to be nothing more than a simple head fake…
If you have been considering investments in physical precious metals like gold or silver, now is the time.
Don’t wait for prices to rise before taking action…
Have an IRA? Consider making an allocation into gold and precious metals now.
Please reach out to our experienced precious metals executives with any questions that you might have about investing in gold and the process of setting up a gold IRA. Call us today at 1-800-341-8584 FREE to get started.