After Fed, Gold, Silver, To Gain Momentum - USD Will Weaken
Gold regains ground on softer dollar Gold prices regained some ground in European morning hours on Friday, helped by a softer U.S. dollar as markets digested the Federal Reserve's decision to raise interest rates for the first time in nearly a decade.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery were up 0.50% at $1,054.90.
The February contract ended Thursday's session 2.53% lower at $1,049.60 an ounce.
Futures were likely to find support at $1,046.20, the low of December 3 and a six-year low and resistance at $1,072.60, Thursday's high.
The dollar had strengthened broadly after the Fed raised interest rates by a quarter of a percentage point to between 0.25% and 0.50% at the conclusion of its two-day policy meeting on Wednesday. It was the first rate hike in the U.S. since 2006.
Commenting on the decision, Fed Chair Janet Yellen said that further rate hikes would be gradual and data dependent.
Adding to optimism over the strength of the U.S. economy, the Department of Labor said on Thursday that the number of individuals filing for initial jobless benefits in the week ending December 11 decreased by 11,000 to 271,000 from the previous week’s total of 282,000.
Weaker Gold & Silver Prices To Continue To Push Coin Sales To Record Highs In 2016
After seeing surging coin sales throughout the year, particularly with silver coins, the U.S. Mint is reporting weaker demand so far in December.
According to the mint’s latest data, American Eagle and Buffalo gold coin sales have reached 2000 ounces so far this month, while silver coin sales are at around 2.33 million ounces.
But, analysts do not attribute the lower numbers with customer fatigue, and actually expect retail demand to pick up next year as metal prices continue to hover at lower levels.
In a research report released Monday, analysts at Barclays said lower demand in December could be simply related to depleted stock.
In late November, the mint announced that it sold out of its 2015-dated American Eagle one-ounce gold bullion coin, with no plans to produce additional ones. Earlier in the year, the mint also ran out of the one-tenth and one-fourth ounce sized coins. The mint has only been offering its one-half ounce American Eagle bullion coins and its one-ounce buffalo bullion coins for sale.
“The slow sales pace in December was supply driven, in our view,” Barclays said. “We expect strong demand at the start of next month once new supply comes from the U.S. Mint, due to lower prices,” the bank added.
Gold coin sales are stronger year over year, particularly during the second half of the year as prices continued to struggle. Gold futures are down roughly 10% on the year, with most of the consecutive negative daily closes occurring in July and November. During those months, American Eagle bullion gold coin sales jumped 123% and 185% month over month, respectively.
According to the data, a total of 801,500 ounces of the gold American Eagle coins were sold so far this year, up 52.8% from total sales in 2014. The same can be seen with the gold Buffalo coin, which experienced sales of 220,500 ounces so far in 2015, up over 87% year-over-year.
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So many bedrock beliefs of investors have been turned on their heads or flatly disproven over the course of this cycle. Never was this more true than with inflation and inflation expectations. And while some may insinuate that it's just a matter of time before their respective assumptions are realized in the market, the fact remains that timing is paramount to either comfortably catching the wave - or treacherously treading white water while fighting for another opportunity to get back behind the breakers.
By and large, appraising inflation and its considerable influence within the markets has been the Mavericks of macroeconomics for this cycle. Although we've personally taken some nice long rides on market ideas closely tied to our own inflation expectations, we have also been on the receiving end of leaving too early and feeling the weight of a position move against us. Nevertheless, it is what makes markets, markets - forever fascinating and always a challenge to navigate. Catch a big swell and you feel like you've bridled mother nature. Remain "in the zone" and you run the risk of losing some healthy humility towards the hand that feeds you. The challenge is always to keep riding and learning, with a heavy appreciation of the larger forces at play that will inevitably come down upon you at some point.
When it comes to those forces, we are looking for yet another counter-intuitive outcome in the wake of the Fed moving off of ZIRP. We expect financial conditions to loosen globally as the Fed steps policy back away from the crisis stance it's maintained over the past seven years. From a behavioral point of view, QE and ZIRP have not been considered a positive station for the markets for some time; rather much the opposite - a confirmation in the belief that the economy still requires further external support. From a market perspective, maintaining that policy has been in and of itself - disinflationary. As inflation has fallen, real interest rates have risen.
In many ways—but par for the course of ZIRP—this tightening cycle has been discretely front-end loaded. Meaning, real tightening took place during the lengthy expectation phases from when the Fed first telegraphed its intentions to taper QE and then the later phase over the past year of crawling towards actually leaving ZIRP.
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