Sunday, July 10, 2016

Gold has unlimited potential as central banks confused about which way to go with monetary policy

It is a given that gold is the counter-weight to fiat currencies as its price and value nearly always goes up when a nation's paper money goes down in value and purchasing power.  But what is now different, and what is suddenly being revealed is how gold is also a counter balance to central banks and monetary policy, and according to one Wall Street trader, the potential for higher gold prices is unlimited due the fact that the Fed, ECB, and BOJ are at an impasse on what to do to stave off financial calamity.

Starting in 2015, the Federal Reserve board of governors announced that there would be several rate hikes to the Fed funds rate over the next few years.  But each time they met to look over the data and seek to implement a hike, all they reported were excuses as to why they couldn't raise the cost of borrowing money.  And ever since June of this year when the Fed elected once again not to raise rates despite the fact that market sentiment was over 70% in the rate hike camp, the central bank has lost a great deal of credibility and this has been seen by the continuing rise of the gold price.

On CNBC's "Futures Now" this week, Tom Colvin said that gold will remain in a bull market that will only come to an end "when central banks take their hands out of the cookie jar." The Federal Reserve is unlikely to hike rates in the foreseeable future, despite a blockbuster June employment report on Friday. 
"The year-to-date rally in gold has been nothing short of spectacular, benefiting from what we have seen as a 'confused Fed' or a Fed lacking action," the senior vice president of global institutional sales at Ambrosino Brothers explained. 
Gold prices have rallied 28 percent in 2016, hitting a two year high earlier this week. Even as the yellow metal has pulled back from those highs in the last two sessions, Colvin expects these dips to arise as buying opportunities for investors. 
"The market can take good news and bad news," Colvin told CNBC. However, "a confused Fed, saying one thing but doing another over and over invites buyers of gold to jump into the pool with both feet and they have." - CNBC
Validation of this price action was also be seen on Friday, when the BLS announcement a monster rise in job creation that knocked down the gold price at the start of the trading day, only to see that price not only recover its initial losses, but close out the day in the green.

Live New York Gold Chart [Kitco Inc.]

0 comments:

Post a Comment