Gold Doesn’t Care Until It Does…

Gold Doesn’t Care Until It Does…

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… and then you better care. This week the Federal Open Market Committee (FOMC), raised short term interest rates by 25 basis points, but that was not the main story. The main story was the difference between the dovish rate hike the market expected and the hawkish rate hike the market got.


The markets priced in the 25 basis point hike, but given the softer data we had seen recently in the US, the focus was on how the FOMC would word their more dovish view going forward. Instead they laid out their plan to reduce the $4.47 trillion balance sheet, which incidentally has GROWN by $1 billion since late February. Reducing the balance sheet (appropriate or not) is an extra measure of tightening. This spiked the dollar and caused gold to fall. In the absence of crisis, gold moves on it’s inverse relationship to the dollar and on supply and demand. While we have seen a pickup in demand from India due to an additional 1% tax being added to gold purchases on July 1st, this should level off once we have moved out of June. If the dollar continues higher, gold will continue lower and will continue not caring…until:

Russia investigation, US-Russia tensions, potential obstruction of justice by a sitting president, war in Syria, North Korea-South Korea-US tensions, Qatari – Saudi relations….if any of these geopolitical issues heat up, then so will gold; and it will heat up quickly. Given the Fed’s view of the US economy and the global growth picture, gold should be a lot lower, but it’s not. Think of gold as a Dad spending the evening as a high school dance chaperone…he may not be in the gym where the actual dance is being held, but you know he has not left the building. Right now, Gold doesn’t care about the list above, but when it does, you better as well.

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