Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

Gold: Now What?

March 15, 2017

Gold: Now What?

by Gerardo Del Real 

 

In January I provided an overview of the geopolitical catalysts that I believe will be important to keep an eye on.

I mentioned that elections in Germany and France would add to the political risks that the euro, a currency that is structurally flawed, faces.

The global war on cash will also play an important role in the how the dollar performs.

The ability of the Fed to make good on its promise to raise rates in 2017 will provide headwinds for precious metals prices. The sooner we get that out of the way, the better.

While the European Central Bank and the Bank of Japan continue running aggressive quantitative-easing programs, the Federal Reserve has promised three hikes in 2017.

We can debate whether the economy is strong enough to justify three rate hikes this year, but after Friday’s jobs numbers, which showed 235,000 new jobs added, there’s already a new debate as to whether four rate hikes might be justified.

If the major stock indices continue to establish new highs — and they will — there will be many calling for an accelerated schedule of hikes to contain asset bubbles.

Every rate hike will lead to a surging dollar — even from today’s levels — that will catch many off guard.

How high could the dollar go in 2017?

Some context is important. Below is a chart from macrotrends.net of historical data showing the broad price-adjusted U.S. dollar index published by the Federal Reserve.

The index is adjusted for the aggregated home inflation rates of all included currencies.

The price adjustment is especially important with our Asian and South American trading partners due to their significant inflation episodes of the 80s and 90s.

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