After touching $1200 a couple of days ago (See: Gold touches $1200 in dramatic surge), the gold price fell back, and even fell further during Fed Chair Janet Yellen’s report on last week FOMC meeting to Congress. But as the statement continued and it became obvious that the Fed was in serious uncertainty over what both domestic and overseas economic indicators were meaning, gold the gold price surged after hours in North America, and overnight in Asian markets, to blast through the $1,200 psychological support level to close in on $1,220 – a level then comfortably surpassed during morning trading in Europe.
As Clint Siegner pointed out in his article on lawrieongold.com yesterday – Fear and the Fed: Gold and Silver rise, Equities and Jobs fall (the title says it all) the economic indicators are not nearly as positive as the Fed would have people believe and the investment world is beginning to lose faith in the Fed, and its ability to reach its inflation targets and prevent the U.S. falling into recession.
As pointed out by Peter Hug in an editorial piece on kitco.com ‘When it [Yellens’s testimony] was all over it became clear that the Chair had no clue as to future monetary policy and it is likely to be re-active as opposed to pro-active.
The U.S. markets have already come to the conclusion that the Fed is now unlikely to implement four rate rises this year as suggested at the time of the initial rise in December – indeed some are suggesting it may even have to backtrack on the December increase as well. One suspects there may be another token rise to save face but perhaps no more in 2016 unless the U.S. economy truly turns around. Global stock market indices continue to fall and, as the article referenced above notes, fear rules – and when this happens investors start to return to the long time safe haven of gold. For the moment the force is with gold – whether it will continue to be so is, of course uncertain. Like the Fed the gold market is still data driven, but this initial breakout over the $1,200 mark will, the gold bulls ardently hope, be a sign of things to come. However, with the gold price nothing is certain and there certainly will be elements out there moving heaven and earth to try and keep the price under control given gold price strength is seen as an indicator of dollar weakness – indeed the dollar index has dropped around 4-5% since its interim peak near the beginning of the year when it was briefly touched the 100 mark.