Deliberations on the U.S. Fed rate rise and gold

Two articles published by me on sharpspixley.com in the aftermath of this week’s FOMC meeting announcing a 25 basis point U.S. interest rate rise and looking ahead to three more in 2017.  Despite virtually every analyst and commentator predicting the increase which should have suggested that the rise had already been discounted in the recently weaker gold price the news precipitated a further $20 plus fall despite this.  This totally disregarded the Fed predicting three rate rises in 2016 the last time it increased rates by 25 basis points, exactly a year ago, and then failing to raise rates at all until now.  How short memories are – particularly in the financial world.  And how poor the Fed’s record has been in predicting the path of the U.S. economy.  Perhaps it will be all-change in 2017 under the somewhat unpredictable President-elect Trump, but we see some hopes being damped.  Whether gold will benefit, or continue to weaken, will probably depend on the big money which is likely to continue setting paper gold prices which still dominate, although Shanghai is doing its best to bolster prices – so far to little avail.

The first of the two Sharps Pixley articles written a couple of hours after the rate increase decision was announced, and the accompanying Fed forecast can be read by clicking on this link: Gold hammered on U.S. Fed rate decision.

The second was written the following morning (UK time) as the gold price continued to weaken and the dollar index to strengthen.  Indeed much of gold’s fall could be put down to dollar strength rather than gold weakness, although offloading of gold from the big gold ETFs did continue which will not have helped sentiment.  To read this article click here: Gold and silver dip further as dollar continues on upwards path.

Today the rise in the U.S. dollar index appears to have halted and precious metals prices appear to have stabilised.  Whether that will continue into next week we do not know given the gold bears appear to be in the ascendant, but there is an impression gold has been oversold, the dollar overcooked and maybe, just maybe, something of a precious metals recovery is already under way.

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