While a month is a pretty short time in terms of global finance, the fallout from the U.S. Fed’s December rate rise has seen, as expected, a stronger U.S. dollar. But what virtually all the major bank analysts had forecast – a consequent decline in the gold price in U.S. dollar terms – just has not come about. In the event the reverse has been true and gold has been rising along with the dollar, contrary to generally accepted gold price theory. This is pointed out beautifully in the latest chart from Nick Laird’s www.sharelynx.com charting site and is shown below.
As can be seen from the chart, ever since around the time of the Fed increase of 25 basis points, small though that was, the dollar index has been on an overall upwards trend. Before the Fed increase gold and the dollar had been exhibiting their normal relationship – dollar up and gold down. But since the rate rise – almost to the day – gold has also been rising overall. Indeed it has even been rising far faster than the dollar. Can this continue?
What the forecasters had not been taking into account has been the post Fed rate increase dive in general equities virtually across the board, as markets took the rate rise, together with Fed projections of three or four more similar increases this year, as a sign of continuing money tightening. Indeed the stock market declines – perhaps further stimulated by something of a rout in Chinese equity markets, which are even more of a casino than their Western counterparts – look as though they could be in danger of turning into a true rout……..
The above is the lead into my latest article published on sharpspixley.com. To read the full article click on: Fed Rate Rise has Boosted the Dollar AND Gold