Gold Continues to Consolidate

Dollar index virtually unchanged this morning just below the 97 level as gold continues to consolidate at these price levels.

ETF traded gold funds inventory sits at approximately 53 million ounces as the inflow of investors continues. As I indicated before, these new purchases have supported and rallied the gold price for the first part of 2016. In the past two weeks, fund managers have joined the retail investor as they focus on a trying to find a safe haven for investment.

Most of the Wall Street traders I spoke with are talking about a possibility of negative interest rates, but there are some who still believe more rate hikes are a possibility, if you follow the thought process of San Francisco Fed governor John Williams. This is what he said yesterday, “Despite the Sturm und Drang of international and market developments, the U.S. economy is, all in all, looking pretty good. I still expect to see U.S. GDP growth of about 2¼ percent for 2016. I still expect unemployment to edge down to about 4½ percent by late in the year. And I still see inflation edging up to our 2 percent goal within the next two years. So I’m not down—it all looks good to me.” So listening to his perspective on where he believes the economy is and is going, one would take a bearish stance on gold.

An article in today’s Wall Street journal on page C1 discusses the issues Japan is facing regarding negative interest rates. If negative interest becomes a trend and hits our shores, what impact do think it will have on the price of gold going forward? I can’t imagine paying a bank to hold my money in a savings account. over the past 7 years, senior citizens have been forced to invest in the stock market because of virtually zero returns on their previous popular CD investments. Many financial advisors tell me the seniors are now diversifying, or as some put it, rebalancing their portfolios, to include a higher percentage of their assets in gold.

As I enjoy taking a contrary position on topics like this, I believe Gold will continue to be well supported at these levels and I don’t believe the data the Fed will look at going forward will give them any ammunition to raise rates at the next Fed meeting. As there are many who have different opinions on where the price of gold is headed, one could expect some volatility in the short term.

Have a wonderful weekend.

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