CelticGold Market Report 17th August 2015
After enduring a difficult July, Gold investors had a good week as the yellow metal broke above $1,125 on Thursday before settling at $1,112.70 on Friday. The big news that sent Gold higher was the surprise move by the Peoples Bank of China when it devalued the Yuan against the US Dollar for three consecutive days.
The move sent the currency tumbling about 3%.The currency move is causing concern that there may be a crisis brewing in China. The bust in the raw commodity sector along with the currency devaluation by China could be signaling that deflation is gaining strength and could accelerate in the coming months. Crude oil fell to a 6.5 year low this week which also may be a sign that the global economy is slowing down.
As we mentioned in our last update September and October historically are good months for Gold. So its a good sign that Gold has been able to rally above the $1,100 level. However, much of the increase in the Gold price was likely due short covering and institutional investors buying large amounts of physical metal. Now new buying has to continue to push prices higher. The financial markets continue to be as uncertain as ever. So we’ll see if Gold can continue to build some momentum as we head into autumn.
The Race to the Bottom
The action by China his week to devalue the Yuan is a good indication that Central Banks around the world are going to continue to use easy money policies in an attempt to stimulate growth. Japan, China and Europe are all devaluing their currencies to boost exports. It seems as if no country wants a strong currency.
The collapse in commodity prices is a sign that deflationary forces are winning out. The only real policy tool Central Banks have to fight off deflation is currency debasement. The volatility in the currency markets is going to continue to be very destabilizing for the financial markets, which is one of the reasons to consider owning Gold.
China and the IMF
The other big story since our last update was the reported delay in inviting the Chinese Yuan into the IMF’s SDR currency basket. As readers know, the decision on including the Yuan into the SDR basket was scheduled to take place sometime in October or November of this year.
However, the IMF is now considering postponing the decision until September 2016. The timing of China’s devaluation and the IMF decision to delay the SRD entry is curious. Below is a good article by Jim Rickards, who explains all of this in detail and why the China devaluation has put the US Fed in a difficult place. Jim Sinclaire put up a comment saying that with the Yuans devaluation and the Greece bailout the Dollar rally is now over which won't allow the FED to raise rates significantly.
Market Update for Silver
Silver also had a good week closing Friday at $15.21. Silver was able to post a gain of almost 40 cents for the week despite collapsing oil prices and continued overall weakness in the commodity sector.
According Jim Wyckoff, who writes for Kitco, the key support area for Silver is $15, while the next resistance level is $15.57. So we’ll see if Gold and Silver can diverge from the overall commodity sector next week and continue to post gains.
We are coming to a point, possibly by the end of the year, where Central Banks will loose control of their ability to prop up the markets. They will not be able to continue with these policies without severe consequences and more and more investors are beginning to realize this.
Global markets are fragile right now. And with many Governments deeply in debt the only choice will be to devalue currencies. So continue to view your Physical Gold and Silver as a crisis hedge and protection from falling currencies.
It is not clear yet whether the low is in for Gold and Silver. According to Gerald Celente on Kitco.com news the downside potential in gold is maximum $150/oz. But however, there is much more upside potential than downside risk at these price levels. Volatility will likely increase significantly as we head into September and October so it should be an interesting time for the markets.
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