21 December 2015

CelticGold Market Report December 21st 2015

Gold - Technical Chart 1 Year

Gold closed on Friday at $1,165 down almost 1% for the week. The bulk of the decline came on Thursday after the Federal Reserve finally decided to raise US interest rates. However, Gold traded about $15.00 higher on Friday to close the week with a positive daily gain. 

We posted an article to the CelticGold website last week that provides readers with some historical information on Gold and raising US interest rates. Many analysts believe that higher US interest rates and a potentially higher Dollar will mean lower Gold prices.

However, as the data suggest, higher US interest rates has not always correlated with lower Gold prices. There have been times when just the opposite has occurred, where Gold has risen along with interest rates.

One point that CelticGold readers should remember about the global economy is that there are a number of major risks to the financial system. These risks will most likely become more pronounced as we get into 2016.

This is why Gold remains one of the best crisis hedges of all asset classes. Below is excellent piece by Peak Prosperity that outlines the fundamentals for owning Gold right now. It’s a long article but provides a very comprehensive look at the Gold market. The link is here.

Fed Ends Drama and Hikes Rates

As regular readers know the big story of the week was the Federal Reserve raising interest rates for the first time in almost 10 years. The Fed hiked it’s key rate by 0.25% ending one of the most controversial and unprecedented easing cycles in US history. 

The Central Bank is said to continue to raise rates gradually next year with a target of 1.38% by the end of 2016. So although it appears that the interest rate cycle in the US will now begin to move higher, from a historical perspective, rates will be considerably below normal for the foreseeable future.

That is unless the bond market begins to realize that rates are too low given the debt risk many governments and corporations are burdened with right now. So we’ll have to see how much longer the Fed will be able to maintain the trust of the investment markets and control interest rates. 

The Fed Tightens While the ECB Eases

One of the reasons to expect markets to be turbulent gong into next year is the policy divergence between the Fed and the ECB. The Fed is entering a tightening cycle while the ECB is in the middle of a quantitative easing cycle that will last at least another year if not longer.

When referring to the divergence in policy between the two Central Banks, an article in the Guardian summed up what this might mean for the markets.

“The message from 70 years of monetary history is that, in the next few months, there is a roughly 50% chance of large-scale foreign exchange upheaval.”

(Source: theguardian.com 2015 December 3rd)

Volatility in the currency markets is likely going to increase in 2016. This is why Gold is a key asset to hedge against depreciating currencies. 

Market Update for Silver

Silver - Technical Chart 1 Year

After a volatile week Silver closed Friday at $14.08. At one point this past week Silver prices dropped to $13.64 and then rallied above $14.30 on Wednesday. Gold and Silver will likely remain volatile through the end of the year as traders close out positions for year end.

Below is an article from Sovereign Man that discuses Silver. One of the interesting data points the author provides is that when denominated in Silver, the price of barley is almost exactly the same as it was thousands of years ago.

When it comes to safe haven assets, investors usually think of Gold. However, Silver’s history as a monetary metal also goes back thousands of years. 

Simon Black, the author, does a good job explaining the madness in the global financial system today and why owning hard assets like Gold, Silver and productive real estate make sense in an environment of depreciating currencies. The link to the full article is here

Author: celticgold.eu

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