CelticGold Market Report November 24th 2015
On Wednesday of this week Gold prices hit a new yearly low of $1,062. However, Gold staged a bit of a rally on Friday and hit an intra day high of about $1,087 but drifted lower as the day progressed and closed at $1,077.
It was a challenging week for both Gold and Silver as prices for the metals hover near 6 years lows. European stocks on the other hand were up on Friday, trading at three month highs.
Gold fell this week after comments from the Federal Reserve seemed to convince many investors that a December rate hike by the Fed was more than likely. However, there is also the view among some analysts that a December Fed rate hike is already priced into the market and will have little downward effect on Gold prices.
Interest Rate Normalization is Near Impossible
Even if the Fed decides to raise rates in December, normalizing rates is almost impossible in today’s global indebted economy. Mainstream investment analysts are staring to realize this.
In an interview on CNBC a Chief Economist for Citigroup said: The U.S. Federal Reserve will fail to raise its benchmark interest rate to 2 percent before the next recession takes hold and will likely opt for negative interest rates in the next downturn. (Source: CNBC 2015 November 20th)
The Fed is really caught in a difficult spot. The global economy can not handle normal interest rates because of too much debt. On the other hand keeping rates at artificially low levels for much longer will also cause more distortions in the economy.
Is the ECB Ready to Launch New Stimulus?
As we highlighted in our last update, while the Fed is considering tightening monetary policy, the ECB may be set to increase the duration and amount of QE next month.
The title of a recent Business Insider article said it all “Mario Draghi is preparing the market for the European QE bazooka”. The article reported that the ECB head may provide a major boost to the Eurozone’s quantitative easing program in December.
According to the article, while speaking in Frankfurt, Draghi said "We will do what we must to raise inflation as quickly as possible”. (Source: Business Insider 2015 November 20th)
The determined language used by the ECB President is a clear signal that the Central Bank will do whatever is necessary to create inflation. This is another reason to expect more volatility in the currency markets.
Where Does Gold Go From Here?
While we are convinced that Gold and Silver will rise in value substantially over the long term, it is always more challenging to predict where prices will go over the short term. With Gold hitting a new low for the year this week, it could mean that the yellow metal is still searching for a bottom.
Recently we came across some thoughts from renowned money manager, Eric Sprott. The comments come from an interview with Greg Hunter at USA Watchdog. One of the key points that is made during the interview is that it is always better to be ahead of a trend change rather than being to late.
His comments are below:
"I don't lose any sleep over the price of gold going down in the sense that I believe what I believe. I believe it's been manipulated. It's very much about currency and economics of the Keynesian scheme that we're going to spend money, print money and it's all going to work. It's not working. I don't want to wait and find out the day it falls apart because when it falls apart someday, then it will be too late. I want to be positioned beforehand. I can remember shorting stocks before March of 2000. It was a bit of a rough ride for three months, but my gosh, when it rolled over . . . you have to be a little bit early on things. I believe the last four years have been orderly and created to be difficult. I think gold would have gone up, but they could not stand for it to go up because they were printing money. If you are printing money and gold goes up, everybody figures it out. . . . I've been around for a while, and I have the patience to hang in there. I have been a buyer of gold stocks, and so I am hopeful this will end up being a very, very rewarding trade." - Eric Sprott
(Source: USAwatchdog.com 2015 November 8th)
We also just wanted to mention to CelticGold readers that we are not necessarily endorsing Gold stocks because it is not our area of expertise. Gold stocks can be tricky investments if your not an experienced investor. The problem is that mines can go bankrupt, while physical Gold can not.
The reason for sharing the above comments from Mr. Sprott is that sooner or later the global QE experiment will end up causing a crisis. When this happens Gold will be a key asset to own to preserve wealth. Gold stocks will also likely benefit. But they are a different asset class than physical Gold. Consider seeking advice from a professional broker who specializes in resource stocks if you are interesting in Gold equities.
Update for the Silver Market
Silver hit a low this week of $14.04 and closed on Friday at $14.14. As you you would expect it is going to be very difficult for Silver to rally with Gold prices in a slump.
We do not have much to add in this week’s Silver update. As usual, what we covered in the Gold update also applies to Silver. We do not know if the bottom is in yet in Silver or Gold. But one thing we are confident in saying is that at these prices there is much more upside potential than downside risk.
Eventually the trend will shift, its just a matter of when. As we said in the Gold update, its best to be on board before the trend turns.
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