Yellen may be yelling, but the market isn’t really listening. After her second day of Congressional testimony, we were treated to a precious metals sell-off on Comex as the prospect of interest rate increases and a rising dollar continue to rattle the precious metals sector. Demonstrating the power of the current bull move, both gold and silver have reversed and are now making their highs for the Comex session.
TND Market Brief: Eric Dubin
Expectations for a hike to the Federal Funds Rate in March have risen from below 25% to 40% in recent days, as ZeroHedge reports:
The dollar has been running higher:
Despite the rising odds of a hike in March, precious metals react more to the longer-term outlook and with rising inflation pressures it’s correct to interpret that once again, the Federal Reserve will find itself pressured to raise rates. The dollar decline witnessed over the past few weeks was engineered – talked down by Trump and other officials as the pressure of a rising dollar would gravely injure U.S. multinational corporate profits. while the stirring song of competitive devaluation led export growth has been stirring currency war and trade war concerns. In our jacked-up and hyper-managed markets, it was time to let the dollar rise again – thus, the February uptrend.
Despite popular misconception about actual market history, gold performs well during some periods of rising interest rates and it isn’t even cleanly correlated to the dollar. In any event, it appears that the dollar’s short-term rise has run its course and the dollar DXY index has now tuned down, starting today, after the longest winning streak since May, 2012.
The market is not buying into the rising interest rates paired with ever-increasing value of the dollar thesis. Like last year, the Fed will not be able to raise short-term interest rates beyond tokenism even while the long-end of the yield curve will eventually return to it’s assent as higher rates will reflect the curtailing interest among central banks that have historically accumulated U.S. Treasury Bonds and rising interest rates. That will be a third and especially, a fourth quarter phenomena. For the time being, rising fears about turmoil in the Eurozone (French and Dutch elections, Brexit implementation, festering wounds of Greece and the European banking system rot, etc.) will counter-balance forces in the bond market and create some “organic” demand for Treasuries as a safe haven parking spot as investors seek some shelter from euro currency depreciation (note: a new “core euro” with Germany at its core will be a stronger currency on the other side of this transition).
As I noted earlier this month and as February advances, gold will make a new assault on $1250 and silver will continue on its path to testing $19 in a few weeks. CNBC talking heads will describe this gold reversal as selling on the news – if they even bother to report on gold at all, today. That’s not exactly what we are seeing. Rather, gold is reversing the artificial push down and unbelievably strong fundamentals and continued buying that never left the sector all month are proving too strong to manipulate downward. Chinese demand is explosive and Indian demand has picked-up. The sluggish North American physical bullion market and shockingly off-target fundamental analysis from GFMS about Chinese gold demand are not the story.
Over the last couple of months worth of podcasts and articles, I’ve made the fundamental case for why gold and silver will explode higher in 2017. Even industry experts like David Morgan (link) are of the view that we’re due for a pullback. That’s not going to happen. 2017 will witness an even more explosive move than last year, and we’re not going to have quite the massive and official sector manipulated “no mas” spanner tossed into the mix as witnessed last Fall. The fundamental case for higher gold and silver prices is simply overwhelming.
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Mr. Dubin is the Managing Editor of TheNewsDoctors.com. He has 25 years of experience as an independent buyside securities and global macro analyst. He has well over a decade of experience as a financial journalist, editor and political analyst. He’s primarily an autodidact, but his formal education includes degrees in economics, international relations and MBA. He welcomes feedback on his articles and will make an effort to respond to comments. Email Eric by sending to “Eric” and then @TheNewsDoctors.com. He can also be “followed” on Facebook: https://www.facebook.com/EricDubin
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