Thursday, March 17, 2016

Gold Trend March 16, 2016

The Federal Open Market Committee (FOMC) last told us in December via its dot-plot forecasts that it anticipated the Fed-Funds Rate being raised four times this year. Now, due to economic uncertainty, NIRP discussion and market turbulence, the market has completely priced that prospect out. Fed funds futures indicate there's just an 8.5% probability of that happening, and investors believe there's just a 50% chance of the Fed hiking in June and 75% chance it only hikes once and not until December.


But economic data has improved somewhat, though it is still mixed. Importantly, the employment situation (as they report it -- not how we feel) is strong, with 4.9% unemployment and nonfarm payrolls growing robustly at last check. Also, inflation seems to be ticking up, with the Fed's favored inflation gauge, the Core PCE Price Index, rising 0.3% in January.

We don't think it's enough to support gold but it is enough for the Fed (continue saying) to hike rates. Those are the two mandates for the Fed, seeking full employment and healthy but not excessive inflation rates. Moreover, indications are that economists foresee 1.9% GDP growth for Q1.

To some extent, this is not the sort of scenario for NIRP, but rather a window of opportunity for the Fed to normalize monetary policy and store bullets for the next financial crisis or recession. 

We don't believe the statistics they tell us are really indicating a robust economy, but it doesn't matter what we think, rather what the street thinks.

I expect when the Fed presents its dot-plots Wednesday, it will show it still expects to raise interest rates 2 to 3 times this year. That is significantly more than the market has priced in. I believe that will result in a higher dollar, which in turn should give a headwind to gold prices (potentially) today & possibly into Monday.   I say potentially because I believe that higher rates are good for gold but it will be a good opportunity for the COMMERCIAL Short positions to push gold towards 1200.

Support is either 1217-1222 ---- or 1185-1200 at the lower 2015 uptrend line and could be as deep as the 2016 upper line at 1162-1172.  The next short term blue cycle low is Mar 23rd (plus or minus 72 hours) so we are nearing the gold window for a short term low.   Just keep in mind that this is a medium term cycle.  We thought that the potential to rally into the 23rd was possible last week but it looks at the current moment that we're going to move lower into that next point.   ANY CLOSE ABOVE 1280 means we are heading higher to 1302-1322.  The strongest support is the area near 1172-1182 and that right now is where we would look to buy gold.


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