Gold: Holding On To Some Key Support

The last time I was talking I thought gold looked really good short-term on the chart,  I thought it looked like it was going to go up to 1300. Instead it went the opposite way, it went down towards 1200. Well it didn't get that low, it's just below 1220.

But you know it shows you that you know technical analysis doesn't always work. You know you're not just going to automatically get rich because you're looking at a chart. I thought the weak economic data would be a catalyst for gold. We got the weak economic data but gold went down anyway.

Now, it still looks like it's holding on to some key support. Gold is still doing well this year it's still beating the US stock market considerably this year as is just about every other market in the world I mean the out performance that I've been talking about so far this year between foreign develop markets and especially emerging markets is widening continuing to gain on the US market. (Market Vectors Gold Miners ETF (GDX), SPDR Gold Trust ETF (GLD), Market Vectors Junior Gold Miners ETF (GDXJ), Newmont Mining (NEM), Barrick Gold (ABX))

The U.S. Economy Will Not Grow At 3% This Year.

Wilbur Ross came out this week and admitted that the US GDP is not going to grow at 3 percent this year I mean that's why they pay this guy the big bucks right I mean you don't need to have that much information you know to be that's smart to figure out something that's that obvious but they finally admitted that the economy is not going to grow by 3 percent this year in fact it may even be in a recession this year so it's not only not going to grow by 3 percent it may not grow at all.

The Markets Are Beginning To Look Beyond These Rate Hikes

The dollar market is acting much different than the the gold market rather than rising the dollar has been falling. Normally you get some strength of the US Dollar when the probability of an interest rate hike rises because after all higher rates everybody thinks that's bullish for the dollar and so as the probability of a rate hike increases so too does the value of the dollar but that didn't happen this time in fact the dollar closed the day at about a six-month low in the dollar index.

I think what's happening is the markets are beginning to look beyond these rate hikes to see the next rate cut understanding that the Fed is not going to come close to delivering the type of tightening that it had been indicating was coming that we are not going to normalize interest rates.

Federal Reserve: Raising Rates Into A Recession

It's quite possible that the Federal Reserve does raise interest rates in June even if it ends up that it turns out in hindsight that they raised rates in a recession. (SPDR S&P 500 Index ETF (SPY), SPDR Gold Trust ETF (GLD))

Gold Will Rally Before The Fed Raises Rates

I think the gold price is going to rise well before the Fed gets around to raising rates in June if in fact they raise rates. (SPDR Gold Trust ETF (GLD), Gold Futures, Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ))

Why Is The Fed Willing To Keep Raising Rates?

One of the reasons this might be the case is because the Federal Reserve is more concerned about having some ammunition to fight the next recession rather than simply postponing the onset, meaning that they want to get interest rates further above zero before the recession officially begins so that once it's here they have more room to cut interest rates.

But also I think another reason that the Fed has been more willing to raise interest rates has to do with the action in the US stock market. I thought that the Federal Reserve would be reluctant to raise interest rates for fear of how the higher rates might impact the stock market but it seems like the stock market has found another prop and is no longer simply relying on cheap money. It's now also relying on hope and optimism surrounding the election of Donald Trump and the idea that somehow he is going to make America great again which includes making the stock market great again with deregulation and tax cuts and all sorts of economic stimulus.

So I think because of this the Fed may feel that it doesn't have to provide as much support because the stock market is rallying in the face of these rate hikes.