USAGOLD/Peter A. Grant/01-12-17
Gold surged overseas to trade above the 1200 threshold for the first time since late-November. The yellow metal set a new 7-week high at 1206.93 as U.S. yields and the dollar fell and stocks continued to struggle ahead of the 20,000 level.
Risk appetite dwindled in the wake of yesterday’s Trump presser; which was long on protectionist rhetoric and short on fiscal stimulus details. This seems to have led to a repricing of the economic optimism that developed in the wake of the November election.
I posted a couple articles this morning that suggest that gold is actually undervalued, even with the yellow metal up nearly-7% since the mid-December lows that were notched just before the Fed initiated their second 25-bps rate hike in more than a decade.
The article that suggests gold is “cheap” insurance no matter what the Fed does is prescient. The author believes that if more robust economic activity is in the offing, the Fed will likely be behind the curve on inflation. That means that real rates will remain negative, “or at best near zero.” That will bode well for gold.
Alternatively, if the economy falters, the Fed will likely be quick to ease monetary policy in reaction. In fact, the two rate hikes — and almost certainly the first one — were implemented to give the Fed some clearance above the zero-bound should this very thing happen.
[T]he case for gold as insurance and also as a solid long-term investment is as strong as ever. — Olivier Garret
This is a risk that I’ve written about many times over the past several years. “We are in the seventh year of economic expansion. Historically, we are overdue for a broad-based market contraction,” warns Mr. Garret.
In today’s Precious Metals Update from Capital Economics, analyst Simona Gambarini says, “We think that the case for gold as a strategic reserve asset remains strong.” While she is speaking about the official sector, the same can be said for the individual investor.