USAGOLD/Peter A. Grant/02-15-17
Gold slipped to new lows on the week after a round of robust U.S. economic data heightened the prospects for multiple rate hikes this year. However, these dowticks attracted buying interest and the yellow metal subsequently rebounded to establish new intraday highs.
Higher than expected consumer price inflation, solid retail sales and an impressive jump in the Empire State index all conspire to push rate hike expectations higher. Prospects for a move at the March FOMC meeting rose to 43% intraday.
Weaker than expected industrial production tempered enthusiasm somewhat, but more talk of tax reform from President Trump pushed stocks higher. Trump said his tax plan would benefit both middle-income families and businesses by lowering rates and simplifying the tax code.
During her second round of testimony before Congress, Janet Yellen reiterated that waiting too long to raise rates would be “unwise.” However, under questioning — and despite her expressed optimism over the past two-day — she acknowledged; “Economic growth has been quite disappointing.”
In fact, on the heels of this morning’s data dump, the Atlanta Fed’s GDPNow forecast for Q1-17 was lowered to 2.2%. That’s a 50 bps drop from the 2.7% forecast from 09-Feb and off more than 100 bps from the 3.3% prediction made earlier in the month.
So, if inflation is heating up and growth remains anemic; are we entering into a period of stagflation? In a MarketWatch article about renewed interest in gold by money managers, the author cites several reasons for this:
They’re worried about inflation, stagflation and global protectionism, and they think gold is the best insurance against all three. — Brett Arends, MarketWatch Columnist
That would go along way toward explaining why gold is so well supported in the face of ongoing stock market gains, rising yields and a generally firm dollar. Savvy investors are diversifying their holdings; laying in some insurance in the form of gold as a means of preserving the wealth that they have accumulated.
It reminds me of the Grant Williams presentation called Nobody Cares from about a year ago, where he likens gold to flood insurance. It’s a fitting analogy; because when the storm comes — and oh it will come — you’ll be thankful you have insurance.
Williams believed that — outside of “us” — nobody cared about gold at the time. However, he speculated that “the day is coming when that’s going to change dramatically. And when that day arrives the pendulum is going to swing to the other extreme [Everybody Cares]. And that’s a move that can not be resolved without vastly higher [gold] prices.”
A little more than a year after his presentation, and with money managers now taking interest, we are assuredly closer to the day when everybody cares about gold again. Now might be a good opportunity to reevaluate your gold position.