Gold and Silver Prices Plunge, US Dollar and Equities Values Surge
Market trends which developed immediately following the election of Donald Trump as the 45th president of the United States not only continue, but seem to be strengthening.
Whereas the most recent “Brexit” referendum vote had a knee-jerk reaction which lasted roughly 3 days, our most recent presidential election’s knee-jerk reaction lasted a little over 12 hours.
Immediately following news indicating that the presidential election was not unfolding as anticipated traders witnessed gold trading $50 higher and futures of the Dow Jones industrial average selling off by roughly 800 points.
However, these market directions would make 180° turn around as markets opened in New York the following day.
Now roughly 2 weeks after the presidential election we see those trends continuing, resulting in US equities at an all-time record high and gold prices plunging today below $1200 per ounce. These trends seem to be deeply ingrained in our current market sentiment and continue to fuel the rally in equities and the US dollar, as well as putting pressure on the precious metals.
Today’s dramatic continuation of lower precious metals prices resulted in gold closing approximately $25 lower, a 2.03% decline. Silver prices also declined today losing approximately 1.5 %.
Although a strong US dollar added to the selloff, gold’s precipitous drop was based mostly upon selling. According to the Kitco Gold Index today’s $25 decline takes into account the strengthening US dollar which took away roughly $7.60 worth of value.
It was normal trading which took gold prices $17 lower on the day. This certainly adds credence to the assumption that market trends initiated immediately following this month’s presidential election have a high likelihood of continuing at least throughout the end of the year.
The Fed remains steadfast on a December interest rate hike, this according to minutes from the Federal Reserve’s November 2 meeting which were released today.
“Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon, so long as incoming data provided some further evidence of continued progress toward the Committee’s objectives.” According to minutes’ release today.
Some Fed members argued that a December rate hike is necessary in order to preserve the “Fed’s credibility”.
“Some participants noted that recent Committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting.”
Consider this fact: In the last seven years, the Federal Reserve has only raised the federal funds rate one time. That interest rate hike occurred in December of last year. Roughly a year ago at that time, the Federal Reserve increased the interest rate by a quarter percent.
The Fed’s projected that there was a high probability that it would hike interest rates four times in 2016. However, based on a slowing US economy during the first half of 2016 along with global weakness curtailed any interest rate hike during this current calendar year. The net result being that interest rates remain steady and unchanged throughout 2016.
All of this seems to be old news though, already factored into current pricing and to illustrate that point Fed Funds futures has predicted a 100% probability of a December interest rate hike.
We live in interesting times and we all are a part of this watershed moment. Decisions made and actions taken by an untested businessman becoming elected as president will affect us.
Tomorrow the United States will celebrate a day of Thanksgiving. Inasmuch as there is uncertainty as to what will lie ahead in 2017, it is critically important that we take a moment and reflect on all that we have to be thankful of.
It is my wish that as we move closer to 2017 we remain thankful of all that we have, and that next year’s Thanksgiving holiday is filled with many things to be thankful for.
Wishing you as always, good trading,