Safe Haven Shake Up as Equities Continue to Climb

December 9, 2016 - 5:57pm

 by Gary Wagner

US equities continued to gain value throughout the week, trading to new record highs almost on a daily basis. A revitalized optimism and strong economic data fueled one of the most robust rallies in US history. According to Bloomberg News, consumer sentiment is at its highest point since January 2015.

Finishing the week on an extremely strong note, the Dow Jones Industrial Average once again closed at a new all-time record high of 19,756.85, up 142 points, resulting in a .72% gain on the day. The Standard & Poor’s 500 closed at 2258.57, another new all-time high, gaining over half of percent on the day.

This, coupled with an extremely strong US dollar, put extreme pressure on precious metals resulting in approximately 1% drawdown in both gold and silver pricing. While palladium prices fared a little bit better, losing only a half of percent, platinum had the greatest drawdown losing approximately 2.35% on the day.

Gold Prices Close Below Critical Support

Gold continues to trade under pressure, today giving up just about a full percent of value, closing at roughly 1160 off about $12 on the day. This selloff was the net result of both selling and a strong US dollar, with each component contributing approximately equally to the drawdown.

According to the Kitco Gold Index, gold closed off by .97% today. The strong US dollar accounted for roughly .49% of that decline, with normal selling contributing the remaining .48 %. For the first time this year, gold prices have traded below the 61.8% retracement of its yearly price range. On a technical basis, this week’s price decline has caused major damage in the charts.

Based on our current studies, gold prices could continue to trade lower, and former critical support levels at 1170 would become current resistance. The next major support level in gold is approximately 1120 per ounce, which is a 78% retracement of the yearly range in gold pricing.

Trump Taps Talent

President-elect Donald Trump continues to tap Wall Street and corporate talent for his new administration. Apparently, he has tapped Goldman’s COO, Gary Cohn, who is now his top choice for NEC (National Economic Council) chief. President-elect Trump continues to look to Wall Street and corporate America, hoping that the collective talent and expertise of these individuals will aid him in correctly moving our economy forward, resulting in a more prosperous America.

That being said, investors and traders, both retail and professional, in large continue to bet that this strategy will work.

Next week will be when the final meeting in 2016 for the Federal Reserve takes place. The overwhelming market sentiment is that an interest rate hike will be announced at the conclusion of this FOMC meeting.

At this point, it is widely believed that a rate hike has been factored into current market pricing. With this newfound optimism, we could expect to see a continuation of the pervasive optimism, which has fueled this equities rally since the presidential election which was held last month.

Therefore, all things being equal, we could expect to see continued pressure on safe haven investments next week.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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