Gold Selloff An Overreaction to FED?

Category: Market Reports
Author Name: Walter Pehowich
Posted: 05-20-2016 05:09:00 PM

The day before the minutes were released, the odds of a June rate hike were at 4 pct. probability. Yesterday it was around 24 pct. as reported by Bloomberg news.

It’s a little after 3 am on the east coast as I start my comment today, because I have to leave early this morning on business and will be driving, so I will be unable to share my thoughts unless I start them now.

Nonetheless, after speaking to a few gold traders yesterday, and listening to the collective opinions of them all, they indicate that the gold market selloff was an overreaction to the comments made by some Fed governors at the Fed meeting in April.

The day before the minutes were released, the odds of a June rate hike were at 4 pct. probability. Yesterday it was around 24 pct. as reported by Bloomberg news.

As I indicated in my comment on Wednesday, with ANY hint of a rate hike, I expect a strong sell off in the yellow metal. And that’s exactly what happened. Perception became reality in a heartbeat. But looking back at that decline in the price of gold and silver, I must agree with the Wall Street traders that this was just a knee jerk reaction and there is no basis at this point to believe that a June rate hike is a sure thing.

Remember the GDP number a few weeks ago from the first quarter reported at 0.5 percent? A weak number at best.

What about all the retailers other than Walmart reporting weak financial results? A report came out earlier in the week that inflation picked up and was reported at 0.4 percent. Does this one number give the Feds the ammunition to raise rates in June?

Remember who running the show at the FED. The FED chairwoman has always said that any rate hike will always be DATA dependent.

So yes, we lost some momentum, but negative rates didn’t go away over in Europe and the Far East, and the migrant crisis in Europe has not improved, so what has changed? NOTHING. A very smart friend and trader, (who I happen to admire) said earlier in the week
that the gold market needs two things for the bull market to sustain itself, a settlement over $1,300 dollars and strong physical demand. Get those two things and we are off to the races.

I finally got the other eye opened. I hope you enjoyed the comment today.

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About The Author

Author Name: Walter Pehowich
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