Gold Price Set For Best Gains In 4 Years

February 29th, 2016 by

gold marketGold prices this morning in New York are well above Friday’s close, as worries over the state of the Chinese and European economies contributes to a risk-off sentiment. Gold is set for its best monthly gain in four years, up this morning over $10 an ounce.

We’re looking at technical levels this morning at $1,227 for first support, followed by the overnight low of $1,216, First resistance is at $1,235, with the next barrier at $1,241.

The euro is at a four-week low versus the dollar this morning, on news that consumer inflation fell in January. This is the first contraction since September. This raises the odds of additional stimulus from the European Central Bank at its March 10th meeting.

money-718621_1280In Asia, the Shanghai Composite closed down 2.9% as the government lowered the “fix” for the yuan, sending it to a three-week low. Beijing also lowered the reserve requirements for banks, which gives them more money to lend out. These signs of a weakened economy saw gold rise in Asia on safe haven demand.

In the US, the Chicago Purchasing Managers Index, measuring wholesale prices in the Midwest, took an ugly tumble. January’s reading showed contraction, at 47.6. This compares to the previous month’s reading of 55.6, and analysts expectations of 54.0. The news gave fresh underpinnings to gold. Adding to the gloomy outlook, pending home sales dropped 2.5%.

Curiously enough, the odds of a Fed interest rate hike have nearly doubled. As of 10am Eastern time, the CME Group FedWatch tool gave the odds of a March rate hike at 8%, and 20% for April. The odds jump to 36% for June, all the way to 48% for December.

Gold continues to get favorable coverage from the major financial outlets, due to its outperforming every other asset class so far this year. A big portion of that gain is the turmoil in equities. For an example of that, we turn to the Econoday Simply Economics chart of Wall St’s performance last week:

Another volatile sector that is benefiting gold demand is the crude oil market. It is being driven by emotion, even while the prices continue to fall toward historic lows. Every time someone from OPEC makes some vague statement about oil production, the entire market latches onto it as concrete evidence that the global oil glut will soon end. Today’s 2% jump in crude futures resulted from Saudi Arabia saying that they want to limit volatility in the market.

fracking well in shale fieldsEmphasizing our belief that US shale drillers are the new swing producers in the global oil market, major shale players are warning OPEC that if prices rise to over $40 a barrel, they can turn the spigots back on in short order.

While the usual suspects still claim that gold is a “barbarous relic” with no value, one analyst is comparing gold today to stocks in 2009, saying that it’s about to go on a big run. According to the YTD figures at Barchart, gold futures are clobbering everything else. What’s #2? Betting on the volatility of the S&P 500.

barchart-YTD-Feb29-2016

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product