Gold Seems To Firm – Time To Dive Back In?

Gold plunged following the Fed’s announcement that they were not only raising interest rates, but looking at 3 rate hikes in 2017. If each of these was the usual quarter-point, that would mean a base Fed rate of 1.25%, or 5 times as high as rates were through most of 2016.

Apparently the Fed is either rejecting what many called the summer’s insanity of negative interest rates, or finally deciding to believe their own talk about the US economic recovery. Since before he was called The Gold Enthusiast, it seemed odd to The Gold Enthusiast that the Fed would say the economy was “strong” and “well recovered”, yet discuss negative interest rates.

Now Janet’s crew seems to have planted its flag firmly on the “we believe in recovery” side. But I don’t hear them thanking president-elect Trump… whose election sparked the latest run up toward the mythical 20,000 Dow mark.

In perspective, a 1.25% base Fed rate is still low. Before the 2008 market drop, rates were running about 3.25% if memory serves. So we’re not even talking about back to half-normal rates yet. And we’ll bet your local bank savings account rate hasn’t budged a bit in the last 3 months.

As some famous economist has doubtless said, it’s all insanity, just swinging different ways on different days. And if no one’s said that yet, The Gold Enthusiast will happily claim that one for himself.

So how low will gold go? As you are probably aware, The Gold Enthusiast wants to help real people make money trading gold. Which means we have to avoid too much day-trading, as that can involve following prices second by second. And real people have real jobs, so most folks can’t afford the luxury of gluing themselves to their live quote streams.

So we’re waiting to see where a bottom might be. Gold’s bottom will come when we finally have capitulation – which means all “weak hands” have sold, no one is buying, and we’re all just standing around looking at each other. That’s what marks real bottoms. And we haven’t yet seen the day when everyone is just standing around, there’s been too much selling.

So we’ll wait through today and see what we see. If we see a sideways day with no volume, close to the previous day’s low, we’ll start thinking we might be near the bottom. Right now we’re still watching 105 then 100 in GLD as support levels.

Best advice: Take today off from gold trading, have a great weekend with your friends and family, and we’ll go at it again next week.

Signed, The Gold Enthusiast

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as continuing themes. Mike graduated with a business degree and spent years as a financial advisor, before moving to New York and to pursue a career in IT and education. For more than a decade Mike has been working with the Adam Mesh Trading Group as a stock market and commodities mentor. He’s trained over 200 individuals, spoken at several national conventions, and is a frequent contributor to educational webinars.

Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keeps him in touch with "the student mindset".

Mike focuses on the precious metals markets, the energy industry, and the financial sector. His motto is "Plan your trade, then trade your plan!"

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