Gold News: Why the Rate Hike is Good for Traders


It’s Friday after an interest rate hike so let’s see what the day’s gold news is trying to tell us.  From a trader’s perspective, of course. Get your cup of coffee and let’s see.

We already wrote about the Fed’s Weds rate increase on Wednesday. It was the third one this year, with another expected in December. The Fed also said they’re looking at one or two more hikes next year.  This plan sounds like we’ll end up with the base interest rate around 3.25-3.50%, which is slightly above the historic norm of three percent. We still think the Fed was late in starting their interest rate hikes, and given how these things usually go, now that they’re on it they’ll probably overshoot.  

Me, I wouldn’t raise rates above 3.25% without SERIOUS thought. Mortgage rates above 6% tend to kill the housing market. The last 2 rounds of rate increases haven’t really percolated through to consumer rates yet, but when they do, we can expect housing and auto sales to suffer first.

The smart plan just might be to become a banker.  Every rate hike means those guys make more for doing exactly the same work. Not that I’m bitter about how much bankers manage to make in the modern low-risk banking environment. Still, maybe it’s time to look at the financial sector.

Perhaps the most exciting thing in this weeks’ news was someone else noticing that “Gold Is Doing Something It Hasn’t For 30 Years.”  Don’t want to steal the author’s thunder, and it’s a short article, so you can buzz through that one yourself.

Other people have noticed that gold has built a good floor around here.  Technicians are thinking gold could be in more trouble below 1181. For now this Gold Enthusiast is sticking with no worries unless gold closes 3 days in a row below 1170.  Gold is famous for 1- or 2-day head fakes, after all. And with most selling apparently exhausted there doesn’t look to be much impetus to go lower than 1170.

As we know, with gold there is no one thing you can point at that tells you what’s ahead.  It’s a constantly-changing mash-up of probably 5 major factors, 10 minor ones, and the odd black swan thrown in randomly for good measure.  This is why smart traders don’t ever bet the farm on gold. According to history, the successful strategy is to buy some when it’s “historically low” then wait.  

When it breaks up out of its bottom channel, buy more but have stop loss orders underneath the buy, while keeping your “historically low” purchase(s). There are also some good strategies for using gold to generate income using options, but we’ll cover those later. 

Have a great weekend,

The Gold Enthusiast

DISCLAIMER: The author owns no position in any mentioned security. The author is long a small amount of NUGT and JNUG, and has an even smaller covered call position in NUGT.  None of these positions are large enough to affect any market. Mostly the author is waiting for better signs that gold is indeed at it’s floor.

 Related: Here’s What the Fed Hike Means for Gold

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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