The gold price advanced by $22 (1.6%) this morning and finally pierced through strong resistance at $1,306 to make a new 2016 high above $1,316. This move higher for gold comes as the FED pulled back on rate hike expectations and the odds of a Brexit vote increased significantly. Core inflation also ticked higher this morning, although the growth was lower than exepcted.
FED chair Janet Yellen backtracked from earlier hints of a summer rate hike and instead emphasized the FOMC’s uncertainty about the rate path for this year and well beyond. She cited global economic weakness as a major factor, but the FED also knows that the U.S. markets would not respond favorably to higher interest rates.
The silver price is up $0.26 (1.2%) this morning, lagging the advance in gold. At $17.70 silver has yet to break its prior 2016 high of $18.06. We will be looking for silver to confirm gold’s move higher, before turning completely bullish in the short term. Furthermore, June and July tend to be weak seasonal months for precious metals and we expect a vote for the UK to remain in EU to cause a short-term pullback in gold and silver prices.
Mining stocks also posted fresh highs this morning, but the gains so far this morning are not as leveraged to the gold and silver advance as usual. The mining stock index is up 2% or roughly double that of gold and silver, but year-to-date leverage has been over 4X in 2016. This reduced leverage is being driven by the overall decline in the stock market capping the advance in mining equities, with the major indices down roughly 1% this morning.
No matter what happens to prices for gold, silver and mining stocks in the short term, we remain very bullish over the medium and long term. The second half of 2016, following the summer duldrums, should usher in the next major move of this new bull market cycle in precious metals. If you aren’t yet positioned, you might want to consider buying any dips between now and the end of July.
It is also worth pointing out that Bitcoin made a new 2-year high above $750 this morning as well. Investors are increasingly looking to get away from central bank fiat money and overvalued equity markets. In Asia, South America and other parts of the world, individuals are looking to Bitcoin to help escape capital controls and move their wealth across borders easily.
We were early investors in Bitcoin and turned bullish on the cryptocurrency a few months ago when it was trading closer to $450. We still believe there is plenty of upside in the months ahead.
Bitcoin does not compete with gold, but is a complimentary investment in our view. It is de-centralized, limited in quantity and outside of government/central bank control. It has proven to be a solid inflation hedge against rapidly depreciating central bank notes, has clear utility and has been one of the best performing asset classes in 2016.
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