Gold Bounces on Short Covering, Bargain Buying and Weaker U.S. Dollar Index

By Paul Ploumis (ScrapMonster Author)

November 20, 2015 02:45:51 AM

(Kitco News) - Gold prices on Thursday extended their slight, early gains and finished the U.S. day session moderately higher. After hitting a 5.5-year low on Wednesday, the precious metal saw short covering in the futures market and some perceived bargain-basement buying in the cash. Gold had also become technically oversold on a short-term basis, and was due for an upside correction in the existing downtrend on the daily chart. The lower U.S. dollar index on this day was also a positive daily element for the precious metals market bulls. February gold was last up $9.00 an ounce at $1,177.90. March silver futures were last up $0.135 an ounce at $14.25.

The marketplace on Thursday was still discussing the minutes of the last Federal Reserve Open Market Committee (FOMC) meeting, released Wednesday afternoon. The minutes showed no big surprises for the marketplace. However, the committee members agreed U.S. economic conditions are now in place for an interest rate increase in December. Gold prices have popped and U.S. stock indexes have rallied in a classic “sell the rumor, buy the fact” scenario, after so much hand-wringing and market speculation in recent weeks and months on just when the Fed will make its first interest rate rise in nine years. World stock markets also saw gains Thursday, following the lead of the U.S. stock market rally Wednesday.

One dovish element in the FOMC minutes was the reference that any future U.S. interest rate increases will be gradual in nature. Many market watchers had already believed the Fed will raise interest rates by 0.25% in December and Wednesday’s FOMC minutes bolstered those notions. Most market participants will be glad when the rate hike occurs, to remove the uncertainty of the matter and so the general discourse of trading and markets can focus on something else.

With gold’s decline to a 5.5-year low Wednesday, fresh longer-term chart damage was inflicted to suggest a challenge of the $1,000.00 level in the coming weeks or few months. However, from a longer-term perspective, looking out over the horizon in the coming years, I will reiterate what I’ve said several times before: Gold, silver and many other markets’ prices at present low levels do present a longer-term “value-buying” opportunity for investors. I’m talking about the “buy and hold” investors and not the shorter-term to intermediate-term traders. I am confident that gold prices will hit a new record high in the coming years—and probably sooner than most would ever reckon. Markets’ price history shows that raw commodities experience cycles of boom and bust that are well-defined by examining the charts. It’s my bias that the present bust cycle in the raw commodity sector is very mature and will probably end sometime in 2016. The fact that so many market watchers are now very bearish raw commodities is another clue that the bottom of the bust cycle is not far off.

In overnight news, China’s central bank lowered its interest rate on its standing lending facility to 2.75% on an overnight basis and to 3.25% on a seven-day basis. The move was not viewed as a major monetary policy action, but underscores the People’s Bank of China’s lean toward further monetary stimulus.

Courtesy: Kitco News