This post Gold Moves Higher Even if the Fed Raises Rates appeared first on Daily Reckoning.
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When the Fed raised interest rates in December, many believed gold would plunge. But it didn’t happen.
Gold bottomed the day after the rate hike, but then started moving higher again. And for the last 10 weeks it’s been up about 12%, despite some up and down fluctuations.
Incidentally, the same thing happened last year when the Fed tightened in December 2015. Gold had one of its best quarters in 20 years in the first quarter of 2016. So it’s very interesting to see gold going up despite headwinds from the Fed.
Normally when rates go up, the dollar strengthens and gold weakens. They usually move in opposite directions. So how could gold be going up when the Fed’s tightening and the dollar’s strong?
That tells me that there’s more to the story, that there’s more going on behind the scenes that’s driving the gold price higher.
It means you can’t just look at the dollar. The dollar’s an important driver of the gold price, no doubt. But so are basic fundamentals like supply and demand in the physical gold market.
I travel constantly, and just in recent months I was in Shanghai meeting with the largest gold dealers in China. I was also in Switzerland not too long ago, meeting with gold refiners and gold dealers.
I’ve heard the same stories from Switzerland to Shanghai and everywhere in between, that there are physical gold shortages popping up, and that refiners are having trouble sourcing gold. Refiners have waiting lists of buyers, and they can’t find the gold they need to maintain their refining operations.
And new gold discoveries are few and far between, so demand is outstripping supply. That’s why some of the opportunities we’ve uncovered in gold miners are so attractive right now. One good find can make investors fortunes.
My point is that physical shortages are becoming an issue. That is an important driver of gold prices.
Now, when we talk about the gold market, it’s very important to distinguish between the paper gold market and the physical gold market. When I refer to the paper gold market, I’m talking about gold ETFs, COMEX gold futures and the like.
There’s only a small amount of gold backing these markets. Think of an inverted pyramid, with a small amount of gold at the bottom supporting a vast amount of paper gold contracts on top.
So the paper market is not an honest reflection of the physical gold market.
And there’s no question that the paper gold market has been manipulated downwards. That’s not a conspiracy theory. I’ve spoken to expert witnesses in some of the pending litigation …read more
Source:: Daily Reckoning feed
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