AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.
3/28/2017: Gold Rallies as Dollar Falls
In this issue:
Dovish Rate Hike
Charts and Changing Trends
Low Prices on Classic Coins & Bullion
The past two weeks have been heady times for gold and silver. Gold has surged 4.5% in the last eight trading sessions, pushing prices to a four-week high above $1,250. Silver has jumped nearly 6.5% in the same period, reclaiming $18 per ounce for the first time since early March. While some consolidation of recent gains may take place, momentum is now firmly on the side of these two precious metals, placing them on the verge of a breakout into higher trading ranges.
What has changed? In short, the soaring dollar has returned to earth. After rallying 5% to a 14-year high in December on the heels of Donald Trump's presidential victory, the dollar has now surrendered all those post-election gains. What happened? First, the Federal Reserve has become less hawkish about raising interest rates than many expected. Second, the recent struggles in Congress over healthcare reform have raised doubts about whether Trump's signature tax reform and infrastructure-spending promises will be kept in a timely fashion. These changes are causing investors to turn from speculative risk to safe havens. Stocks have weakened from record highs, Treasury yields are falling again, and gold is on the rise.
Dovish Rate Hike
In late February, gold was rebounding from December lows when a series of hawkish speeches by prominent Fed officials, including Janet Yellen, all but guaranteed a mid-March rate hike. Rising rates tend to support the dollar by attracting foreign exchange money seeking higher yield, in turn weighing on gold and other commodities priced in dollars by making them more expensive in other currencies. Gold fell on these signals, snuffing its February rally, as traders speculated that the Fed would accompany the March hike with hawkish language about future hikes.
While the Fed indeed voted to raise rates by a quarter-point in March, as expected, it surprised the markets by sending dovish signals about future hikes. Traders were expecting an aggressive new schedule of tightening, given the jawboning by Fed members in the preceding weeks. Instead, the Fed's policy statement contained cautionary language about fiscal policy, and the Fed's so-called dot-plot, which charts future changes in monetary policy, remained at three hikes per year through 2019. The dollar promptly tumbled as speculative long bets were unwound, and gold resumed its February rally with gusto.
Last week's inability of Congress to muster the votes to repeal and replace Obamacare is only adding to the dollar's woes. The exuberance that buoyed the buck in Q4 2016 has largely evaporated as President Trump's plan to spend $1 trillion on rebuilding infrastructure seems increasingly unlikely to happen this year. Comprehensive tax reform may prove challenging, too. If gridlock is back in Washington, Trump's pro-growth agenda may struggle to be enacted at all. This possibility is proving bearish for the dollar and equities but strongly bullish for gold and silver.
Letís look at the charts.
Charts and changing trends
The dollar has fallen below where it was last November on election day. In the weeks following Trump's win, the U.S. dollar Index chart showed support at 100.25 and resistance at 103.29. Since the March rate hike, the dollar has undergone a renewed bout of weakness, breaking below major support at 100.25 and falling as low as 98.85, substantially below the previous dip in early February of 99.5.
With real GDP projected at just 1% in Q1, according to the Atlanta Fed, there is little upside pressure on the dollar in the short term. We anticipate that it will remain in the upper end of its previous major two-year trading range of 93 to 100, with short term support found at 97.5 and upside resistance at 100.20.
Gold has jumped 4.5% after the March rate hike as the dollar plunged on the Fed's unexpectedly dovish forward guidance. It is now pressing short-term upside resistance at $1,260, with major support holding at just under $1,220. A close above $1,265 will put the next major upside resistance at $1,300 quickly into play. We believe, in the current environment, gold will establish a higher trading range from $1,245 to $1,275, with the bias to the upside. Precious metals markets can move quickly and gold is consolidating recent gains under $1,260 now. We are looking for gold to make a run at $1,300 in the coming days and weeks.
Silver has rallied strongly on the Fedís rate hike, too, from just under $17 back above $18. It has now returned to the trading range it enjoyed last summer, between $17.90 and $20.70. In the short term, we see firm support at $17.50 with upside resistance at $18.49. If silver can rise above its late February high of $18.49, it has room run to $20. Bear in mind, silver is more volatile than gold and can quickly jump 50 cents in a day. We look for it to test $18.50 in the coming days. A close above $18.50, while bullish in the short term, is possible.
Platinum continues to trade at a large discount to gold, almost $300 today. This is a very large discount by historical standards, and we continue to think it is substantially undervalued relative to gold. With short-term support at $936 and major support at $900, platinum will see short-term upside resistance at just over $1,000 and then at $1,040, with major upside resistance at $1,100. Trading around $960, platinum looks cheap today.
Low Prices on Classic Coins & Bullion
Premiums for classic U.S. gold coinsótheir trading price over their intrinsic gold valueóare historically low in the current market. Most of the coins we highly recommend today have little downside risk with enhanced upside potential in a stronger market.
$20 Liberty in Mint State 64
For overall scarcity, current trading price, and previous market performance, the $20 Liberty MS64 grade is our top recommendation today. Only around 116,000 survivors exist in certified near-gem MS64. Compared to $20 Saint-Gaudens in MS65, which is currently trading around the same price, the $20 Liberty MS64 is more than twice as scarce, which means greater upside potential in a rising market. The previous market high for $20 Liberty MS64 was $4,050 compared the $20 Saint MS65 at $2,940. That's a difference of 37% in proven performance. Highly recommended!
$10 Liberty in Mint State 64
We also like the $10 Liberty in MS64 grade for the same reasons. When compared to the $10 Indian MS64, it is cheaper by about 5% today and almost twice as scarce. While the $10 Liberty and the $10 Indian have previous market peaks of about $3,000 in MS64, the greater scarcity and cheaper price of the $10 Liberty MS64 today makes it our pick for better value.
1-ounce Canada Silver Maple Leaf, BU
For bulk silver buyers, nothing beats the popularity and price of Canadian 1 oz Silver Maple Leaf coins, BU! Itís as simple as that!
2017 1-ounce American Platinum Eagles, BU
If you donít have platinum as part of your hard asset portfolio we highly recommend adding it at todayís low prices. We have some 2017 1 oz American Platinum Eagles, BU in stock but they are going fast. These coins always become hard find once their year of issue is over. Premiums can move substantially higher in the secondary collector market. Highly recommended, while they last!
Thatís all for now. Thank you for your time and business!
Dana Samuelson, President
Bill Musgrave, Vice President
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AGE Gold Commentary
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