After Janet Yellen first hiked rates in late 2015, the precious metals market rallied in a big way in the first half of 2016.
In late 2016 the Fed hiked again, but the metals market rally in 2017 has been more subdued. Why?
For the main answer to that question:
The bottom line is that the gold price has tremendous correlation to the price action of the dollar versus the yen. In 2016, the dollar collapsed against the yen. In 2017, the dollar has declined against the yen again, but only moderately.
Hence, the rally in gold and gold stocks has been less exciting than it was in 2016.
That’s a shorter term look at the dollar versus the yen. A loose rectangle is in play, and the next big move will almost certainly be determined by key fundamental news being reported this week.
On Wednesday, the Fed decides whether to raise rates, and the debt ceiling (which I call a floor) comes back into focus. There’s also a major election in the Netherlands. A populist win there could rock major markets. On Thursday, the Bank of Japan meets to decide its next major policy move.
Fundamentally, gold is well-supported, and the news this week is likely to be quite positive for gold and associated assets.
I’ve suggested quite emphatically that in a rising interest rate environment, both gold and the dollar can rally together, and top economists at CITI are now taking note of this fact.
That means their institutional clients are taking note of it, which adds more support to gold. Gold bugs clearly have nothing to fear from a higher dollar, and the dollar is floundering against the yen and the Swiss franc.
It may also be set to tumble against another key currency.
After breaking a key uptrend line, the dollar seems poised to break down from a substantial double top pattern against the Indian rupee.
