Gold Under the Right Conditions to See 1900 oz+
The Federal has stated that it would begin winding down its holdings of US Treasury debt and mortgage-backed securities (MBS) in October.
The process is somewhat convoluted, with the Fed planning to allow up to $6-B of Treasury debt and $4-B in MBS to mature every month.
Those amounts will gradually rise to $30-B per month of Treasury debt and $20-B per month of MBS in Y 2018.
What we are seeing from the Fed is unprecedented.
Central bank balance sheets have always trended upwards and never decreased. Since this is something that has never been done before, markets are understandably worried.
Market reaction may depend on just how many securities the Fed actually allows to mature, which will likely take a few months to fully assess.
But many investors understand that stock markets have been driven to record highs as a result of the Fed’s QE (quantitative easing) programs. Dialing back on the monetary stimulus risks halting the stock market’s Bull Run.
“Stock market valuations are at levels that, in hindsight, are usually associated with bubbles,” cautions analyst Andrew Packer. “Taking some profits out of high-flying stocks and into relatively slower performers like precious metals makes a lot of sense here.”
Investors who have been in stocks have seen great gains over the past couple of years, but they are getting worried about maintaining those gains. So, many are starting to move a percentage their assets into Gold.
The outlook for Gold remains Bullish for Y 2017, as despite recent price retrenchment the precious Yellow metal remains in the black for the year.
Given the historical negative correlation between Gold prices and stock market levels, any dips in stock market prices could drive up Gold demand and prices.
In the event of a stock downturn, I expect Gold prices to rise just like they did during the financial crisis.
Gold prices rose from around 900 in October of 2008 to over 1,600 3 years on.
“Under the right conditions, like a spike in inflation Gold could rise past its old high of 1,900 and head to 2,500 or even 5,000. While that event is extreme, it isn’t as unlikely as it seems in the current market,” Mr. Packer has said
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