Market Overview
Holding Steady
Reality Check on gold
Oh yeah, the Fed
Please note: All data, figures & graphs are valid as of December 14th. All trading carries risk. Only risk capital you can afford to lose.
Market Overview
The financial markets are holding steady ahead of the Fed rate hike that's expected to come out later this evening. Stock indices in Europe were up about 1% yesterday and Wall Street followed with 0.5% gains. The Dow Jones stopped short barely 100 points away from her 20k goal to close at 19,911.
Asian stocks are virtually flat as with most markets. As I said, things are dead before the Fed. However, we do have many economic events on the calendar that could shake things up before the big non-announcement.
Other Events Today
First, we'll get some employment info from the UK, followed by a speech from Governor Mark Carney of the Bank of England.
Ahead of the New York Opening Bell, the US will publish some retail sales and consumer inflation numbers, as well as some minor stats from the Fed.
The Oil Show
We also have the weekly oil inventories, which if large, could serve as a wake up call to all those trading on the euphoria of the OPEC deal. Remember, OPEC and her friends have used only words so far. As far as we know, production from all countries involved in the deal and their competitors is still at max capacity.
That said, much of the eToro network is long on oil right now with the sentiment meter showing 71% buying.
Reality Check
Of course, investors in eToro have always been long on gold. Now that we're $131 an ounce away from the highs set on election night, clients have built up their buy positions even more.
Most of the metals have benefited from the Trump Trade but gold and silver have fallen quite significantly. This could be a golden opportunity for all the doomsday traders who feel that the precious metals could go through the roof at any moment as well as the prudent long term investors who feel that in 10 years the price will be significantly higher.
That said, it is high time that we zoom out on the chart and see just what the possibilities are in either direction...
The chart above shows the price of gold from the first time it ever crossed the $1000 level in 2009. In the heat of the economic crisis, investors turned to gold for stability. The peak came in 2011 and a great fall ensued in 2013. Since then, the price has been held down largely due to central bank intervention in the markets (QE & ZIRP).
More recently, in the first half of 2016 gold was one of the best performing assets, rising from $1060 all the way to $1375. So at present we're about $100 above where we started the year, but still way under the yearly average (powder blue line).
The dotted yellow line at $1150 could provide some support here. It's bounced off this level several times in the past. However, if it breaks below there the next support is another $100 away.
In summation, the price is cheap right now, but it could certainly get cheaper so if you're buying it for the long term, which many of our clients are, make sure to have a wide stop loss.
The current average stop loss in eToro is at $1115 per ounce but that could certainly change as the price moves.
Almost forgot
Right, so the US Federal Reserve seems all set to raise the interest rates tonight by a quarter point from 0.5% to 0.75%. This move has been widely expected (green line) by the markets since before the US election.
Therefore, if there is any excitement around this announcement it might actually be in the other direction, as traders look to get out of the positions they've been holding in anticipation of this meeting and reduce their exposure before the holidays.
Investors will also be listening closely to the Fed's projection of what they might do over the course of 2017. Though it's not clear why this matters. Last year, the Fed predicted 4 hikes this year and it seems we'll only get one. This year will be even more unpredictable to to a radical regime change in the US.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.