By: Treasure Coast Bullion Group -

Gold prices experienced a down week, but the drop was modest compared to other riskier assets like stocks which were hammered. Its weeks like this past one that reminds investors about the importance of having a diversified portfolio containing precious metals. The record setting rise in the S&P 500 index of 5.6% in January has been eclipse by a month to date decline of 8.6% in February, putting the S&P 500 down on the year. The swing in the returns shows that volatility has returned with a vengeance, with little generated by a change in fundamental factors.

Sure, wage growth in the U.S., Canada and the UK are likely to incent central banks in these countries or unions to continue to increase interest rates which will be offset by quantitative easing in Europe and Japan. This week’s jolt of volatility appears to be a margin squeeze levied on hedge funds who were betting big in volatility products. Exchange traded notes that used double and triple leverage betting on declining implied volatility blew up setting the stage for a squeeze in implied volatility which was the catalyst for the riskier asset selloffs.

Central Bank Activity

There was central bank activity that shows that policy is tightening in places other than the United States. This week the Bank of England left monetary policy unchanged but signaled that policy would become tighter in the future. This sent the pound higher making gold prices in pounds less expensive. The votes to keep interest rates unchanged were unanimous at the nine-member Monetary Policy Committee. The central bank increased its GDP forecast in its quarterly inflation report.

The UK market will now do its job to slow growth and inflation by increasing interest rates which in turn will buoy the pound. A stronger pound will reduce export, and increase imports, and higher rates will weigh on the UK housing market.

Jobs Data Remain Robust

In the U.S. rates are continuing to break higher, which could lead to a stronger dollar and weigh on gold prices. Jobs data released this week shows that unemployment claims is close to a cycle low. The BLS reported that jobless claims dropped 9K, down to 221K during the first week of February. Claims enter February below the January average and are poised to test the lows in claims at 216k. The drop-in claims put upside risk to the February payrolls report. The first trajectory of the ADP data also points to an increase above 200K.

In Canada the Market is Also Tight

Canada housing starts grew at a 216.2k pace in January, nearly identical to the revised 216.3k expansion in December. A tight housing market combined with robust employment will likely drive inflation higher. This compares to expectations that housing starts would fall. The six-month moving average was 224.9k units in January, only slightly below the 226.3k 10-year high seen in December. The underlying starts trajectory remains quite strong which will put the Bank of Canada in a position where it is tightening rates to fend off inflation.

The Range Holds but Momentum is Building

Gold prices are grinding higher, but momentum is building, as prices tests the upside of the 5-year range. Prices have attempted to test the $1,370 level multiple times, and a break would finally generate a trend that is likely to test the 2012 highs at $1,750 per ounce. The range has created complacency, as inflation and therefore demand for hard assets such as gold, have been ignored. Like the recent blow up in implied volatility there will be a time where inflation explodes generating a large demand for precious metals such as gold bullion and silver bars. If you are interested in purchasing gold coins and silver bullion call Treasure Coast Bullion and or request your free investment kit here.









Good Investing,

Treasure Coast Bullion Group