2018-01-11 Midweek Market Update

Gold Prices Rally the Most since 2010

Although the yellow metal was overshadowed by the returns of crypto currencies, gold saw its best yearly gain since 2010, up by almost 14% in USD terms. With stock markets, bond markets and both residential and commercial real estate worldwide at near record valuations, bullion continues to be one of the few areas offering reasonable valuations and a hedge against high valuations in other asset classes.

Rising Rates, Rising Gold Price

As seen in both 2015 and 2016, gold was sold into the expected interest rate increase, and has since rallied hard after a Federal Reserve rate hike in December. Since the rate hike on December 12th, gold has out-performed U.S. and European stocks, as well as bitcoin, 10 year U.S. treasury bonds and the U.S. dollar index. Counterintuitively, all rate hikes since 2015 have seen gold run higher in the face of higher rates. Gold hit its highest price since mid-September earlier today, and likely has further to run.

Gold Derivative Levels Continue to Climb

America’s Office of the Comptroller of the Currency show in their latest report that over $36 trillion (yes, with a “t”) worth of gold derivatives are held by U.S. banks alone. This is more than three times the levels held before the Global Financial Crisis. All of that paper gold supply will someday become forced buyers into a rising gold price.