Back to Basics: To Gold or not to Gold?

Author: Tanya Rawat 

When the Federal Reserve announced the probability of 4 rate hikes in 2016 at the Dec 2015 FOMC meeting, Gold first rallied up circa 30%  before midway erasing its gain by ~17% (peak-to-trough).  The rhetoric I feel is similar this year.

There however is a bit of a disconnect in the markets. The possibility of 3 hikes happening in 2017 is a bit rich as it was in 2016 with only ¼ materializing i.e. a 25% probability of a hike. That just implies, the Fed is seeing high momentum in inflation as  they envisaged in Dec 2015 i.e. negative real rates (nominal rates less inflation).

That is perfect for Gold bugs as the Fed will only raise rates at such high frequency if the real rates  turn negative i.e. making Gold more attractive as the classic inflation hedge along the way.

It does the Fed no good to raise rates unless inflation is going up even faster.

Once Trump comes to power and clarifies his stance, Gold buys will look more attractive. Just my 2 gms worth of thoughts. P.S. Net speculative positioning in Gold is has reached oversold levels.

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