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Yellen speaks, gold spikes

by Greg Klein | March 16, 2016

It seemed like the good old Bernanke days, when a word from the Fed could send gold soaring. Having begun March 16 on a two-week low, the metal leaped from $1,231.80 to $1,262.10. Kitco broke down the $30.30 difference (at 4:59 New York time), attributing $12.80 to the weakening U.S. dollar and $17.50 to actual gold demand, as indicated by its price in a basket of other currencies. In fact gold gained in all currencies but the ruble, noted Kitco’s Sarah Benali. Observers tended to agree that faith in the metal rose as confidence in the economy fell, demonstrated by the lack of Fed rate increases.

Yellen speaks, gold spikes

Van Eck Associates portfolio manager Joe Foster told Bloomberg, “A weak economy and the inability to have effective monetary policy creates all sorts of financial risks, risks in the banking system, risks to the economy, and those types of systemic risks are what gold rises on.”

That, along with low or negative interest rates globally, might push gold up to $1,400, MV Financial’s Katrina Lamb told MarketWatch. But hedging her bets, she added, “On the other hand, better-than-expected U.S. growth could yet force the Fed’s hand, in which case we would not be surprised to see the metal lose traction,” possibly falling to its December low beneath $1,050.

While gold bugs ride a wave of optimism, so do gold miners. In a commentary last week, Foster pointed out that by February 24 bullion had climbed 17% over the previous year. But “stocks are up roughly double that amount. The gold miners’ index is up roughly around 35% to 36% this year.”

That’s partly a reaction to over-selling, he said. “And also, fundamentally, they are much better-run businesses than they were a few years ago. Gold mining companies have been controlling costs and doing a much better job of managing operations, making them both more efficient and profitable. This translates into better leverage to the gold price.”

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