The precious metal’s recent run could just be getting started
by SmallCapPower.com | July 7, 2016
Gold was already one of the best-performing asset classes in 2016 before British citizens unexpectedly voted to leave the European Union on June 23. We believe this will turn out to be the most important catalyst for the precious metal since it began its most recent bull run.
Despite beginning the New Year below $1,100, gold had failed a few times to hold above the $1,300 level since its upward move began back in January. We feel confident that the Brexit uncertainty will hang over the markets for at least the remainder of 2016, providing a firm support above $1,300.
The most immediate catalyst likely coming gold’s way is U.S. employment data for the month of June, which is expected to be released on July 8. The Labor Department expects 170,000 new jobs to be created during the month.
Given May’s dismal 38,000 employment gain, only a figure well above 200,000 will create any potential headwinds for the precious metal.
This all leads to the next U.S. Federal Reserve meeting that is happening during the final week of July. Minutes from the last Federal Open Market Committee meeting (released on July 6) suggested that the impact of a Brexit would need to be more certain before the Fed would decide to raise interest rates again, all of which is good news for gold bulls.
Also helping gold is negative interest rates on long-term debt in Germany, France, Japan and, most recently, Switzerland, which has seen its 50-year interest rates go negative for the first time.
Could the United States be next? In fact, that country’s 10- and 30-year interest rates on July 6 reached all-time lows of 1.32% and 2.1% respectively. According to data released by Fitch Ratings, a record US$11.7 trillion of global sovereign debt has dipped to sub-zero yield territory.