A Strong First Half of the Year, Followed by Another Retreat
In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.
Initially, gold rallied sharply in 2016, but then retreated again in the second half as concerns over Fed rate hikes and the impact of Mr. Trump’s election victory have pushed bond yields and the US dollar up in the short term.
Trusting the Establishment a Bit Too Much?
Investors cannot be blamed for their skittishness, considering the misleading information released by officials. Fed chair Janet Yellen stated at the Jackson Hole meeting of central bankers that the case for rate hikes had “strengthened”, yet she gave markets little guidance on timing, saying that rate hikes would be “gradual” and happen “over time”.
This probably discouraged investors from buying gold, because they still trust the establishment and consider the Fed to have credibility. A rate hike offers investors an alternative to owning gold, as gold doesn’t pay interest.