Interest Rates and a 20,000 DowWednesday December 14, 2016 17:27
In an astonishing combination of unrelated events, tomorrow’s Federal Reserve decision could be the final impetus that motivates traders to push the Dow Jones Industrial Average above 20,000 for the first time in history.
As we await the Fed’s decision tomorrow, we are witnessing one of the most historic moves in the US equities. This combination of events, which in terms of timing is unrelated, might occur on the same day.
Whereas on the surface, one might perceive an interest rate hike as detrimental to our current economic environment, non-action by the Federal Reserve to raise rates could create more harm than good. Many believe that the credibility of the Federal Reserve is on the line, and that no action would be a sign of weakness; weakness of resolve and weakness for their economic outlook.
But more importantly, an interest rate hike would send a message that the US economy is strong and growing. According to Bloomberg News, today’s dramatic upside move in US equities was based upon “speculation that the Federal Reserve’s expected rate increase is a signal of confidence that the economy is strengthening”.
If the Dow Jones Industrial Average reaches 20,000 this week, it will be the fastest 1000-point gain in history.
Trump and Gold
Although the interior of Trump Tower is gold, as is the decor of his personal residence, President-elect Donald Trump has had a detrimental effect on precious metals pricing. Inasmuch as we are witnessing one of the most dramatic lines in US equities, this comes concurrently with a dramatic selloff in gold and silver pricing. The fact of the matter is, gold has lost almost $200 in value in a little over a month.
Whether or not this trend continues, there are still many questions left unanswered. If this trend continues, where can we expect gold prices to find support? And, more importantly, should one continue to invest and trade in gold given our current economic and political environment?
It is my belief that now more than ever, traders and investors need to have a small percentage of their portfolio allocated to safe haven assets, with gold at the top of my list.
We hope that the policies implemented in the Trump presidency will lead to a more vibrant and stronger economic base here in the United States, as well as globally. However, the truth is, we are in uncharted territory, with an untested leader at the helm, and a future that is unknown.
Strategically allocating a small percentage of your portfolio in gold makes more sense than ever.
The Chinese have a saying, “May you live in most interesting times.” While on the surface, this statement reads as a blessing, the expression is used ironically. The implication is that uninteresting times of peace and tranquility tend to enhance life more than the alternative.
We are living in “most interesting times,” which we all hope will lead our collective future to be blessed rather than cursed.
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Wishing you as always, good trading,