The price of gold hit a seven-week high today (Monday) as investors believe the U.S. Federal Reserve will delay its first interest rate hike in nearly a decade until sometime in 2016.
The price of gold was up $10.40 at $1,166.20 an ounce in New York trading Monday morning. It hit an intraday high of $1,169.00 earlier in the session.
Worries of a U.S. interest rate hike have weighed on the price of gold the last two years. When a 2015 rate hike looked likely this summer, the price of gold fell to a five-and-a-half-year low. But dovish Fed comments from the FOMC's September meeting have pushed back rate increase expectations into 2016. And that has acted as a catalyst for gold prices this month.
Minutes from policy makers' September meeting cited uneven U.S. growth and worries of a global slowdown for keeping interest rates low. The U.S. central bank has kept interest rates near zero since the 2008 financial crisis.
The Fed could still raise rates this year, but that's "an expectation, not a commitment," Fed Vice Chairman Stanley Fischer said Sunday to the Group of 30, a private-sector organization. Should the global economy drive the U.S. further off course, that expectation is expected to change, Fischer explained.
Even though emerging market officials and others are prodding the Fed to hike rates, Fischer said the United States would proceed carefully.
"The Fed indicated that weakness in the global economy caused its participants to vote against a rate hike," Money Morning Resource Specialist Peter Krauth said Friday. "But if that weakness persists, it could keep the Fed from any kind of significant rate increase for some time."
"And that could continue to bolster gold and gold equities and send prices higher," Krauth continued. "After four years of correcting and forming what looks like a double bottom around the $1,100 mark, gold seems ready to resume its long-term secular bull market."
And as the price of gold climbs, more and more investors are buying into the precious metal...
As Price of Gold Climbs, Investors Pile In
Amid anticipation that the Fed's interest rate pause could be prolonged, smart money investors have increased their bullish gold bets to a four-month high.
"From the currency side and also from the positioning side, the gold price is getting some support," Carsten Menke Analyst Julius Baer told Reuters. "The technical picture is improving, so that might lure some more short-term bullish positioning back into the market."
Talks of a reduced gold supply also lifted the price of gold today. News out of South Africa confirmed the Association of Mineworkers and Construction Union voted Sunday to strike at the operations of AngloGold Ashanti Ltd. (NYSE: AU), Harmony Gold Mining Co. (NYSE: HMY), and Sibayne Gold Ltd. (NYSE: SBGL).
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The price of gold has been trending higher for the last couple of weeks. Gold prices ended last week at $1,145. That was up from $1,138 in the prior week.
"With the price increases of the past two weeks, the technical picture for gold has brightened noticeably," Commerzbank bank said in a note Monday. "If it were able to exceed its August high, we could see technical follow-up buying," the German bank wrote.
The gold price is now down just 2.1% year to date. That's much better than the Dow's 3.9% decline in 2015.
As Q3 2015 earnings start rolling in, the case for gold remains solid.
S&P 500 earnings are expected to fall 5.1% year over year, according to FactSet. Stocks are looking expensive at 17.9 times the past 12 months of earnings. That's higher than the 10-year average of 15.7, data from FactSet shows. That uncertainty in the market should continue to send investors into gold positions.
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