Gold closed virtually unchanged today down $0.20 at $1,238.90. It lost ground in early trading and at one point reaching $1,227.00 before turning around – gaining back its lost ground despite a strong Dollar Index which moved from 100.90 to 101.42. The dollar gaining strength over bullish Fed comments regarding that possible March rate hike.

The story for now is that the price of gold will be capped by a stronger dollar. Actually the dollar is already too strong but with anticipation of a rate hike this coming March we can expect that recent gains will be reinforced. The argument which everyone applauds is that this rate hike is supported by our improving economy. Most of the pessimists in the group (me included) claimed that higher interest rates in the US would be a disaster to Wall Street and how could this be possible while the EU is still struggling?

If Europe begins to develop economic traction the US will no longer be in a ‘wait and see’ mode – they will raise rates as promised and we may even see further rate hikes if the US does not slip back into recession. The consequences for gold however may not be as drastic as most believe – there are already signs inflationary forces are beginning to stir – Federal Reserve Bank President Patrick Harker claimed he would likely support an interest-rate increase in March if he sees additional evidence that inflation is gaining momentum.

And the political world remains tense over everything from Trump to what the Russian’s are up to – traders are even worried that an upset victory in the upcoming French election will prompt a French exit from the European Union – expect safe haven buying to continue its present course and it would not be a real long shot if it increased.

Finally, gold remains undervalued. In its current trading range we are talking about a 35% discount from old highs – in a world full of turmoil as sentiment over gold’s value is moving from very negative to at least a positive bias.

Source: CoinWeek