Back in June, Gold Stock Trades founder Jeb Handwerger, in an interview with The Gold Report aptly titled “Fed Interest Rate Increase Could Be Best Thing to Happen to Gold,” said he believed that the Fed raising interest rates would be positive for gold: “Money printing and easy credit has fueled the stock market rally and beaten down commodities. Investors flocked to dividend-paying stocks, and became speculative in tech, which has led to huge overvaluations similar to the late 1990s dot-com debacle. . .
Rising interest rates may be the catalyst that causes investors to flee the general stock market, which has proven attractive in a low rate environment. Higher interest rates concurrent with a pickup in inflation could result in a rush to a safe haven in commodities and wealth from the earth—natural resources and precious metals, which is historically a hedge against a pickup in inflation.”
Predicting is a risky sport and predicting markets an extreme one. But understanding can be much more lucrative. After years of speculation about the negative impact a Federal Reserve rate increase could have on gold, a number of our experts took a contrarian view and based on an understanding that the hike was already priced into the gold price, they explained that it would actually benefit the gold price because it would remove the overhanging doubt. And that is exactly what happened. Within hours of the unanimous announcement on Wednesday that the Fed’s benchmark short-term borrowing rate would go up a quarter point, gold was up $14/oz.
Looking at the chart above notice that even though gold (N:GLD) has hit new lows, the junior gold miners (N:GDXJ) are finding support and the Momentum indicators are positive. That may indicate a rebound or at least a relief rally may soon be underway in the junior miners possible following tax loss selling. December tax loss selling is always challenging in the junior markets during good times, how much more so in these historically tough times. The good news is that January is usually rally time for the junior miners as investors re-position for 2016 in beaten down names. I expect that the first three months of 2016 could be exciting for some of the highest quality names with top assets, treasury and management.