Fed Hikes and Their Impact on Gold
When the first hike was delivered, along with the intention to deliver 3-4 more, gold prices were hovering above $1000. Gold now sits over $100 higher than it was at the time of the first hike, having rallied to $1375 when hikes were taken off the table. In our view one hike will see gold test $1000, two will see $1000 break, and three hikes would see $720 tested.
A slide in the yellow metal back to $1000 would put significant pressure on the mining stocks, which enjoyed a spectacular bounce over 2016. The HUI index was around 100 when gold was around $1000. Perhaps it was oversold at those levels, but that just proves how oversold miners can become, if they have done that before they can do it again. $1000 gold should certainly pressure the HUI index below 150, and if gold slides further below $1000 then gold miners will likely break the support at 100 on the HUI – therefore halving in value from current levels.
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