If there is one common theme to gold price forecasting, it is the destructive effect of the coming interest rate hike by the U.S. Fed. How big is that threat? And how real is it? We would argue that it’s not an interest rate hike that is the biggest issue for gold investors. Rather, it is market sentiment.

Case in point: when reviewing the yield curve for 10 Year Treasuries, it is clear that a rate hike has already been priced in by investors. They drove 10 Year yields from 1.67 in January of 2015 to 2.50 in June. Talking about an interest rate rise!

Gold - Interest Rate Hike Priced In?

Our assumption is that, once the interest rate rise will be announced, the reaction of the markets will be moderate. If our assumption turns out to be correct, the market has already priced in an interest rate hike, also in gold.

The real problem for precious metals is the ultra-bearish market sentiment. The metals are making new lows during the seasonally strongest period of the year; gold futures are being dumped during thin overseas trading; China is not announcing massive accumulation of its gold reserves contrary to the common belief; gold is trading below its production cost … We can go on for a while, but the point is clear.

These are times of extreme pessimism. That is the key issue for the metals, not an interest rate hike which the U.S. Fed is announcing for more than 2 years. The “good” news about sentiment is that it can turn when it hits extreme. We believe that such a turn is close, because there is almost no gold bull left standing.