After touching $1880 final week, we see now within the late $ 1700s but once more. Yesterday’s excuse got here with a gold collapse in lower than an hour the place it dropped over $25 based mostly upon a press release from Biden voting for Powell in for an additional time period.
So why would this trigger the value of gold to drop so sharply, and proceed once more into right this moment? What’s the logic behind it? The reply is straightforward. There isn’t any.
Those that consider Powell has instantly turned hawkish could want to take a look at the person and the way he has carried out over the past two years. It’s attainable, albeit unlikely, that priced in was for Brainard to take the chair (who’s perceived as much more dovish than Powell – if that’s attainable), however given gold’s rally began on scorching inflation, that narrative definitely hasn’t gone away; if something it’s worsening.
However what concerning the sprinting larger I hear you say. That’s based mostly on throwaway feedback about accelerating tapering to complete earlier than June subsequent 12 months so rates of interest can raise off faster. And that leaves Powell within the excellent storm.
It’s extremely, extremely doubtless we are going to see a repeat of the 2018 taper tantrum within the markets. Historical past has proven us that every time synthetic liquidity has tapered, the markets have wobbled. The scenario that unfolds will depart Powell with a alternative: Save the inventory market or save the greenback. You possibly can’t have each. Saving the market will destroy the greenback (which isn’t essentially unhealthy when international buying and selling is anxious because it makes American produce low-cost) So how does he save the economic system? By propping it up artificially and protecting rates of interest low.
Gold at these costs is illogical. Each time it will get a break the charts present a pleasant regular rise with pullbacks and dips purchased that befit any bull market. But since August final 12 months each try has led to a two or three day massacre the place its month-long beneficial properties are misplaced.
Quick-term positives? Aside from fundamentals not likely altering there are two issues that stick out. This might be an excuse to cover behind profit-taking forward of choices expiry which is an everyday incidence. It is also paper shorts smashing the value down to purchase bodily (have I discussed this one earlier than?) and likewise November is traditionally a foul month for each and gold.
Wednesday, Nov. 24, is a busy day on the info entrance. We see preliminary q/q, FOMC , however extra importantly we see m/m. How gold merchants see this information will decide the brief time period course. We all know it will be scorching, nonetheless we rallied earlier than on scorching information. The query is are they nonetheless believing the narrative of the Fed officers to taper and raise off early based mostly upon scorching information.
Conclusion
Purchase the dip in bodily and maintain long run. I’m nonetheless but to listen to somebody proclaim, “He’s price his weight in .”
