After touching $1880 last week, we see gold now in the late $ 1700s yet again. Yesterday’s excuse came with a gold collapse in less than an hour where it dropped over $25 based upon a statement from Biden voting for Powell in for another term.
So why would this cause the price of gold to drop so sharply, and continue again into today? What is the logic behind it? The answer is simple. There isn’t any.
Those who believe Powell has suddenly turned hawkish may wish to look at the man and how he has performed over the last two years. It is possible, albeit unlikely, that priced in was for Brainard to take the chair (who is perceived as even more dovish than Powell – if that is possible), but given gold’s rally started on hot inflation, that narrative certainly hasn’t gone away; if anything it is worsening.
But what about the dollar index sprinting higher I hear you say. That is based on throwaway comments about accelerating tapering to finish before June next year so interest rates can lift off quicker. And that leaves Powell in the perfect storm.
It is highly, highly likely we will see a repeat of the 2018 taper tantrum in the markets. History has shown us that each time artificial liquidity has tapered, the markets have wobbled. The situation that unfolds will leave Powell with a choice: Save the stock market or save the dollar. You can’t have both. Saving the market will destroy the dollar (which isn’t necessarily bad when foreign trading is concerned as it makes American produce cheap) So how does he save the economy? By propping it up artificially and keeping interest rates low.
Gold at these prices is illogical. Every time it gets a break the charts show a nice steady rise with pullbacks and dips bought that befit any bull market. Yet since August last year every attempt has ended in a two or three day bloodbath where its month-long gains are lost.
Short-term positives? Other than fundamentals not really changing there are two things that stick out. This could be an excuse to hide behind profit-taking ahead of options expiry which is a regular occurrence. It could also be paper shorts smashing the price down to buy physical (have I mentioned this one before?) and also November is historically a bad month for both silver and gold.
Wednesday, Nov. 24, is a busy day on the data front. We see preliminary GDP q/q, FOMC meeting minutes, but more importantly we see Core PCE Price index m/m. How gold traders see this data will determine the short term direction. We know it is going to be hot, however we rallied before on hot inflation data. The question is are they still believing the narrative of the Fed officials to taper and lift off early based upon hot data.
Conclusion
Buy the dip in physical and hold long term. I’m still yet to hear someone proclaim, “He’s worth his weight in Bitcoin.”