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The Gold Selloff, Fed Taper And Silly Season Of Hype and Fear

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJun 18, 2021 04:00AM ET
www.investing.com/analysis/the-gold-selloff-fed-taper-and-silly-season-of-hypes-and-fears-200586877
The Gold Selloff, Fed Taper And Silly Season Of Hype and Fear
By Investing.com (Barani Krishnan/Investing.com)   |  Jun 18, 2021 04:00AM ET
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Well, it did not get to $2,000, just as I argued that it won't in my last post.

But gold will still likely get another chance at mid-$1,800s, which is quite comical from the perspective of longs who have spent half a year chasing the yellow metal as it went from $1,900s highs to mid-$1,800s and even sub-$1,700s at one point, before bouncing back to $1,900s and collapsing again this week to $1,700s.

Technical charts now indicate a return to mid-$1,800s. You know the drill: Rinse, repeat.

What’s amusing though is the inanity of gold bears and Wall Street analysts (read: airheads) who find one ridiculous narrative after another each day to justify the continued selling and cheapening of a commodity that’s supposed to be the world’s number one hedge against inflation—in what is interestingly described now as one of history’s most supercharged moments for inflation.

In the latest round of this circus, markets had apparently lost confidence in gold altogether on Wednesday after the Federal Reserve laid out what the media managed to sensationalize as an overly hawkish rate and tapering regime coming soon after a year of super-easy monetary policy to accommodate the pandemic.

Gold Weekly
Gold Weekly

All charts courtesy of S.K. Dixit Charting

Let’s be clear about two things.

One: The Fed is NOT raising rates tomorrow. Its so-called dot-plot plan suggests the earliest increase—albeit, two hikes—will come before the end of 2023, which, if my math is correct, is 2-½ years, or 30 months, away.

Two: The central bank is still seeking data that will point to the appropriate time for it to start scaling back the $120 billion in asset purchases it has been carrying out for the past year to shield the credit markets and the economy from the worst impact of COVID-19. In fact, Fed Chair Jerome Powell went to great pains during his news conference to emphasize that asset tapering—a term so overused in headlines now that its mere print or mention is enough to send shivers down traders' spines—will NOT occur until the Fed sees adequate signals to justify such action. Powell also assured that the Fed will telegraph its taper intentions well in advance to avoid inordinate market response.

“Our intention for this process is that it will be orderly, methodical and transparent,” the Fed chief said at his news conference.

“We will do what we can to avoid a market reaction but ultimately when we achieve our macroeconomic goal, we will taper as appropriate. We will taper when we feel that the economy has achieved substantial further progress.”

Gold Daily
Gold Daily

Listening to the talking heads of CNBC and other financial show hosts and their guests, one might have gone away with a different idea as both the rate hike and taper were made to appear imminent, as though they were just a quarter away from happening. Ostensibly, almost every guest on these shows has a position in the markets and they are there to talk their book; unlike analysts like me who do not trade for the sole reason of staying objective and unbiased with their market views. To be sure, I’m not a fan of gold, but a fan of reason and objectivity.

To me, Powell’s words were clear, and to deliberately act against the message of the Fed can be deemed as irresponsible and even stupid; if not for the fact that shorting gold itself in an environment of manufactured hype and fear can be very profitable for the bears and their clients. And so, the gold-bashing charade continues.

What made Thursday's plunge in gold even more absurd is that it came on the back of the first hike in US unemployment claims after seven straight weeks of declines that once again raised questions about the consistency of the labor market recovery from the pandemic. If gold is indeed a protection against financial and political troubles, then an inconsistent job market certainly ticks one of the boxes for investors to get into the yellow metal. Instead, what we witnessed was a near $87, or 5%, plunge on the day that brought gold's losses from a week ago to more than $100.

Enough of Fed talk and the silly season of hypes and fears over gold. Let’s take a look now at where prices will likely go in the coming days and weeks.

With some sanity returning to the precious metal on the upside, Investing.com’s outlook suggests near term highs in the mid-$1,800 range for gold.

Our Daily Technical Outlook still maintains a “Strong Sell” recommendation for spot gold—we use the spot price because traders and fund managers sometimes decide on the direction for gold by looking at this, instead of gold futures—but a rebound certainly seems on the cards.

Under our combined ‘Fibonacci’ and ‘Classic’ forecasting models, gold could be trading between $1,847 and $1,869 in the near term—between $64 and $86 from where spot gold was trading at the time of trading.

Under the Fibonacci model, spot gold could first attempt a return to $1811, then $1,825 and later $1,847.

In the Classic model, the positive pricing for spot gold could first reach $1,810, then $1,847 and later $1,869.

Sunil Kumar Dixit, chief chartist of S.K. Dixit Charting in Koltata, India, concurs with Investing.com’s targets.

In a technical outlook on spot gold exclusively plotted for us, Dixit said:

“The daily chart stochastic reading at 13/16 indicates the metal has reached oversold territory and a bounce back from the lows is very likely, conditioned by prices holding above $1,770.”

On the flip side, he said weakness in gold could continue if the spot price breaks below the $1770 level, opening up to bearish targets at $1,753 - $1,735.

Adds Dixit:

“The weekly chart stochastic reading at 49/73 indicates that the bounce back may be limited and another bearish wave can trigger if bears challenge the $1,868 zone. Thanks to the damage done to gold in the past 24 hours, it’s very important to see price action behaviour once reaching the tactical resistance zone of $1,868.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

The Gold Selloff, Fed Taper And Silly Season Of Hype and Fear
 

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The Gold Selloff, Fed Taper And Silly Season Of Hype and Fear

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Comments (26)
Mehmet Dutlu
Mehmet Dutlu Jun 21, 2021 9:55AM ET
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analysis of hopes and wishes, not the reality
Jeff Page
Jeff Page Jun 20, 2021 8:54AM ET
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Depends on dollar strength or weakness. My charts show weakness (GLD).
Peemil Nicho
Peemil Nicho Jun 19, 2021 9:47PM ET
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next week rebound at least 1830
Ali Saadat
Ali Saadat Jun 19, 2021 9:47PM ET
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I hope
Peemil Nicho
Peemil Nicho Jun 19, 2021 9:47PM ET
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I think opposit to cryptonext wk may wk of crypto loss butgold or silver will rebound with some news.
Vincenzo Tilotta
Vincenzo Tilotta Jun 18, 2021 4:35PM ET
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Quick gold pre-prepared manipulation by the Fed, to help their chums, there are trading algos that are pre-set to sell the paper gold as soon as they hear the words from the Fed that they ""plan" to raise rates""....... But raising by 0.25% in December 2023 is just nothing, they could not be anymore doveish. inflation will win and the Fed and the Usd will lose, they are already too late to stop the american wave of inflation. They are fooling the people, they know that if they really raise rates even to 3%, the entire debt laden economy will crack. They have no tools left to control inflation, they know it, and they are not even going to try to stop inflation. They will keep up their theatricals for another 5 years probably, not raising rates and not being able to do anything about the inflation juggernaut. Paul Tudor Jones is right, it is time to go all in on the inflation trade
SunilKumar Dixit
SunilKumarDixit Jun 18, 2021 4:35PM ET
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Vincenzo Tilotta. You are spot on. The tirade of sell off in Gold is well designed to serve the few who have absolute control.
Alan West
Alan West Jun 18, 2021 3:51PM ET
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Interest rates up = gold down. Gold’s going MUCH lower.
Kristof Naessens
Kristof Naessens Jun 18, 2021 3:51PM ET
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Actually, historically rising interest rates is good for gold. Fact is most traders today were not around in the last precious metals bull market when their was high inflation and high rates!
la popeye
la popeye Jun 18, 2021 12:30PM ET
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shorting gold comes from gov related actors who can borrow at fed...which hide the quantity hold physically end the quantity of paper gold they have issue...manipulation from little fed soldier.
Mohammad ELHenawy
Mohammad ELHenawy Jun 18, 2021 12:21PM ET
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I totally agree with this, Feds said that labor market is in a good shape while reports tell otherwise, inflation soaring all over the world, yet gold prices drop really hard, i can't understand why
Vincenzo Tilotta
Vincenzo Tilotta Jun 18, 2021 12:21PM ET
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Because gold is manipulated by the Fed, and there are trading algos that are pre-set to sell the paper gold as soon as they hear the words from the Fed that they "plan to raise rates"........ But raising but 0.25 in December 2023 is completely nothing, inflation will win and the Fed and the Usd will lose, they are already too late to stop the american inflation
Miriam Morkhul
Miriam Morkhul Jun 18, 2021 12:21PM ET
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Gold crashed precisely BECAUSE it's set to explode. I follow insiders in the precious metals business and no one is reporting selling of real gold. They said "we can not identify any selling of real gold". So this is about banks changing sides in the gold market, getting out of shorts with no big losses.
apc apc
apc apc Jun 18, 2021 11:10AM ET
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maybe yr right. but in this crazy now world...anything can happen
Embrose khan
Embrose khan Jun 18, 2021 10:58AM ET
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what ever it may be ,we came to earn money that happened that's all and we want to grab the moment
Embrose khan
Embrose khan Jun 18, 2021 10:57AM ET
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what ever it may be ,we came to earn money that happened that's all and we want to grab the moment not to waste the time on arguing
Phil Wohlrab
Phil Wohlrab Jun 18, 2021 10:28AM ET
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The feds headfake is a joke... they are laughing at us. They will never raise rates... not in 2018, and not in 2023
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:28AM ET
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Now, that's something to trade on! The real call on fed funds :) Thanks, Phil.
Hassan Salloum
Hassan Salloum Jun 18, 2021 10:19AM ET
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I allways read your articles, very informative as allways
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:19AM ET
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Thanks much, Hassan. Truly appreciate.
Francesco Lucchesi
Francesco Lucchesi Jun 18, 2021 10:17AM ET
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i mean the dollar rising is a joke. perhaps angry china might begin the end of the dollar as worlds currency reserve?
SunilKumar Dixit
SunilKumarDixit Jun 18, 2021 10:17AM ET
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Francesco Lucchesi. Yes. China has plans to off load dollars from its reserves and switch to Gold. Russia is on the same page as well.
Francesco Lucchesi
Francesco Lucchesi Jun 18, 2021 10:16AM ET
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it is clearly manipulated. I now believe we need a dramatic recession plus fall in equities to really see gold shining. in other words, panic. it will come soon
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:16AM ET
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Francesco, we know; so do "they" (who matter). But the order of play demands ignorance of the truth; so the charade goes on.
Francesco Lucchesi
Francesco Lucchesi Jun 18, 2021 10:16AM ET
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very true Barani. what will happen with Basel 3?
Vincenzo Tilotta
Vincenzo Tilotta Jun 18, 2021 10:16AM ET
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Some say that Basel 3 will be able to stop the paper manipulation of gold prices. We will see, will not expect much difference but there is a small possibility that it really might
Miriam Morkhul
Miriam Morkhul Jun 18, 2021 10:16AM ET
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I look at it as part of the repricing of gold rather than setting gold free to it's fundamental nominal price. No matter what it's still the only reliable life vest going forward.
Kevin Mcqueen
Kevin Mcqueen Jun 18, 2021 10:15AM ET
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excellent insight, in the end the bond market controls rates and the fed and media control narrative economics. The fed has to appear in control or the game falls apart. The markets are in the second highest bubble category by many rankings after covid economic destruction. Silly indeed.
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:15AM ET
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Thanks for the feedback and your own insight on this, Kevin. Indeed, a post-Covid risk crash may be in order.
Derek de Roos
Derek de Roos Jun 18, 2021 10:15AM ET
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The markets will crash as soon as everything is allowed to fully open.
SunilKumar Dixit
SunilKumarDixit Jun 18, 2021 10:15AM ET
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Barani Krishnan Sire. Stocks and Indices crash may be next big thing to watch in days ahead.
Sean Carter
Sean Carter Jun 18, 2021 10:13AM ET
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"What’s amusing though is the inanity of gold bears and Wall Street analysts (read: airheads) who find one ridiculous narrative after another each day to justify the continued selling and cheapening of a commodity that’s supposed to be the world’s number one hedge against inflation—in what is interestingly described now as one of history’s most supercharged moments for inflation." EXCELLENT point.
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:13AM ET
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Thanks for the feedback, Sean. Much appreciated.
Jeff Chui
Jeff Chui Jun 18, 2021 10:11AM ET
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Pretty sure 3-4 months ago you said gold was going above 2k
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:11AM ET
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Thanks, Jeff. As a matter of factm I did, before the inanity that exploded. I have been consistent in referencing my previous posts each time I write. Bests.
SunilKumar Dixit
SunilKumarDixit Jun 18, 2021 10:11AM ET
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Jeff Chui. The author has been presenting real time perspectives as per prevailing price behavior and synchronized variables which are always dynamic in nature.
Tamest Impala
TamestImpala Jun 18, 2021 10:06AM ET
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Sir, we definitely need you to write about the USD as well. It has had something of a moment this week (obviously) and needs to calm down! As does everyone banking (pun intended) on it.
Barani Krishnan
Barani Krishnan Jun 18, 2021 10:06AM ET
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Thanks for the feedback, TamestImpala. I will urge my colleagues who cover forex to see if they can do a separate take out on the dollar. We all have our turfs, so to speak! :) But thanks for the idea. Much appreciated.
Robert Flores
Robert Flores Jun 18, 2021 9:44AM ET
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Great article- great read- what happens next? Nobody knows- lets stay solvent while we watch the market stay irrational
Barani Krishnan
Barani Krishnan Jun 18, 2021 9:44AM ET
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Yes, Robert: Irrational's the word!
SunilKumar Dixit
SunilKumarDixit Jun 18, 2021 9:29AM ET
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Barani Krishnan sire. Truly the very aim of the sharks is to manipulate the way people perceive the precious metals in general and Gold in particular. The question is... How long...?
Barani Krishnan
Barani Krishnan Jun 18, 2021 9:29AM ET
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Organized (and government-endorsed) crime it is, Sunil.
Mark Manley
Mark Manley Jun 18, 2021 8:25AM ET
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Fed: We might possibly consider tapering 3 years from nowLiberal: Run for your lives, the fed said the world is going to end tomorrow (screams, mayhem)
Barani Krishnan
Barani Krishnan Jun 18, 2021 8:25AM ET
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Hah, you said it MM! (love the "screams, mayhem")  :)
Doug Wildman
Doug Wildman Jun 18, 2021 6:43AM ET
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+568% over the last 20 years…average of 28% per year, buy the dips.
Joel Schwartz
Joel Schwartz Jun 18, 2021 6:43AM ET
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There are long term and short term debt cycles.
Barani Krishnan
Barani Krishnan Jun 18, 2021 6:43AM ET
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Edu Lopez
Edu Lopez Jun 18, 2021 6:30AM ET
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"Manufactured hype and fear". Spot on.
Barani Krishnan
Barani Krishnan Jun 18, 2021 6:30AM ET
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Thanks for the feedback, E. Lopez
Mostafa Sharaf
Mostafa Sharaf Jun 18, 2021 5:31AM ET
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Well said
Barani Krishnan
Barani Krishnan Jun 18, 2021 5:31AM ET
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Thanks for the feedback, M. Sharaf
Jan Skilbrei
Jan Skilbrei Jun 18, 2021 4:37AM ET
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Thanks for your writing Barani, maybe you can cover Palladium metals also, please?
Barani Krishnan
Barani Krishnan Jun 18, 2021 4:37AM ET
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Jan, my man, hope all's well. Will get to PGMs at some point.
Robert Flores
Robert Flores Jun 18, 2021 4:37AM ET
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Barani Krishnan Let me get this straight - platinum is more scarce than gold and used to trade at a 5 to 10% premium - but not anymore “now its an industrial metal” and it trades at a 40% discount or so- but wait- interest rates “might” rise in 2 years and platinum sinks at twice the rate as gold because its a precious metal again- what the??? Manipulated and way undervalued
Barani Krishnan
Barani Krishnan Jun 18, 2021 4:37AM ET
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Robert Flores  Totally, Robert, totally. You can thank JPM and Scotia for that.
 
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