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Will Gold Tumble To $1600s Once Fed Speeds Taper?

By Investing.com (Barani Krishnan/Investing.com)CommoditiesDec 01, 2021 04:20AM ET
www.investing.com/analysis/will-gold-tumble-to-1600s-once-fed-speeds-taper-200610068
Will Gold Tumble To $1600s Once Fed Speeds Taper?
By Investing.com (Barani Krishnan/Investing.com)   |  Dec 01, 2021 04:20AM ET
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To most gold bulls, what Jerome Powell suggested would be the last thing they’d have expected from the Fed chair: A faster taper of the pandemic-era stimulus that the central bank has undoubtedly held on to longer than many expected.

Along with his intimation that the bond-buying rollback, which began just this month, be hastened, Powell also proposed retiring the terms “transient” and “transitory” from the Fed’s vocabulary on inflation

It was Powell himself who birthed those phrases when defending the central bank’s decision not to expedite the stimulus taper or raise rates months ago to curb runaway US inflation.

Now, with his twin proposals, he has acknowledged that inflation is red-hot, growing at the fastest pace in more than 30 years, and that he will likely do the appropriate thing to quell that: raise rates before the third or fourth quarter of 2022.

The market's verdict: In one fell swoop, Powell has turned from a fiscal dove to a hawk. 

That the shift came a week after President Joseph Biden renominated him for a second four-year term as chair wasn’t missed by many. “Abrupt,” but “conveniently-timed,” Ed Moya of online trading platform OANDA said, describing Powell’s transformation.

Based solely on Powell’s stance, the outlook for gold would be bearish, with technicals suggesting a revisit to $1,600 territory especially if the “twin evils” of the dollar and US Treasury yields take off again.

But What About Gold’s Fundamental Backdrop And Its Resilience So Far? 

Gold actually recaptured the bullish $1,800 perch on Monday, to the surprise of many. 

But its stay there was brief and came after Moderna (NASDAQ:MRNA) CEO, Stéphane Bancel said existing vaccines in the market will likely be inadequate to fight the Omicron variant of COVID-19, and it might take months to develop specific doses at scale. Bancel’s remarks unleashed a risk-off bias that allowed gold and other safe-havens to rally.

But Powell soon threw cold water on the gold rally as the dollar spiked on his remarks that there might be a faster stimulus taper and rate hike. 

Yet, gold didn’t collapse altogether, holding at just above $1,775.

And there’s a reason for that, as noted by precious metals strategist Warren Venketas in a blog that appeared on dailyfx.com. He wrote:

“Once markets digest the testimony, the issue of slowing economic growth and persistent inflationary pressure could see the ‘stagflation’ debate regain traction. Gold prices could benefit from this type of economic backdrop but remains tied to additional Omicron data.”

Surging European inflation “adds to the ‘sticky’ interpretation of inflation and should favor gold’s upside,” Venketas said.

“Gold volatility is also on the rise—commensurate with price action, and now testing June highs,” he added.

“Gold volatility can be a blessing or a curse for spot gold prices (with correlations varying over time) but with the dollar looking bearish under current circumstances, an uptick … could lead to a stronger gold price.”

So What’s The Technical Outlook Then?

Gold Daily
Gold Daily

All charts courtesy of skcharting.com

A breach below $1,759 could open the door for a move back towards the October low around $1,721, gold strategist James Stanley said in another blog that ran on dailyfx.com.

“The big price level on gold is $1,680—that’s the 2021 low and it’s already been tested three different times,” Stanley added.

“If the bear flag resolves, that’s the price worthy of focus.”

Gold Weekly
Gold Weekly

Nick Cawley, another gold blogger, however, argues that gold could attempt to hold at current levels and try moving up.

“With gold’s risk-off status under question, at least in the short-term, the price of the precious metal may struggle to move higher, despite looking oversold,” Cawley said.

“A cluster of prior lows just above $1,778 should act as initial support before the 50% Fibonacci retracement level at $1,763.5/oz. comes back into play again.” 

Gold Monthly
Gold Monthly

Sunil Kumar Dixit of skcharting.com concurred with that view, but maintained that gold’s immediate bias appeared to the downside.

“The November month candle has closed with a long bearish pin bar,” said Dixit.

“The break below the low of $1,758 should be the beginning of further downside to $1,717 and beyond, where the major support of $1,680-$1,670 area will be available.”

But all wasn’t lost on gold’s upside, Dixit conceded, adding:

“A sustainable closing above the $1,815-$1,835 zone can reestablish the upside momentum.”

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.

Will Gold Tumble To $1600s Once Fed Speeds Taper?
 

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Will Gold Tumble To $1600s Once Fed Speeds Taper?

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Comments (14)
Sriharaj Gold
Sriharaj Gold Dec 03, 2021 10:29AM ET
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Today , seem that someone try to make fake on gold price
Ehab Abbas
Ehab Abbas Dec 01, 2021 12:59PM ET
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What a scary scenario ! I will save this article Mr. Barani and will have a second discussion about it after the taper hit. 👍✊
Rakesh Oza
Rakesh Oza Dec 01, 2021 11:26AM ET
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gold Will touch 1860 $ Next week Ya current week......
Costinho Mokoena
Costinho Mokoena Dec 01, 2021 11:26AM ET
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Youre eliminating NFP that usually corrects gold harshly??
Wankel YU
Wankel YU Dec 01, 2021 11:18AM ET
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base on j Powell put enough gold yet
Robert Flores
Robert Flores Dec 01, 2021 10:33AM ET
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The federel reserve will not raise rates on the federal government and push it to default- It will raise rates a mere .25 and keep jawboning- also, will you cover the upcoming basel 3 and how it will impact gold? Thanks
Khtey Dhoti Radiko Ban
Khtey Dhoti Radiko Ban Dec 01, 2021 7:14AM ET
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gold always goes opposite to him ...mark my word now gold is going to touch 2000
Barani Krishnan
Barani Krishnan Dec 01, 2021 7:14AM ET
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Stop being emotional with your long positions and read what's in the story. Learn to make lucid observations like Abdelraziq Abuaisha (below) who, despite being a gold bug, lays out compelling and unemotional arguments to back his point.
GoldEn Eagle
GoldEn Eagle Dec 01, 2021 7:14AM ET
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2022 next month
Costinho Mokoena
Costinho Mokoena Dec 01, 2021 7:14AM ET
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Where will the bulls be coming from for $2000?Gold is not faith based investment like CryptoHere only Technical and fundamental Analysis matters !…@Barani any advise on succesfully freeing myself from emotional trading?… i often use Sentiments to predict the price but lately it has technically forced me to fundamentally pay technical attention!is it possible to trade without emotions besides using technical analysis ??…
Doug Wildman
Doug Wildman Dec 01, 2021 6:10AM ET
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Short term outlook for gold is pointless. Gold is a long term investment.
Barani Krishnan
Barani Krishnan Dec 01, 2021 6:10AM ET
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True, Doug. But the majority of our clients here are retail types with short windows; hence the need to write accordingly for them. Thanks.
Peter Cooper
Peter Cooper Dec 01, 2021 6:09AM ET
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Gold's more traditional relationship to inflation includes rising strongly with interest rates. With Singapore just upping its gold reserves by 20% it is clear where the smart money is going. Buying at current levels will be seen as a bargain in the near future.
Barani Krishnan
Barani Krishnan Dec 01, 2021 6:09AM ET
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Yes, Peter. But unfortunately, there are forces in the gold paper market, often described as "manipulative", to ensure central banks' fiat holdings don't get decimated.
עמי מגלד
עמי מגלד Dec 01, 2021 5:44AM ET
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gold also moved by fear. no word about that
Barani Krishnan
Barani Krishnan Dec 01, 2021 5:44AM ET
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True.
Barani Krishnan
Barani Krishnan Dec 01, 2021 5:44AM ET
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True, עמי מגלד
Ashraf Nihaan
Ashraf Nihaan Dec 01, 2021 5:05AM ET
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Today glod buy or sell
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Dec 01, 2021 4:50AM ET
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taper or faster taper is bearish not only for gold, but for stocks too. but at some point, taper will become bullish for gold if stocks fall faster than gold. Dr Jerome Bubble will flush out in such loose watery movements that will be the game changer
Barani Krishnan
Barani Krishnan Dec 01, 2021 4:50AM ET
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Thanks for the perspective, Murali.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Dec 01, 2021 4:47AM ET
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The Fed in its biggest dilemma of all times dear writer, we had two great tests in Nov; first one was at the releasing of inflation data for Oct, and we all saw a great move in gold, I can say it was bigger than what fed could imagine, second test was at previous Friday when Omicron panicked financial markets and we saw only the mighty gold ends the session with green, first test indicates gold as hedge against inflation, second test indicates gold as safe haven, with Omicron and Inflation we have gold at its maximum activation. Yesterday your fed chair said something about quicker tapering, then we woke up in the morning seeing world indices are moving up again, I’m very familiar with these hypes created by the fed. Very simple results dear writer; you keep QE you’re gonna get a monster inflation, you taper people will need to hedge, according to the tests made in Nov investors clearly know where to go. The fed is losing its strength in fighting gold and pumping all other bubbles:)
Тони Chuk
Тони Chuk Dec 01, 2021 4:47AM ET
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agreed
Barani Krishnan
Barani Krishnan Dec 01, 2021 4:47AM ET
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Great, calm wisdom as always, Abdelraziq. Thanks much.
Robert Flores
Robert Flores Dec 01, 2021 4:47AM ET
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The only thing I disagree is that QE creates inflation- money creation -M2 supply is created when net credit increases -ie the federal government increasing its deficit on a monthly basis, also when real estate prices surge and every mortgage refinances and tacks on more dept- QE simply accomodates the process
Brain Stormm
Brain Stormm Dec 01, 2021 4:47AM ET
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You are the hero. You totally wrote what I am thinking. Especially it is %100 that omicron will make pandemic worse than ever. Stock market is heaviliy expensive, so I only trust gold under this conditions.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Dec 01, 2021 4:47AM ET
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Thanks a lot for all All respect brother Barani🌷
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Dec 01, 2021 4:41AM ET
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At some point, stocks will go down faster than gold going down. That will turn gold up as stocks continue down. for this stocks have to fall in big lumpy chunky droppings, that is not happening so far. gold bulls are waiting for Dr Jerome Bubble to deliver
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Dec 01, 2021 4:34AM ET
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Dr. Jerome Bubble has likely got mild to severe diarrhea, he will deliver big lumpy Chunky droppings in stocks like loose watery movements that will flush out most of the rally, according to Fibonacci 0.618 from the recent alll time top. All of the above is more likely to take gold up to 1974 before taking gold down to 1674. This is a game of who blinks first, stocks or gold
 
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