Gold: remains stubbornly above US$1,800, but it will have to start moving soon. The good news is that seasonality - and the Fed - may be coming to its rescue.
July 21, '21
Gold has been boring in recent days. And that’s OK.
For the last week, the metal and associated investments have been largely devoid of drama and — unlike the last couple of years — it looks like the summer doldrums have kicked in.
And for now, we’ll take it. Because that’s a lot better than a stomach-churning drop like we saw last month.
Gold had been creeping higher since late last month, generally posting gains both small and large as it struggled to recover from the early June sell-off.
As you can see, the nearly unbroken streak of gains since late June was interrupted last week and over the last two days, but recent trading sessions have seen gold post late rebounds to eke away at the early losses. That seems to be happening again today, with the metal off about $5.00 after being down nearly $14 early on.
Interestingly, silver and the PGMs are all up nicely at present. The weakness is a gold-only event, as investors are singling the metal out as Treasury yields have reversed their recent weakness and are rising today.
Again, gold has remained above $1,800, which is important. There remain some key levels ahead, in particular the 200-day moving average (which firmly halted the metal’s recent rebound) and the 50-day moving average.
Although we have seen a “golden cross” as the 50 DMA moved above the 200 DMA, it was about the weakest golden cross you could imagine, with the 200-day average headed downward and the 50-day with barely a positive slope. We want to see both averages headed upward, and being broken through by the price trend.
Some hope, for today at least, is being offered by the Dollar Index, which has also reversed field and is weaker as I write.
At this point, I remain cautious for gold in the near term. However, I’m wavering on that lack of commitment, as two factors may soon combine to provide a boost to gold:
1) Seasonality. Gold historically has bottomed somewhere from mid-July to mid-August, before experiencing strength in the fall. However, it’s broken that pattern over the past two years, in which it rose during the summer and weakened going into the fall.
This year, so far at least, we seem to have reverted to a typical summertime pattern. If that’s the case, we should see gold start perking up in the days just ahead.
2) The Fed. The spread of the Covid-19 Delta variant not only led to the decline in Treasury yields, but seems to have dampened the Fed’s enthusiasm for tightening monetary policy. If we get some dovish comments from Fed officials in the days ahead, it will be very bullish for gold.
In regard to the latter, the market began to accept that the Fed would start talking about tapering QE in its July meeting next week, with the expectation that it would begin that tapering in the September-October time frame.
Now the spread of the Delta variant has shifted expectations to early next year for the first reductions in Fed asset purchases.
If the Fed supports that view in its policy statement next week, then it could mark the turning point for gold.
What To Do?
Again, I’m largely on the sidelines at this moment. My advice is to watch gold, and the Fed, closely in the near term.
Over the long-term, of course, we want to remain in the metals and mining stocks. The secular trends at work are nothing short of extraordinary...and are extraordinarily bullish for gold, silver, the mining equities and tangible investments of all stripes.
Brien Lundin Editor, Gold Newsletter |
