Dreams of a dovish Fed continues to underpin gold
Bad news is good news for gold
The weekly chart in gold is shaping up to be an interesting one with gold now up $26 to $1778.
There’s a potential bottom from $1680 that would really turn into something if we saw a break (and weekly close) above $1833 in the next 2-3 weeks.
I think the fundamental side is the nexus here. Gold fundamentals have been great since the pandemic but it hasn’t responded. The dream scenario is this:
- More fiscal stimulus everywhere, including something above $2.5 trillion in the US via reconciliation
- That would likely be due to a longer struggle with delta
- Team Transitory wins the inflation debate
- The Fed takes it slow on the taper with rates hikes off the table until late 2023
Obviously, it’s going to take some time to answer these question but a slow recovery followed by stubbornly low inflation has been the playbook for the 21st century so it’s not at all unreasonable.
As I also wrote earlier, the sentiment in gold and precious metals is brutal right now and the rout on Monday has all the makings of a washout low.
If nothing else, it makes for a good hedge against the scenario listed above.
