Time For Gold To Wake Up

 Last week was highly volatile. Gold had a pretty short covering on Friday as it ranged from $1790 - $1815, but just within a few hours, it reclaimed back $1785 - $1790. Silver, on the other hand, was up to nearly 10% in the past 4-5 weeks. And now, after forming a base near $23.75-24.00, it steadied for $25.50 early this week.

Yellen said categorically that this higher inflation could last until mid-2022. In retrospect, small investors remained negative towards gold concerning gold ETF holdings falling consistently over the last two weeks. With the US Dollar forging a temporary lower low to start the new week, we give the edge to the bull camp and bullion dealers in India. As indicated already, surging Bitcoin and other inflationary signals could finally be "waking up" gold and silver!

The US markets are again hitting new life highs with Tesla staying under the spotlight as it attained a $1 trillion MACAP. Gold almost hit our target near $1713, but silver legged the momentum. Gold ended above $1800 on Monday for the first time since 14th September. But gold will face a hurdle in the short term by staying near $1815 - $1820. It could see a big round of short-covering while taking out of this band. However, before that, $1795 - $1800 consolidation is possible.

There was a slight recovery in the dollar, but this was not a good thing for gold and gold dealers in Mumbai. However, prices are not expected to fall sharply, as investors have realised that the bigger picture is even more uncertain and that risks are still just behind the corner.

Gold prices fell on Tuesday after a five-session rally, as the dollar steadied, and investors awaited key central bank meetings for clues about rate hikes amid rising inflation concerns. Investors have shifted focus to the policy meetings of the Bank of Japan (BoJ) and Bank of England, and the European Central Bank (ECB) due on Thursday, followed by next week’s U.S. Federal Reserve. The US GDP data for the third quarter was also on their radar.

Gold is often considered as an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, increasing non-interest bearing bullion’s opportunity cost. Gold should remain relatively well-supported in the current inflationary environment until we get a hawkish pivot from the Fed.

Given the tremendous inflation pressures currently exerting themselves in the economy, the late 1970s may be the best model for what to expect going forward. It would mean the rising price levels are combined with a weak economy (stagflation). And given that the US debt load today is over four times higher as a share of the economy than it was in the 1970s, investors should brace for the potential of a far greater financial crisis. When it comes to a financial crisis, investors will want to have gold on their side based on data from yesteryear, pleasing the gold dealers in Mumbai. It is well known that in times of uncertainty and a financial crisis, gold has always proved its worth as it has vastly outperformed other assets in its class.

From a micro perspective, investors only have to look at the current market landscape, and as many analysts are eyeing inflation as the next major market disruption. The talks of stagflation, higher interest rates, and low economic growth could provide the perfect backdrop for investors to start adding gold. Should the markets get shaken up again, gold can offer an ideal respite from equities exposure.

Gold Rallies Over Inflation Worries

 The Fed is pursuing a program of “buying up the world”, which is very easy to do if one has the capacity to create infinite quantities of money out of thin air. A big reason for the lockdowns was to stifle the huge inflation that this policy would otherwise engender by killing the economy – the name of the game is wealth transfer, up the pyramid to the very top. This operation is working well for them, which is why the stock market has marched ever higher as the economy has collapsed, so much so that it is hard to see why they would change the course.

After CPI at 0.4% monthly growth and a 13-year high, there is a sense of fear from the US Fed to IMF as to what might unfold on the inflation trajectory going forward. On Wednesday, gold zoomed by +$40, i.e. 2% on Comex, to close above $1785-1790, which is a crucial barrier and now eyed above $1810. Just a month ago, gold was observed trading at these levels only.

Gold prices hit a one-month high on Thursday as the US Dollar and US bond yields eased, while investors and the largest bullion dealers in India assessed how strong inflation data could shape monetary policy. Spot gold rose 0.4% to $1,799.30 per ounce by 1100 GMT, having earlier hit its highest since Sept 15 at $1,799.95. US gold futures gained 0.4% to $1,801.30. The US dollar and benchmark US 10-year Treasury yields slipped. And by the rule of thumb, a weaker dollar makes gold cheaper for buyers in other currencies.

Gold rallied after data showed US inflation rose sharply. Prices paid by US consumers rose 0.4% from August. In comparison with a year ago, the CPI rose 5.4%, matching the largest annual gain since 2008. The broadness of price rises suggests the likelihood of that being transitory is falling. We witnessed the Treasury yields fall, and the weakening of the US Dollar resulting in strong support for the precious metals, with spot prices threatening to break above $1,800/oz. This is despite the Fed indicating it would likely start tapering in mid-November or early December. They don’t care if it leads to hyperinflation, which will crush the little guy but not affect them. But naturally, if hyperinflation it is, then gold and silver will soar, leading us to like silver so much here. Now, of course, if gold and silver soar, then so will other commodities like copper, all of which you can find at any gold dealer in Mumbai.

Gold Could Possibly Revisit Its Peak

So far 2021, has been a disappointing year for gold and top gold dealers in India. It has failed to attract new buyers despite inflation fears and debt worries. Year-to-date, gold is down more than 7% after selling off at the $1,800 an ounce level multiple times.

Gold rose to another level over COVID concerns. However, the main reason for the gold downfall has been a strong US market. The US stock market has not witnessed a major pullback since the 2020 low. If equities are entering a more sustained wobbling period, we see gold, Treasury bonds and Bitcoin as top contenders for outperformance.

It can also be emphasized that the investments in gold and Bitcoin are viewed as insurance, and not as short-term trades. These are considered to be part of a long-term portfolio that seeks to balance the long-term risks and opportunities in the current global context.

Worries about the debt ceiling are beginning to rattle investors as the deadline nears for Congress to raise the U.S. borrowing limit to avoid a historic default on U.S. debt. After Powell’s stern remarks on the debt ceiling, the DOW plunged to 500 before recovering somewhat. The USD index was 93.7 on low, and gold attempted $1771 an ounce. The FED president, Bullard, says that they are now worried that the inflation crisis is on the upside. After crude hit a 7-year high on Monday, mounting inflations has become a serious concern as natural gas is also at a multi-year high at the moment. It could just be a possibility that the FED’s inflation measure, i.e. PRICE PPE INDEX, may hit above 6-6.6% by year-end, and FED may not be able to do tapering at all. Gold had a good close on October 5, well above $1762, as a result of a critical hurdle after Bullard comment in inflation and subsequent fall in DOW and USD.

The Federal Reserve's potential plan is to reduce its monthly bond purchase by the end of the year continues to weigh on the gold market as prices remain tethered to support around $1,750 an ounce. However, one investment firm continues to see gold prices pushing thousands of dollars higher in the long term.

Gold comex was attempting an elevated bottom above $1740-$1750 bands while on a host of concerns. It is very well in a position to attempt $1785-$1795 before the payroll comes on October 8. The US Senate is under pressure after a stern warning from President Biden as he called for an immediate hike in the debt ceiling before a catastrophe situation emerges for the financial markets.

The recent market movements and bullion dealers in India suggest that investors, after months of ignoring a debt limit standoff, seem to be taking the once-unthinkable possibility of a U.S. default seriously. Today, Congress seems to be locked in a stalemate, with the clock ticking down and a potential debt default looming in October. With this once-unthinkable scenario now becoming more likely, let’s see what a U.S. default would look like for physical gold investors and how they could prepare for it. There could be two possible scenarios -

Scenario 1: If the US debt becomes 'unsustainable' and tops 200% of GDP, then the gold price will go up.

Scenario 2: If the ceiling is raised and the debt-to-GDP ratio goes down, the gold price will hover above the $1,800 level.

If a US default were to happen, it would have major repercussions for the country and the global economy, potentially creating a historic financial crisis. In times of uncertainty, investors usually turn to safe-haven assets like gold to protect their portfolios. So, no matter which way the debt ceiling situation goes, it seems RSBL gold and gold coins in Mumbai should retain their value, offering a haven of safety, as it has done over the centuries.