Asian Metals Market Update: Higher Rates Puts Rear Into Gold Prices

September 24, 2021

In the short term expectations of higher interest rates next year and reduced money supply next year has resulted in increase in bearish bets in gold.

But remember that global money supply is at a historical high. Money supply will be very high (if not historical high) even if interest rates are raised next year. Inflation continues to rise. Fall in inflation will only be due to higher base effect. Real inflation will be very high for the rest of the year and next year. Central banks will continue to increase gold reserves. No big gold production is expected to come next year. Inflation hedge demand for gold will continue.

Coronavirus is still a risk. In case new variants become vaccine resistant then gold price will break past 2020 high of $2089 for $2500 and more. A poor growth in US economy will sink the US dollar Index and gold will break past $2089.

The pace of taper (till next year) will be dependent incoming US economic data releases. Inflation is high and will not impact monetary decisions by the Federal Reserve. Only fools will start betting on interest rate hike by Federal Reserve for next year. US fourth quarter average jobs growth has to be over 700,000 along with minimum impact of new variants of covid for an interest rate hike by Federal Reserve in the next twelve months. One needs to be differentiate clearly between “Taper” and “Interest rate hike”. The real thing is “Interest rate hike” and not taper. Central banks are obsessed with zero interest rate policy (ZIRP). Central banks will not easily move away from ZIRP next year.

US September nonfarm payrolls on 8th October is the key now. It will decide the “pace of taper” by Federal Reserve. July and August US nonfarm payrolls were expected to be over one million jobs. The actual numbers were very low. This is why the Federal Reserve has a big caution on taper. 8th October (Friday) is followed by Columbus Day holiday on 11th October (Monday). Trend of gold, silver and base metals and US dollar Index from 12th October (Tuesday) will continue till year end. Trend of gold and silver can change from now till 12th October. I expect gold to break free from $1680-$1840 trading range and form a new range before 12th October. Silver has to trade over $21.00 till 12th October to continue its bullish trend.

COMEX GOLD DECEMBER 2021 Futures– current price $1750.70

  • Immediate trend of gold is down as long as it trades below $1783.10 with $1717.90 and $1685.40 as price target.

  • Medium term support is at $1735.10.

  • There can be pullback rallies if gold does not fall below medium term support of $1735.10 to $1783.10 and more.

  • There will be a free fall only if gold trades below $1735.10.

  • A daily close below $1735.10 today (if any) will knock down gold next week.

Gold is now a fight between short term bears and medium term bulls.

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The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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