Gold's struggle continues

October 9, 2021

New York(Oct 9)  The gold market continues to struggle in obscurity, unable to hold material gains above $1,750 an ounce.

The gold market can't even hold on to gains following the second month of disappointing U.S. labor market data. While the precious metal managed to hit a two-week high briefly, it could not break resistance at $1,780 an ounce.

The market is suffering because investors remain too focused on U.S. monetary policy. Although September's nonfarm payrolls missed expectations, many economists have said that it still won't keep the Federal Reserve from reducing their monthly bond purchase by the end of the year. The Federal Reserve is on track to shift its monetary policy, and that will continue to weigh on gold prices.

Rising inflation pressures haven't even been able to help gold prices. We are seeing a global energy crisis, driving oil and gas prices to multi-year highs. As a result, some economists expect inflation pressures to be a lot stickier than central banks anticipate.

Rising inflation is not providing any support for gold because it is leading market players to price in more aggressive action from central banks. The CME FedWatch Tool already shows that markets are pricing in a small chance of a rate hike by June 2022.

But before all the gold investors start throwing in the towel and liquidating their assets, I would like to point out that a lot can happen in the next 12 months or so. I think markets are overestimating just how aggressive the Fed and other central banks, like the European Central Bank, can be when it comes to tightening interest rates.

One report that caught our attention this week was from Jefferies Investment Group. Despite all the near-term weaknesses and volatility, the investment firm remains a long-term bull on gold. They said that they see gold prices rising to $5,500 an ounce in the long-term, as it becomes evident that it is easier for central banks to enter unorthodox monetary policies than it is to exit them.

"The long-term view here remains the same as it has been for many years. That is that G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another," the analysts said in their research.

Bloomberg analysts also remain bullish on gold. In his October commodity report, Bloomberg Intelligence senior commodity strategist Mike McGlone said that he sees gold going back to its peak soon.

"It's only been about a year since gold's last peak, and we believe it should be a relatively short matter of time to revisit," said he said. "Gold has outperformed most major commodities in the past 20 years."

That is it for this week. For all our readers in Canada, happy Thanksgiving. And Happy Columbus Day to our American fans.


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