Gold marginally lower in quiet trading
Investors sorting out a mix of influences, including a nebulous Fed message on tapering

(USAGOLD –9/27/2021) – Gold is marginally lower in quiet trading to start the week as yields continued to rise and the dollar dipped. It is down $1 at $1750.50. Silver is up 17¢ at $22.66. Financial markets seem to be still uncertain how to read a broadening mix of influences ranging from a possible government shutdown, a stubborn pandemic, increased inflation, a burgeoning credit crisis in China, and a nebulous Fed message on tapering. Market researcher Adam Hamilton believes the Fed’s soft promise to taper will force markets to reconsider the net effect on the price of gold.

“So I’d argue this year’s US-dollar upside on Fed tightening has likely already mostly run its course,” says Hamilton in an analysis posted at Seeking Alpha. “The Fed’s balance sheet will continue surging into mid-2022, and that’s if the FOMC actually carries through on fully tapering QE4. The Fed isn’t even tightening at least until the end of next year, it is just slowing the pace of easing. This remains very dollar-bearish fundamentally, which of course is great news for gold. The gold-futures speculators fleeing in response to sharp USDX rallies on perceived Fed tightening has probably already largely exhausted their selling potential. They need to normalize their excessively bearish bets, which means big buying that will catapult gold much higher. … The bottom line is the Fed tapering QE4 isn’t bearish for gold at all. Slowing extreme money printing is a far cry from actual Fed tightening. The FOMC isn’t even considering unwinding QE monetary excesses through QT or launching a new rate-hike cycle. Even if the Fed carries through on QE tapering, money-supply growth will remain fast into the middle of next year. And the FOMC’s tapering plans could be derailed.”

Chart of the Day

line chart showing the surge in M1 money supply
Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System

Chart note: As you can see in the chart, the liquidity created in the aftermath of the 2008 credit crisis did not make it into the money supply. Hence, inflation was restrained. This time around, it has made it into the money supply, and inflation has become a reality. “The Fed bought Treasuries, created money [in the aftermath of the 2008 crisis],” says hedge fund impresario John Paulson, “which wound up in the banks and then was redeposited at the Fed. And the money never really entered the money supply. So it wasn’t inflationary. However, this time it has entered the money supply. … So I think we have inflation coming well in excess of what the current expectations are.” Paulson stated in a recent Bloomberg interview that he believes gold to be a good investment.

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