Gold edges higher on credit crisis in China, possible shutdown of U.S. government
Lundin says ‘QE tapering could be a launchpad for gold’

(USAGOLD – 9/24/2021) – Gold edged higher in overnight trading as investors turned their attention from the results of Wednesday’s Fed meeting to the developing credit crisis in China and a possible shutdown of the U.S. government. It is up $8 at $1752. Silver is up 4¢ at $22.60. Though the prospect of tapering has acted as a drag on the gold price over the past several weeks, Gold Newsletter’s Brien Lundin believes its reality will come as a relief.

“As you know,” he says in a recently issued advisory, “my view is that the actual initiation of QE tapering could be a launching pad for gold, much as the Fed’s initial rate hike in December 2015 ended gold’s long bear market. The actual removal of accommodation seems to also remove selling pressure on gold from speculators betting on that event. If so, then the expected catalyst isn’t long in coming.… How they’re going to buy less Treasurys as Congress and the Biden administration add trillions upon trillions in deficit spending is beyond me, but my expectations have always been that the markets won’t allow Powell & Co. to get very far down the road of policy normalization anyway. That underpins my long-term view that much higher gold and silver prices are ahead.”

Chart of the Day

Fed balance sheet growth and the price of gold
(2005-2021, log scale)

overlay line chart showing the growth in the Fed's balance sheet and the gold price 2005 to present

Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve System, ICE Benchmark Administration

Chart note: This chart tracks the relationship between Federal Reserve balance sheet growth (quantitative easing) and the price of gold. The first episodes of quantitative easing (QE1-QE3) began in late 2008 with the onslaught of the credit crisis and ended in 2014. The second (QE4) began in 2020 with the beginnings of the covid pandemic. This past Wednesday, the Fed announced it would start reducing its bond purchases later this year, though no firm date or level of reduction was given. Tapering is a slowing, not an end, to Fed bond purchases.

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