Gold pushes higher on China woes, the energy crunch, and inflation concerns
Powell, Yellen backtrack on transitory inflation narrative

(USAGOLD – 10/25/2021) – Gold pushed higher this morning on a familiar grouping of concerns – China’s property sector meltdown, the energy crunch (natural gas surged over 6% overnight), and a growing sense that inflation could be more persistent than previously believed. Both Fed Chairman Powell and Treasury Secretary Yellen have back-tracked on the transitory inflation narrative in recent days – a change in perception that will not be lost on market traders. It is up $9 at $1803.50. Silver is up 9¢ at $24.49. Bleakley Advisory Group’s Peter Boockvar sees the current situation in the precious market as a matter of black and white. “The trade with gold and silver is pretty straightforward here,” he tweeted recently, “If you believe [the] Fed will get ahead of the curve or at least in line with it with regards to inflation then sell. If you think Fed will crab walk their tightening, then this selloff is a gift. I believe in the latter.”

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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