Gold breaks to the downside in pre-Fed results trading
Inflation is now the elephant in the Fed’s meeting room

(USAGOLD – 11/3/2021) – Gold broke to the downside in early trading ahead of today’s Fed policy statement and press conference. It is down $12 at $1777. Silver is down 13¢ at $23.47. Inflation is now undeniably the elephant in the Fed’s meeting room. Financial markets, including precious metals, will be watching carefully today to see how the central bank reacts to its presence. “An important thing to remember,” says ETF Trends’ Evan Harper in a report titled Will November Be Gold’s Month, “is that gold doesn’t typically just heat up the moment inflation is evident; it usually happens on the heels of inflation’s impact being felt. Inflation weakens the dollar and creates political turmoil, which in turn often drives the price of gold up. This makes right now a compelling moment to purchase gold, as the signs of inflation are everywhere, but there is still enough going well in the economy that demand for gold hasn’t exploded. … Gold could reap huge benefits when investors come to grips with the uncertainty that is permeating the global economy.” [Emphasis added.]

Chart of the Day

Net yield on inflation-indexed 10-year U.S. Treasury securitiesbar chart showing the yield on inflation indexed 10 year security a proxy for real yields
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

Chart note: This chart shows the negative real rate of return on 10-year Treasuries taking inflation into account. “Failure to respond quickly and fully to persistent inflation,” says Cambridge economist Mohamed El-Erian, “would constitute the biggest monetary policy mistake in more than 40 years.” At the same time, tapering or raising rates would likely send the bond market into a major sell-off with the prospect of the turmoil spilling over to the stock market.

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