Gold hold’s steady on shifting inflation sentiment
Analyst says taper announcement could be ‘buy on the news event’ for monetary metals

(USAGOLD – 11/8/2021) – Gold held steady in quiet early trading as financial markets weighed shifting sentiment on the inflation issue and a generalized retreat from higher rates among central banks, including the Federal Reseve. This week the US government will bring the price picture into clearer focus with the release of its wholesale price report on Tuesday and consumer prices on Wednesday. Gold is level at $1819.50. Silver is up 10¢ at $24.32. Market strategist Paul Wong sees the Fed’s tapering announcement last week as a possible “buy on the news event” – a process that may have taken its first steps on Friday when gold gained $26 to push solidly over the $1800 mark – finishing at $1819.50.

“[T]he Fed is in a quandary,” he says in a lengthy review of gold’s prospects posted at the Sprott website. ‘”It will either have to tighten conditions to head off inflation and risk slowing growth even further, or the Fed will remain accommodative to continue growth and risk broadening and pushing inflation. Either option will elevate market risk conditions. Gold is likely to react positively to either scenario, with the higher inflation one being more immediate. Either way, precious metals positioning has been brought down to low enough levels that any upward pressure would see prices advance meaningfully. We believe that precious metals are set up for a squeeze higher and are simply awaiting a catalyst. Remember, catalysts speed up reactions, and there appear to be several sources of potential activation energy for gold.”

Chart of the Day

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

overlay line chart showing the Fed balance sheet and gold price 2005-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 at $15 billion per month. Tapering is a slowing, not an end, to Fed bond purchases.

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