In his November policy meeting Q&A, Powell reiterated several times about the maximum employment mandate as a primary pre-condition for liftoff despite surging Bidenflation. On Tuesday, Fed’s Bullard sounded more hawkish than expected as he signaled earlier liftoff, quicker QE tapering, and QT (quantitative tightening) to control uncontrolled inflation.
Gold made a session low around 1758.45 after Fed announced QE tapering but soon recovered as Fed confirmed only two months’ of QE tapering (Nov-Dec’21) @15B$/M and as Fed Chair Powell sounded less hawkish on liftoff in H2CY22 (expected). Fed said it may continue the QE tapering @15B$/M beyond Dec’21 (till June 22), provided there is no significant negative or positive shock to the economy. But it will confirm the pace of QE tapering in every meeting and if there is any change, it will inform the market well in advance.
Gold jumped from Fed low 1758.45 (3rd November) to 1877.06 Tuesday (16th November) on renewed appeal of inflation hedged safe-haven assets. Gold was also boosted by Fed’s patience about liftoff (gradual rate hikes) and stress on maximum employment as primary conditions for such liftoff. Further on last Friday (5th November), Gold slips from 1797 levels to 1785 on blockbuster October NFP headlines, but soon reverse the course and closed around 1816.73 (after making a session high 1818.44) on Goldilocks nature of the NFP job report.
The October NFP fine print indicates subdued labor participation, negative real wage growth, slower addition of employment in the household survey, and an increase in black employment. The October jobs recovery was uneven, contributing to a widening of the racial gap in unemployment, negative for Fed’s mandate of inclusive broad-based maximum employment. Thus Fed will be in inpatient mode till at least H1CY22 (for liftoff) and Gold surged.
Further Gold jumped on sticky inflation rather than transitory and growing geopolitical tensions between China-Taiwan/US. Gold surged on old/renewed appeal of inflation hedged safe-haven asset. Gold jumped despite a surge in USD and US bond yields in the same period on higher inflation and significant progress of Fed’s maximum employment agenda, which may lead to earlier than expected liftoff to control Bidenflation, everything being equal.
On early Tuesday, Gold was subdued on ease of geo-political tensions between U.S.-China over Taiwan after Biden-Xi virtual meeting, but Gold again jumped to 1877 levels early U.S. session after Chinese diplomats reportedly said to their EU counterparts that there is a growing willingness for China for reunification with Taiwan by 2035. But after that, Gold slips on upbeat U.S. retail sales and hawkish jawboning by Fed’s Bullard.
Gold is getting a boost from higher inflation, which is fast becoming permanent rather than transitory. Also, various geopolitical tensions like China-Taiwan/US, Russia-Ukraine/US are supporting the yellow metal as a traditional haven and inflation hedged asset. and Gold are also supported indirectly by a huge U.S. infra stimulus of $1.25T. Silver, as an industrial metal, has been used in various EV ecosystems (like solar panels) and also chips. The surge in silver is also helping Gold to some extent. But at the same time, we may be at the top of the inflation curve right now and it should ease in the coming days because of policy actions at both monetary and fiscal levels. Strong USD/US bond yields because of significant policy divergence between Fed and ECB/BOJ are also negative for Gold.
Technically, whatever may be the narrative, Gold now has to sustain over 1881-1887 levels for a further rally towards 1915/20-1960 and 1995 levels; otherwise sustaining below 1875-70 levels will again fall to 1850-1833 and further to 1820-1800-1780-1755 and 1720 levels in the coming days.