Gold Is Back Below $1,800

Easy come, easy go. The yellow metal rallied on Friday just to plunge on Tuesday. What’s your next move, Mr. Gold?

Ugh, the recent nonfarm payrolls on Friday. However, it declined as soon as on Tuesday, and on Wednesday it slid below $1,800.

I have to admit that I expected a more quantitative easing remained on the horizon, and I expressed some worries that gold’s rally was rather moderate despite the big disappointment of job gains:

Another caveat is that gold failed to

However, I thought that the likely postponement of the Fed’s tightening cycle in the face of weak employment data would allow gold to catch its breath for a while. Well, it did, but only for a few days.

The quick reversal is clearly bearish for gold. Sure, without disappointing job numbers, the yellow metal could perform even worse. However, the inability to maintain gains indicates gold’s inherent weakness in the current environment.

Of course, the recent decline in gold prices was at least partially caused by new developments in the financial markets, namely: the strengthening in the U.S. dollar and the rise in the bond yields . So, one could say that earlier bullish news was simply outweighed by later bearish factors.

However, please note that the U.S. dollar strengthened and the safe-haven asset , drops when investors become more risk-averse, is really frustrating.

What’s more, some analysts pointed out that the dollar strength and higher yields were not enough to account for the plunge in gold prices – so, it seems that the momentum is simply negative and gold wants trade lower, no matter the fundamentals.

Indeed, neither the negative Fundamental Gold Report that “a long quiet summer has ended, and a more windy fall has started.”

Now, I have to point out that fundamental factors turned out in recent days to be more positive for the gold market than a few weeks ago. The announcement of the Fed’s tapering will be likely postponed from September to November 2021. Indeed, FOMC may continue its wait-and-see approach this month and taper later in 2021:

There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.

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Meanwhile, the economic activity has slowed down, partially because of the spread of the Delta variant of the Beige Book says that:

Economic growth downshifted slightly to a moderate pace in early July through August (…) The deceleration in economic activity was largely attributable to a pullback in dining out, travel and tourism in most districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.

Given that inflation remains high, the slowdown in economic growth will push the economy into stagflation , which should be a positive macroeconomic environment for gold.

Having said that, more bullish fundamentals without positive momentum could not be enough. As I’ve written earlier, gold has recently shrugged all the bullish factors off – it’s focused now on the economic normalization after the pandemic economic crises , the decline in economic confidence, or the abandonment of monetary policy normalization) to rally decisively. Until this happens, it is likely to continue its struggle.

Written By: Sunshine Profits