Patient gold bulls are rewarded this week

Gold’s rally questions the ‘transitory’ inflation narrative

Friday 12 November 2021

In this week's market report:

• Gold goes boom

• Silver the winner for the week

• Australian dollar gold price soars

• Inflation, inflation, inflation

• US bonds say rates may rise sooner

• Insider the office this week

• Before you go…

Dear Investor,

US dollar gold price [XAUUSD] Daily chart

(Click to enlarge)
Source: Trading View

Gold goes boom: The world’s favourite precious metal did what it does best this week, reward patient investors with an incredible rally on the back of critical US economic data.

• In the past seven days, spot gold has jumped US$92 per ounce — a 5% rally.

• This rally saw the yellow metal break the previous US$1,830 barrier, and headed right up to the next price target of US$1,870.

Patient Bulls have been rewarded: What’s not to love? Gold not only pushed through the key level of US$1,830, then lurched higher to retest the next target.

• Technically speaking, the past week means the May/June highs of US$1,1910 are looking realistic once more.

• Gold may retrace to nearby support but bouncing off US$1,830 is bullish.

Bears, the Bull view is hard to beat right now: However — as bears like to warn — nothing goes up in a straight line.

• Be prepared for gold to be rejected around US$1,870 per ounce.

• Should this happen, spot gold would likely retrace back to US$1,830-40.

• Falling below this level would encourage the bears.

Precious metals jumped across the board: A little bit of bad economic news was all the markets needed to turn to traditional safe haven assets, with the other precious metals seeing strong increases this week:

• Silver investors are the ultimate winner, with Ag prices up 7.40% or US$1.75 per ounce.

• Platinum rose US$63 per ounce, up 6% in the past seven days.

• Palladium also moved higher, though Pd’s 3% (US$61 per ounce) gain is less exciting than the other precious metals.

The Australian dollar is the gift that keeps giving: Australian precious metal investors are today blessed with the volatility of the Aussie dollar. A strong Aussie dollar helps offset down days in the US spot price of gold. However, the ultimate win for local investors is when spot gold runs up fast and the Aussie dollar falls faster. Think of this combination as ‘turbo charging’ your precious metal portfolio.
Over the week, the Australian dollar has fallen 2.22%, and the US spot price of gold has jumped 5%. The outcome? A whopping AU$178 per ounce — 7.50%! — jump in the Australian gold price [XAUAUD].

Australian dollar gold price [XAUAUD] Daily chart

(Click to enlarge)
Source: Trading View

Inflation, inflation, inflation…

Driving gold higher this week, was data noting US consumer prices jumped 6.2% for the month of October.

• This is the fifth straight month of inflation above 5%

• Core inflationary data was 4.6%, well above September’s 4%.

• Making it the largest increase in American inflation numbers since 1991

Gold’s rally pokes holes in the ‘transitory’ inflation narrative: Did the Federal Reserve Bank’s loose monetary policy chickens come how to roost? Speculation is increasing that this will force the Fed to bring forward rate increases. The Fed has remained cagey on when tightening will follow tapering, though, the assumption is they will increase in 2023.
US bonds say rates may rise sooner: The US Treasury bond market is signalling otherwise, pointing to a potential rate increase in mid-2022, when tapering is scheduled to finish.

• The US 2 year Treasury bond, which is most sensitive rate changes, has risen 0.5% this week.

High inflation into 2022 says economist

Would a rate hike stop prices rising? This is the real question to ponder.
Undoubtedly markets are in risk-on mode and have been for most of the year as capital looks to find a yield. But the reality of inflationary pressures in the US are supply chain driven, not monetary. The increase in US consumer prices is predominantly a result of supply chain bottlenecks, increased fuel costs (as OPEC keeps production low) and a tight labour market.
While it sounds dovish, raises rates will not ease those pressures.
More to the point, the Fed has said they are willing to allow inflation to run hot — above the formal target of 2% — ‘for some time’ until employment is much higher. Runing hot is looking increasingly likely, as Market Insider notes below, we should anticipate inflation numbers in the five’s and six’s into early 2022:

‘The US consumer price index - a key measure of nationwide inflation - gained 6.2% on a year-over-year basis, the fastest rate of annual inflation since 1990 and well above expectations for a 5.8% increase.
‘The data showed price pressures are increasing across a range of goods and services, rather than in specific areas, such as construction materials or used cars. That has raised doubt about the Federal Reserve's view that inflationary pressures will only be fleeting.
‘"We now expect core CPI inflation to peak at 6-to-6.5% in February or March next year, massively increasing the pressure on Chair Powell and other Fed doves," Ian Shepherdson, chief economist at Pantheon Economics, said.’

Open Interest in gold and silver jumps

The upside of inflation rising in the US, is it’s likely to be supportive for precious metal prices.
This week has seen a large jump in gold futures on COMEX (top). However, it appears that silver (bottom) is gathering the most momentum in the futures market…

Source: CME Group

Inside our office this week

This week, we have seen an incredible increase in the demand for silver at ABC Bullion, in particular, 1kg silver bars.
During my visit to the Melbourne office this week, I watched many many kilo silver bars roll out the door on a trolly and into investors hands…
Word has it, demand for silver has been even bigger in the Sydney office!

Is there something that silver investors know that we don’t? Or is it because of our recent LBMA silver accreditation that buyers of ABC Bullion know our bars are now internationally recognised?

Before you go…

Don’t forget to save the date! ABC Bullion is proud to sponsor the Virtual Gold Conference next Thursday 18th November.
Once again, an incredible line up has been organised. Nick Frappell, Global General Manager of ABC Bullion is the first speaker for the day. Straight after Nick will be ABC Bullion’s good friend and legendary macro commentator Jim Rickards…though Jim probably needs little introduction in these pages!
The conference starts at 9.30am AEDT. Register now to secure your spot for next week.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion