Gold Digger: Bulls vs Bears – which team are you on?
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On Sunday, a chaotic ‘flash crash’ saw the gold price plummet into the $US1600s per ounce before staging a mild recovery.
Experts mostly point to a better than expected jobs report out of the US for heavy selling that saw the traditional hedge commodity lose around US$30/oz by close of play. Others are digging deeper:
$4B in notional gold contracts for sale on a Sunday night is not a market, it is a currency intervention.
Most private traders would lose their clients and/or their jobs for executing an order in such a fashion.
So the questions are “Why?” & “Why now”?
— Luke Gromen (@LukeGromen) August 9, 2021
Either way, it’s been a very discouraging year thus far for gold, one of the poorest performers amongst the commodities cohort.
The Bears say this latest selloff makes it “difficult to remain bullish on gold”. The Bulls say it’s a turning point.
Which camp are you in?
Commonwealth Bank (ASX:CBA) analyst Vivek Dhar says the broader underlying catalyst of the latest flash crash — a strengthening US economy — is one of the core reasons why it’s “difficult to remain bullish on gold”.
As the US economy recovers strongly, Dhar said the Federal Reserve is beginning to take a “more hawkish outlook” to monetary policy.
CBA doesn’t expect US rates to rise until 2023, but the first item on the Fed’s agenda relates to a potential taper of its asset purchase program.
“A final decision to taper asset purchases would likely keep a lid on gold prices for the foreseeable future,” Dhar said.
With the combination of higher nominal yields and lower inflation expectations, the result is higher real yields and some extra strength in the US dollar.
In that environment, CBA expects gold to fall back below US$1,700/oz by the start of next year.
Rick Rule, well-known gold bug and president & CEO of Sprott US Holdings, believes a recovery in the gold price – and the value of gold stocks — is imminent.
“I am bullish,” Rick Rule says.
“In our last interview we were talking about the malaise in the gold price, and I tried to point out that the circumstances – which I described as ‘a cyclical decline in a secular bull market’ – is a common feature if you look back at the two prior bull markets of my career.
“Both of which were 10 and 11 year-long affairs.
“Cyclical declines — where the gold price falls by 10, 15 sometimes 20% per cent – are common.
“I think gold and precious metals equities are already in recovery. I believe the cyclical decline is over, and we will soon resume a secular bull market.”
“My fundamental view on gold is that the outlook is still robust, it is still strong, and the reason is that we have debt levels that are extraordinarily high in the world’s major economies,” Wendt says.
“That debt has to be serviced, and that level of debt is growing,” he says.
Wendt predicts that interest rates will stay low and the US dollar will stay low, which provides a fundamentally good environment for the gold price going forward.
“Markets will always look at these bits of economic data as a justification for a positive outlook, but beneath all of that, I think there’s still a very, very strong argument for gold,” he said.
Here’s how ASX-listed gold & silver stocks are performing:
Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop