Gold did not rise after the US September nonfarm payrolls. Traders looking at internal data of NFP believe that taper will be there this year. US jobs and global jobs will grow this quarter as international travel reopens. More and more nations are opening up their borders to international travel. Jobs will rise in global travel and tourism sector. Global coal shortage and rising energy price is a cause of concern. Wednesday US September consumer price index number will dictate short term trend of gold. Silver and base metals are bullish. Gold bulls hope that gold does not fall below $1730. There will be short covering if gold does not fall below $1730 this week. UK Pound is bullish on expectation of earlier than expected interest rate hike.
Will continued rise in bond yields negatively affect gold price?
This is something which I am asking myself. US ten year bond yields have made a complete “U turn” in the past twelve months. Momentum and trend is very bullish for bond yields. The prime reason for bond yields to rise is taper expectation by various central banks followed by interest rate hike in the next twelve months. Traders and long term investors are looking at a twelve month time period w.r.t global money supply. Most central banks will raise interest rates in the next twelve months except the Federal Reserve. Asian central banks will raise start raising interest rates before the end of first quarter of next year.
Expectation of higher interest rates and/or reduced long term money supply is one of the key reason why gold is not able to break past triple top at $1840.
In my view in the short term gold price can remain subdued or consolidate if bond yields continue to rise. In the long term there are more bullish factors to ensure that gold price continues to rise. The long term factors are (X) Global debt continues to rise. Global debt is reaching historically high levels. As per IMF Total debt levels, which include government, household and corporate and bank debt, rose $4.8 trillion to $296 trillion at the end of June, after a slight decline in the first quarter, to stand $36 trillion above pre-pandemic levels. This is slightly old number but very much relevant. Gold is the best hedge against ever rising global debt conundrum. (XI) De-globalization: A lot of European fashion brands have stated intention to move production from Asia to Eastern Europe and Egypt. The current global supply chain disruption and the subsequent zooming of logistic cost has resulted in every company is trying to increase local manufacturing content. They are looking for a way to get over the current supply squeeze or logistic squeeze. In the long term I see only raw material imports rest will be manufactured in the country itself or neighbours with land boundary. De-globalization implies reduced US dollar trading volumes. US dollar purchasing power will fall and gold will rise sharply. (XII) Commodity price inflation is here to stay. By commodities I mean soft commodities, precious metals, industrial metals and energies. Global food prices are at a decade high. The rising trend in global food price is expected to continue atleast till next year. Global warming will only increase food supply disruption and ever rising food bills. I need not say anything about energy price rise and industrial metal price rise. World will witness hyperinflation and stagflation. Gold performs best both in hyperinflation and stagflation. (XIII) Stock are a bubble but short term bearish trend is expected only in the first quarter of next year. Central banks are continuously increase gold reserves.
What next for gold?
Gold will break free from $1670-$1840 consolidation range and form a new range. Asian physical demand will be very high for the rest of the year. Gold will crash if $1840 is not broken in the next thirty days to $1657.90 and $1534.90. This is a possibility if $1840 is not broken in the next thirty days. This crash (if any) will be followed by a rise to $2017.10 and $2178.10. Short term investors and day traders have to be careful. Long term investors need not worry. Before investing in gold determine your time period of investing. Sometimes gold short term returns and medium term returns are way less stocks and crypto currencies.
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