Aug 10, 2021
[2 min Read]
The thesis on this is rather simple so this will be rather short and sweet. The parallels between gold now in the present and leading up to 2013 about 8 years ago are begining to line up. 2013 saw the completion of the economic recovery with the S&P 500 finally recovering back to where it was before the Housing Bubble of 2008. In line with this at the end of the year the FED started tapering in December, informing the market of this matter in the lead up. Over the course of 2013 gold surrendered about 40% of its value and 60% of its gains from the start of 2008 to the peak in 2011.
Once again we are on the precipice of another FED taper. Since gold is used as an inflation hedge there is a direct invers corrilation between the FED tightening monitary policy and gold losing value at an alarming rate. The proof of this can easily be found in the recent strong jobs report. Seen as a signal along with CPI being high, it scared the gold market of a FED hike coming sooner rather than later. While gold has recovered a bit to 1734 from a nadeer around 1680, there is clear weakness in gold and the FED hasn't even announced tapering or plans or policy for doing such.
While the Jerome Powell has still only committed to tapering being in 2023, there is a lot of word that hawkish sentement throughout the FED network of banks is growing. While the FED likely doesn't want to jump too hard and/or too fast on tapering, there is a real policy that with how fast the economy is growing that 2022 could very well be the time tapering starts instead of 2023. Gold bugs have highlighted inflation concerns still being a problem and if anything that is a point against holding gold not for holding gold. If indeed Powell and the FED is incorrect that inflation is transitory, the hawkish members of the FED will be able to push for tappering to come sooner and more swiftly to correct inflation. When that happens gold will be in for an even harder fall.
Any way you slide it gold is due for a correction back down to at least 1300 level if not lower to 1200, like what happened in 2013. Even after that it is likely that gold will drift down over the going years before stabilizing. Now is the time to be short gold via GLL.