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James Hyerczyk
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Comex Gold

Gold futures are trading lower on Monday but attempting to rebound after touching its June 5, 2020 main bottom at $1704.60. The move puts the market back inside the longer-term value zone at $1787.30 to $1711.70.

Other than some light profit-taking, the move doesn’t mean much at this time. Short-term, gold may be ripe for a short-covering rally, but longer-term, it’s not likely to rally much unless an elongated support base is formed.

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Like building a house, the height of the market will be determined by the length of the base, and right now there is no support base. Just a series of lower tops and lower bottoms on the daily chart.

At 07:03 GMT, April Comex gold is trading $1720.30, down $2.70 or -0.16%.

Gold prices were drilled down to their lowest level in 8-1/2 months on Tuesday, as a stronger U.S. Dollar and elevated U.S. Treasury yields eroded investor appetite for the non-yielding metal.

More Fiscal Stimulus is Bearish This Time

Gold bulls continue to push the “fiscal stimulus package is bullish scenario” but this isn’t 2020 and the economy isn’t on the brink of a prolonged recession. This time, new fiscal stimulus is putting indirect pressure on gold prices.

The economy is recovering and additional stimulus will only help it improve faster. That’s the bet that investors are making by dumping Treasury bonds and driving up interest rates, while making the U.S. Dollar a more attractive asset. The long-term view is bearish for gold when rates are rising along with the U.S. Dollar.

So if you’re bullish gold then you should be hoping for the U.S. Senate to reduce Joe Biden’s $1.9 trillion coronavirus relief bill by at least half. That might cool down the bond market and rev up gold a little. Otherwise, the passing of the stimulus package is likely to remain bearish for gold.

But what about inflation?  Traditionally, gold is used as a hedge against inflation, but not this time. It’s more efficient to move bonds around with a keyboard stroke then to move gold from vault to vault and don’t forget the storage fees. We’re not talking about small players here, buying and selling a few gold coins, we’re talking about multi-billion dollar money managers selling bonds.

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Short-Term Outlook

Get ready for volatility that will probably have nothing to do with the short-term or long-term trends in gold, but rather the battle between investors betting on a faster economic recovery and inflationary pressures and the major central banks who may start to intervene to stabilize bond yields and sustain their monetary policies.

On Friday and Monday, the Reserve Bank of Australia doubled its bond buying, hoping to drive yields lower. If all the central banks band together like they did last year and start buying bonds then yields will go down and this could trigger a short-covering rally in gold.

For a look at all of today’s economic events, check out our economic calendar.
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