Dreams of a dovish Fed continues to underpin gold

Bad news is good news for gold

The weekly chart in gold is shaping up to be an interesting one with gold now up $26 to $1778.

There’s a potential bottom from $1680 that would really turn into something if we saw a break (and weekly close) above $1833 in the next 2-3 weeks.

I think the fundamental side is the nexus here. Gold fundamentals have been great since the pandemic but it hasn’t responded. The dream scenario is this:

  1. More fiscal stimulus everywhere, including something above $2.5 trillion in the US via reconciliation
  2. That would likely be due to a longer struggle with delta
  3. Team Transitory wins the inflation debate
  4. The Fed takes it slow on the taper with rates hikes off the table until late 2023

Obviously, it’s going to take some time to answer these question but a slow recovery followed by stubbornly low inflation has been the playbook for the 21st century so it’s not at all unreasonable.

As I also wrote earlier, the sentiment in gold and precious metals is brutal right now and the rout on Monday has all the makings of a washout low.

If nothing else, it makes for a good hedge against the scenario listed above.

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