Gold Goes Splat — Why Did the Gold Price Fall and What Does it Mean?
Just when you think the gold price has picked a trend…
…settled into a groove…
…found its way even…
It goes and does the opposite of what you expect.
And that was exactly my reaction this morning.
Around 4.00am — when all good boys and girls should be sleeping — I awoke with the dog barking, sounding like she was going into attack mode.
After a brief investigation, it appears the culprit was some leaves that had been blown into my driveway.
Nonetheless, I rubbed the sleep out of my eyes and decided to check what was happening in the gold market.
My jaw dropped. Through my bleary eyes I was joining my US counterparts in watching the gold price get an absolute smashing…
Ignore the gold price — invest in the long game
Melbourne’s 4.00am is New York’s lunchtime. Propped up in bed, I watched the US dollar spot gold price get kicked around. I imagine there were many cheeks clenched at US trading desks as this unfolded.
While gold already hadn’t done much in the past couple of weeks (it’s been pretty dull of late — and that’s coming from the person who loves it the most), last night’s move was a surprise.
And for many a trader it would have disrupted their technical analysis.
The yellow metal dived below US$1,800 and for a moment there it looked like it was going to disrupt a technical pattern I’ve been following.
So, what drove the yellow metal’s dramatic 2.30% fall overnight?
Well, a bunch of US data came out and smacked it down.
The US Dollar Index touched a two-month high. And as it did it took the gold price down to a two-week low.
The markets appeared to get excited about a bunch of data. The number of jobless claims in the US fell and the non-farm payrolls (number of new workers) went up.
Another bunch of data suggested that the food price index rose to the highest point in seven years. Suggesting that consumer price inflation isn’t too far away.
Of course, with major US indices rallying overnight and the gold price falling, you’d be forgiven for thinking that everyone is OK.
Surely this is a risk-on scenario? That is stocks are going up and a safe haven metal like gold is going down, the worst is over? Perhaps we really are coming out the pandemic unscathed…
While I’m surprised gold fell so hard overnight, don’t mistake its fall for a change in our economic fortunes.
I finished Jim’s latest book The New Great Depression last week. We even had a quick chat about it on-camera (keep your eyes on our Daily Reckoning Australia YouTube channel).
My key takeaway from the interview with Jim?
The economic woes from the pandemic are yet to fully reveal themselves. It’ll take more than one bunch of good data to undo the financial impact of the pandemic. As Jim puts it, today’s events are creating the perfect storm for a long-term bull market…
This was backed by another contact of mine. As my ‘Gold Throat’ source reminded me during the week, you don’t buy insurance while your house is on fire…
Don’t panic there is plenty of silver left
Gold may have been pushed down overnight, but it didn’t stifle silver too much. Silver is still trading around US$26 (AU$34) per ounce, after touching US$30 (AU$39) per ounce earlier in the week.
Consider today a public service announcement.
The silver squeeze reddit crowd drove a flurry of activity in the silver market earlier in the week.
With the other precious metal spiking higher, there has been a rush to get hands on the silvery stuff. (Fun fact for the day silver is often called the ‘other’ precious metal). Word has it the bullions in the US have been wiped out. The shelves are empty. Apparently some US dealers report ‘queues out the door’. And the stories being told on Twitter are that ‘there’s no silver left’…
I have a problem with this phrasing. Using terms like ‘cleaned out’, ‘nothing left’, and ‘shelves’ are ‘empty’ implies a shortage of silver. Too often people interpret a shortage of silver as ‘no silver’ rather than what it really means: They’ve run out of refined, investment-grade stock.
As I mentioned yesterday, there’s possibly more above ground stock then we realise.
Knowing that the lack of supply has spooked the US silver buyers, I did a quick whip around Australia to see who is holding what.
Good news, my silver-loving friends, there is plenty of silver in Australia…it’s just a case of the machines can’t keep up.
I had a chat with top brass over at ABC Bullion earlier in the week. They’ve assured me that they have ‘plenty’ of silver ready to refine. Their high-tech machines are likely to work late into the night to get the bars ready.
It’s a similar story with the Perth Mint. A contact of mine over there told me that small silver bars and coins have been flying out the door. But again…the machines just can’t keep up.
The point? When demand for precious metals is higher, you have to wait to buy them. However, if you see an absolute smashing in price, that’s your queue to get some.
Until next time,
Editor, The Daily Reckoning Australia