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Gold Price Heading Up

03 September 2021

Friday 3 September 2021

In this week's market report:

  • Gold’s best month is here

  • Germans buy gold as EU inflation rises

  • Monster boxes have landed!

  • Before you go…

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

US dollar gold price Daily chart

(Click to enlarge)

Source: Bloomberg; Updata

Up we go: After two weeks of muted trading, gold rose on the back of Jackson Hole. Once finished, Au jumped from US$1,791 to US$1,81, a 1.50% increase. Au has since settled. The positive news here is the yellow metal remains above the US$1,800 level, resting at US$1,813 per ounce at the time of writing.

Which way next? Indecision remains. The gold price is leaning on the 200-Day Moving Average (MA) of US$1,809. Not particularly useful right now, but worth watching.

Tight trading range: Au is stuck in a tight range. Aside from the jump higher on 27th August, it’s trapped between US$1,800-23, giving us a range of US$23.

When doves cry: Jackson Hole was anticlimactic. Comments from Federal Reserve Bank chairman, Jerome Powell, were unexpectedly dovish. Tapering ‘may’ begin in 2021, but the Fed are in no hurry to raise interest rates.

  • As I wrote last week tapering is not tightening, and that’s the announcement investors should be looking for.
  • With tightening off the table, it’s no surprise to see the gold price elevated.
  • According to Bloomberg‘The economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that Powell and his colleagues said would be a precondition for tapering the bond-buying, while the labour market has also made “clear progress,” the Fed chief said Friday in a virtual speech to the Kansas City Fed’s annual Jackson Hole symposium.’

We have reasons to be bullish: Frankly the lack of commitment to tapering is likely to be good for the gold price in the short term.

Bears, there is resistance ahead: It’s still too soon to get excited about a major gold rally. As discussed in today’s interview (below), gold has resistance around US$1,830. Moving through this level would stir the bulls, falling from it will wake the bears.

Sleight of hand: While all eyes were on what may-or-may-not happen at Jackson Hole, market commentary overlooked the looming US debt ceiling debate.

  • MarketWatch pointed out a ‘taper tantrum’ may be the least of the market’s problems, when ‘republicans have already made it clear that the debate over the debt ceiling will be a partisan one’ and;

  • ‘Democrats that they will have to find a way to raise the debt ceiling without republican support if they hope to pass President Biden’s $3.5 trillion infrastructure package which includes money for roads, bridges, and tunnels as well as for education, health, social welfare and a green economy to combat climate change. The chaos of a government shutdown coming on top of the delta variant would likely be enough to cause Powell and the Fed to delay the taper even if the number of jobs created in August, September and October exceeds expectations, satisfying one of the two criteria for the central bank to reduce its support for the economy.’

Australians, we have some good news: If you’ve held off buying gold because of the US dollar gold price rally, then the Aussie dollar has given you a reason to wade in.

The rapid 1.60% gain in the Australian dollar this week (from 72.82 US cents to 74.02 US cents), has caused the Aussie dollar gold price to fall back under AU$2,500, to AU$2,450.

In other words, our currency rising means gold has gotten cheaper per ounce for us.

Gold’s best month is here

MarketWatch knows a fine looking 1kg gold bar when they see it: Our friends over at MarketWatch crunched the numbers for you this week, with one of their editors noting that since 1973, the gold price tends to have a ‘better than average’ performance in September, writing:

‘There is no guarantee that gold will gain in September, of course. Because of the significant variability in the month-by-month results, gold’s historical pattern of better-than-average performance in September is statistically significant at the 93% confidence level, according to my calculations.’

Why does gold perform well in September? The data stacks up as gold’s best month, but there’s no real scientific reason. It could be hedging demand around the Halloween Effect on stocks…it could be wedding season in India as traditionally new gold is gifted…or it could be  ‘negative investor sentiment due to shorter daylight time’.

Gold’s average monthly returns since 1973

Australian gold price Daily chart

(Click to enlarge)

Source: MarketWatch 

Germans buy gold as EU inflation rises

Will the European Central Bank raise rates?: Jackson Hole has taken up a lot of digital ink in the past two weeks. Now, our attention shifts to the central banking policies of the European Central Bank (ECB).

  • The current cash rate for the EU is 0% and it’s been so since 2019.

  • Inflation talk inside the EU is increasing, with the EU area reaching 3% year on year — the highest for a decade.

  • Germany — the biggest economy inside the EU — saw inflation figures nudge 3.1%.

  • The ECB is making similar claims to the Federal Reserve Bank, running with inflation is transitory narrative, however many Europeans don’t see it that way.

  • The European market accounts for one third of gold demand for investment purposes. Telling us, that monetary policy from the EU will likely be an influence on global trends.

Largest EU inflows since Brexit: Since the pandemic gripped the markets, gold exchange traded products (ETPs) in the EU have seen the highest inflows since the 2016 Brexit election. As the World Gold Council notes on EU purchases, ‘Interestingly, despite economic recovery and growing interest in risk assets, gold investment has remained resilient so far this year’.

Gold in euros tracks negative yielding debt: Negative nominal rates are also playing a part, with the gold price in euros now tracking negative yielding EU debt…

Gold price tracks European negative yielding debt

(Click to enlarge)

Source: Metals Focus; World Gold Council 

The final word goes to Peter Schiff: Schiff noted during the week, Europeans are clearly concerned about rising inflation, with Germans increasing their gold position as an inflation hedge, writing:

‘While most American investors have faith that the Federal Reserve can and will successfully tighten monetary policy to fight inflation — or have simply bought into the “transitory” inflation narrative — Germans are loading up on gold as a hedge against growing inflationary pressures.

‘Through the first half of the year, gold coin and gold bar demand in German hit the highest level since 2009 — the aftermath of the 2008 financial crisis. First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with a 20% increase in the rest of the world, according to World Gold Council data.’

Silver yet to join gold rally

US dollar silver price [XAGUSD]
Daily chart

(Click to enlarge)

Source: Bloomberg; Updata

Ag has moved backwards this week. Silver started the week at US$24.04 per ounce and is currently trading at US$23.92. The range is tight, with barely a dollar in it. Unlike gold, silver is well below it’s 200-Day MA of US$25.85. As Nick Frappell and I explain below, the fundamentals are still intact for silver in the long term. Though that may change if silver falls below US$21 per ounce.

Inside our office this week

What a week it’s been in our Sydney office!

We’ve had a couple of enormous ABC Bullion 400oz gold bars make their way through our doors, as well as a ‘monster’ delivery of silver Maples from the Royal Canadian Mint. The order of Maples was so big, that we joked about trying ABC Bullion’s version of the milk crate challenge.*

And you guessed it, these precious metals went out as quickly as they came in.

Before you go…

Before you start your weekend listen to Nick Frappell’s recap of the Jackson Hole meeting, the key levels ahead for gold and silver. Nick puts his technical lens on the iron ore price…and wraps up with an interesting fact about stocks in the S&P 500.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion

*No bullion was harmed in the making of these pictures, I promise.