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Gold versus government debt

31 July 2021


Friday 30 July 2021

In this week's market report:

  • Thoughts from the trading desk 

  • ‘Fed Speak’: The market looks goes looking for hints 

  • Gold goes pop 

  • Platinum plays a part in the Tokyo 2020 Olympics  

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

After a slow news week last week, we’ve got lots of market titbits to cover today.  

The markets have been chewing over what the Federal Reserve Bank did or didn’t say… 

The US dollar price of gold got a boost overnight… 

Platinum is playing a critical role in the Tokyo Olympics… 

…one meaty article to tide you over for the weekend. 

Let’s get started, but first, what are traders saying?

Thoughts from the Trading Desk

  • Gold got a short-term pop to the upside but there is resistance at these prices at these.

  • Nick Frappell says the spot gold price didn't close above that 50% retracement level (the bounce from the lows at the end of June). It’s a key retracement. The message the market is ending today is that this pop lacks the conviction to get through. There’s another layer of resistance on the Daily Ichimoku Cloud from below (another important zone of resistance). Should spot gold close above US$1,834, then we may see spot gold extend to US$1,853-54. 

US Dollar gold price 
Daily chart 

(Click to enlarge)

Source: Bloomberg; Updata

 

Once again, we’ve had the Federal Open Market Committee (FOMC) come and go. Despite many a market punter hunting for clues on what the fed may or may not do next, the answer is still not much.

Fed chair Jerome Powell made it clear inflation data is not their main concern and that employment data and wage growth is what will drive their decisions, with Powell saying:

‘We're clearly on a path to a very strong labour market, with high participation, low unemployment and wages moving up…it shouldn't take that long’.

Pirya Misra, global head of TD Securities said that this statement from Powell had a slight tightening tone to it, saying:

‘The statement had a hawkish tinge to it because there was explicit mention of progress on the goals front, which suggested tapering.’

There are two points to take away from the July FOMC.

The Fed is one step closer to having the ‘end of tapering discussion’ with markets. The caveat to this, however, is that the discussion is unlikely to come from either the FOMC August meeting or the annual Jackson Hole get together in September.

For investors hoping to get an edge on ‘Fed Speak’, I must crush your bubble.

The Taper Tantrum of 2013 would still be fresh in the minds of the Fed. Any policy changes will be well communicated to the market. The Fed remember is exactly how quickly the markets throw a tanty when they think the life support of monetary stimulus is about to be ripped out…

Gold goes pop

Initially there wasn’t much of a reaction from the gold markets.

Overnight we got that ‘pop’ in the spot price, rising more than 1% in 36 hours…

US Dollar gold price
Daily chart

(Click to enlarge)

Source: Trading view

This ‘pop’ is a step in the right direction for the yellow metal, it’s still very much a two step forward one step back move.

Sure, the overall trend is in the right direction, but breaking past resistance will take some time.

Just how long will investors need to wait for? Have a read of this meaty article Not your mother’s inflation: Why now is the time to invest in precious metals.

With a headline I’m completely jealous of, the author of the article takes their analysis back to the 1940s and 1970s comparing the US government’s fiscal policy alongside the central bank’s monetary policy. It’s a big read. Set some time aside to go over it this weekend.

Step back in time: Gold versus government debt

Before you move onto ‘Not your mother’s inflation’ article, check out my favourite chart this week:

Gold price versus US government debt

(Click to enlarge)

Source: MacroMicro

The one thing I want you to take away from this chart, is how over time the US dollar gold price follows increasing US government deficits.

Platinum plays a part in the Tokyo 2020 Olympics

Finally, let’s close out with a story from the Tokyo 2020 Olympics, with a surprising precious metal taking out top spot…platinum!

Japan has been at the forefront of hydrogen technology, with the World Platinum Investment Council writing:

‘For the first time, the Olympic flame is fuelled by emissions-free green hydrogen rather than propane, while the Olympic village has been equipped with a hydrogen refuelling station and a hydrogen pipeline to serve the platinum-based fuel cell electric vehicle (FCEV) buses and cars that are being deployed to transport the athletes.’ 

Platinum is a critical metal and will play an important role in our high-tech future.

That’s almost all we have time for this week. But make sure you tune in next week…your weekly market update is getting a facelift. We’ve been busy bees here at the ABC Bullion offices, and I can’t wait to show you what we’re up too.

Now, to ease into your weekend, click below to see my latest interview with Nick Frappell.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion

PS – Don’t forget, if you’re in Sydney or Melbourne we are open for click and collect only. Please call us on 1300 361 261 to discuss how we can help you with your bullion investments during this time.

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