Highflying stocks suffer in the face of Omicron

The Omicron variant poses a new challenge for a global economy already struggling to facilitate enough growth to outpace inflation.

Key Takeaways:

  • Gold dropped 6% after Powell’s renomination as Fed head. The price has still maintained an upward stair stepping pattern since the summer.
  • Powell expressed a hawkish tilt that has investors worrying about interest rate hikes earlier 2022.
  • Stocks with extremely high valuations, mostly centered around innovation and technology, are getting hit hard.
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Gold Heads for its Next Big Test

Retail sales are up, consumer sentiment is plummeting, and gold is thriving on the uncertainty of a wonky, cash-rich environment.

Key Takeaways:

  • Retail sales beat expectations moving into the holiday season, indicating that consumers have the money to temporarily absorb skyrocketing prices.
  • Consumer sentiment hit its lowest level in a decade, even dropping below the level we saw in March of 2020 during the onset of the pandemic.
  • As corporations jack up prices, more and more workers demand higher wages. This inflationary cycle is imbedding itself in the global economy.
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Inflation Hits 30-year high, Gold Surges

Supply shortages, strong consumer demand, and government money printing pushed CPI to 6.2% in October, a three decade high that has investors pouring into gold.

Key Takeaways:

  • Gold’s momentum this week boosted the price almost $100/oz, past a key resistance level and declining trendline.
  • Markets are adjusting to a new narrative around inflation, and the possibility of a turning point in the global economy.
  • The Fed raising interest rates poses an existential threat to overpriced equities, but investors clearly still perceive this threat as far away.
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Gold and Interest Rates

The Fed has finally decided to tighten monetary policy. Let’s look at the historical relationship between monetary tightening and gold performance.

Key Takeaways:

  • Gold shot up to $1,815 today, responding favorably to the uncertainty surrounding the Fed’s decision to reduce asset purchases.
  • Many believe monetary tightening (interest rate hikes, for example) are bearish for gold. History tells us the opposite is true.
  • Companies are reassessing their supply chains in a move that could rewrite the global order and reduce access to cheap labor in coming decades.
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Gold Bulls have the Evidence

Gold is in a consolidation phase, waiting for the markets to change their tune and drive the price higher.

Key Takeaways:

  • Gold bulls are piling on evidence in their case for the yellow metal, including real interest rates, inflation, and global economic growth. When will the price catch up?
  • The past few months have lacked any convincing moves above or below $1,800/oz.
  • The price needs to break above its declining ceiling to argue an end to the bear market that has suppressed gold all year.
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Hey Jerome, is this what you meant by transitory?

Gold mounted a comeback this week as investors turned their attention sharply toward inflation hedges and safe haven strategies.

Key Takeaways:

  • CPI rose to 5.4%. The Social Security cost-of-living adjustment came in at 5.9%.
  • Gold jumped back into the $1,800 range, but still has to climb $35 to make a run at the $1,833 ceiling.
  • The S&P 500 suffered its largest drop all year in September, revealing vulnerability in a stagflationary environment.
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Gold is sluggish, consumer prices are not

Alternative measures of inflation from the Cleveland and Atlanta Fed point to underlying pressures that threaten the “transitory” nature of this inflationary episode.

Key Takeaways:

  • U.S. companies have sold a record amount of junk-rated debt this year, which collateralized loan obligations (CLOs) have been scooping up at a record pace. Remind anyone of 2007 and 2008?
  • Bloomberg Intelligence says gold will “revisit its peak soon,” but has several large barriers to overcome beforehand (such as tightening of monetary policy).
  • Consumer prices in Europe are rising at the fastest pace in 13 years, catching up to the United States’ record inflation numbers.
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The Fed: stuck between an inflationary rock and a debt-ridden hard place

The U.S. central bank tries to tame persistent inflation without sacrificing the rampaging and uniquely fragile stock market.

Key Takeaways:

  • Options trading volume has reached the highest level in history, as more and more market participants pile in risk in exchange for outsized returns.
  • Although the CPI registered a lower reading in August than it did in July, inflationary pressures in housing, shipping, and retail show few signs of slowing down.
  • Gold slid down to $1,720/oz this week as the U.S. dollar rallied and bond yields jumped.
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Boost in retail sales knocks gold

U.S. consumer spending jumped by 0.7% in August, boosting the U.S. dollar and sparking another sell-off in gold.

Key Takeaways:

  • After failing at $1,833 earlier this month, gold has dropped 4% so far in September.
  • Retail sales in August beat expectations, signaling a strong recovery through the Delta variant and hurting safe-haven demand for gold.
  • The tight labor market is boosting wages, but low-income workers are no better off because inflation is eating the gains.
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The Debt Limit, the Stock Market, and Gold

The U.S. stock market surges higher as investors refuse to look at alternatives, even as the government risks defaulting on its debt and jeopardizing the U.S. dollar.

Key Takeaways:

  • Gold turned around at $1,834 for the 4th time but has maintained its short-term bullish pattern of higher lows.
  • Physical gold demand is surging in India and China (gold’s two largest consumer markets) after a slow summer, which could boost returns this month.
  • Treasury Secretary Janet Yellen urged Congress to raise the debt limit as soon as possible, or risk irreparable damage to the United States’ credit rating and currency.
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The U.S. dollar losing steam?

Gold needs a catalyst to jump out of the $1,800 zone, and U.S. dollar weakness might be the answer.

Key Takeaways:

  • Gold’s 200-day moving average and 50-day moving average are headed for a “golden cross,” which might be enough to push gold above the $1,837 resistance zone.
  • Goldman Sachs predicts that the U.S. dollar index has very limited upside potential – all the positive news has already been priced in.
  • The United States’ Afghanistan exit has damaged the nation’s reputation, further deteriorating the post-WWII Bretton Woods economic system where the dollar is king.
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A beautiful bounce, but will gold continue?

As the gold market approaches a period of seasonal strength, investors will be watching for a higher high.

Key Takeaways:

  • Gold has jumped back up to its $1,800 trading channel after putting in a higher low at $1,690.
  • Historically, September has been gold’s strongest month in terms of price performance. Next month could follow suit.
  • The U.S. Dollar continues to strengthen against other currencies, making gold more expensive for foreign investors and threatening gold’s rally.
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Gold vs. Money Supply

The price of gold has tracked the rapid expansion of money supply throughout history, both in the United States and globally. As M2 continues its long-term parabolic growth, so will gold.

Key Takeaways:

  • Gold found a new ceiling around $1,790 after a solid $100 bounce.
  • The ratio between gold and M2 money supply suggests that gold’s long-term bull market has further to climb.
  • The velocity of M2 money supply is sitting at all-time lows. A trend reversal could mean rapid inflation, and a flood of money moving into gold.
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Gold’s flash crash

The recent plunge and subsequent rebound have extended gold’s bearish correction phase in the middle of a long-term bull market.

Key Takeaways:

  • A positive jobs report triggered a $130 drop-in gold last weekend. The price quickly turned back around, supported by Congress’ latest trillion-dollar spending proposals.
  • Gold failed to break through its $1,680 floor, once again showing the strength of this support level.
  • We are experiencing a short-term correction in the middle of a bull market. Looking back at other mid-bull corrections, we see that this phase has actually been quite shallow. Now is the time for investors to add to their gold position at a discount.
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Gold looks strong, but struggles to hold gains

Gold has been stuck in a $40 trading range for over a month, building a base around the $1,800 level and looking toward higher highs.

Key Takeaways:

  • Gold has been trading sideways for a month, but external pressures are mounting to push gold back into its long-term bull market.
  • In August 2020, gold began a retracement phase. It looks like that ended in March, but we need a few higher highs to confirm the end of this bearish phase.
  • The government is fighting to either re-suspend or raise the debt ceiling, which is bearish for the U.S. Dollar and bullish for gold.
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Gold Bounces on U.S. Dollar Weakness

Gold took a $35 jump after struggling to escape the $1,800 range, alongside strength in equities and cryptocurrency markets.

Key Takeaways:

  • If gold puts in a higher high on this rally, the price would be on its way regain June losses.
  • The U.S. Dollar Index dropped below its rising channel after the RSI divergence last week, giving gold a boost.
  • Companies are protecting their margins by passing higher costs to consumers. Despite record inflation, consumer demand for goods has also been rising.
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