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Precious Metals & Energy – Weekly Review and Calendar Ahead By


© Reuters.

By Barani Krishnan — Another Federal Reserve meeting looms and markets are all psyched up, with stocks likely to fall the next 48 hours as the dollar rises on (more) speculation of a stimulus taper. The more likely thing is that next week’s Federal Reserve meeting will see the opposite.

The reason is that the pattern has been pretty much the same over the past twelve months. Gold crashes, good US economic data and dollar rockets. Poor US data: dollar crashes, gold struggles to rally or pauses. US data that is not important; the dollar stops, and gold falls just a bit.

Gold looks doomed no matter what data.

It’s quite normal these days to see the yellow metal cave $30-$40 an ounce at a time and recover just about half of that over several days or even weeks. The rebound is almost always proportional with the fall. However, it can lose twice as fast in just a matter of hours than what took weeks.

The proof was Thursday’s gold crash of $50, which led to the $1,745.50 bottom in just five weeks. The meltdown came as rival dollar catapulted on data showing upbeat U.S. retail sales for August that put the economy in ebullient light after weeks of challenging data from Covid’s Delta variant.

Gold is also in an inflection point ahead of the Sept 21-22 Fed meeting that could revisit the subject of taper for the central bank’s stimulus program that has juiced stock prices over the past 18 months. Chairman Jay Powell and his senior most Fed colleagues have so far issued mixed messages on the taper, with the broad market consensus being that any trimming of the central bank’s monthly bonds-asset buying may not occur until November.

Absence of an announcement on taper could cause a cap to the dollar and Treasury yields as well as provide a rescue plan for gold.

According to Sunil Kumar Dixit, a technical chartist at SK Charting, Kolkata, India, gold may not sustain its rebound unless the price of gold breaks $1,836, he says.

For what is supposedly the world’s ultimate haven and hedge against the dollar and fiat currencies, gold has been an epic failure.

It hasn’t always been like this, of course.

Just slightly over a year ago, gold hit record highs above $2,000 an ounce after a dizzying six-month run as the dollar and the yield on the both broke down at the height of the Covid outbreak.

Is there any change in the world since then? Yes, but in a way that’s supposed to favor gold actually. In its effort to save the economy from a pandemic, the Fed has spent nearly $2.2 trillion on bonds and other assets in the last 18 months. It seems content to spend more money, despite the fact that things are much better than they were in March 2020, when the Fed began this exercise.

It’s not just the central bank that’s spending. The federal government’s aid to Covid has reached $4.5 trillion since its inception under Trump. And the Biden administration is asking Congress to approve almost $4 trillion more for its so-called “Build Back Better” plan.

The eye-watering bill to fix America should have decimated the dollar by now and sent gold, the inflation hedge, to parabolic heights beyond last year’s $2,000 record. Instead, Uncle Sam’s currency is doing well as the reserve legal tender of the world. It’s gold that’s down. Historically known as the “real currency”, an ounce of the yellow metal is down more than $300 from its August 2020 peak. Talk is it may even break below $1,600 at the rate it’s melting. This would wipe out the entire 2020 rally.

 Various theories have popped up for gold’s idiosyncrasy versus the dollar.

One is how has sucked up a chunk of the safe-haven flows meant for gold since November, when the efficacy of Pfizer’s Covid vaccines were first announced and appeared to be a game-changer for the risk-versus-safety trade.

There’s also the conspiracy theory that the Fed is intentionally willing gold to be suppressed, in order to keep the above the key 90 level. It is believed that the manipulations are done by bullion banks, which work in concert with central bank. What isn’t clear is the mechanics of the manipulation and how it’s being done. You’d also imagine a rogues’ gallery of suspects being involved. There is one Wall Street name that seems to keep popping up each time this idea is floated. Google (NASDAQ:) it and you’ll find it.

Another conjecture making its rounds is that gold has just “lost it” as an inflation hedge and that the Fed will somehow contain the pressures bubbling from America’s runaway spending. There will be no inflation, which means that you won’t have to invest in gold. This is a bogus theory.

But there’s a more acceptable reason for gold’s behavior. And that, according to Lance Roberts, of Houston-based investment house RIA, has “absolutely nothing” to do with gold itself and everything to do with investors who have gotten too brazen with inflation under a Fed holding to its exorbitant stimulus despite every sign that it should start tapering. These are people who’re too deeply ensconced in the comfort zone of a whose last meaningful correction was a year ago.

What ails gold is the absence of fear among this crowd who’ve become as dizzy as the financial system that’s been erected upon the beach sand of easy, artificial credit, Roberts says in a post covered by markets blogger Brian Maher.

“There is presently no ‘fear’ present to drive investors into the psychological safe haven of gold,” Roberts said. “That lack of fear is evident in everything from: Record issuance of money-losing IPOs; mass issuance of SPACs; record margin debt levels; near-record stock valuations; retail investors taking on personal debt to invest; Bitcoin; and last but not least – belief by investors of the ‘Fed Put’”.

Roberts continues:

“Given that gold is no longer exchangeable for currency, and vice versa, the broken link as an inflation hedge remains. In today’s “fiat” currency economy, the ability to use gold as a method for transactions on a global scale remains destroyed. Therefore, gold has become a “fear trade” over concerns of the dollar’s demise, inflation and an economic reset.”

“While there are valid reasons to be concerned with such disastrous outcomes, those events can take decades to play out… the ‘bug has yet to hit the windshield.’ Yes, it eventually will, but how much longer it will take is unknown.”

Gold Market & Price Roundup

A ramping dollar and U.S. Treasury yields gave little respite on Friday to gold prices trying to rebound from the previous day’s meltdown, with the yellow metal settling down for a third day in a row and booking its worst weekly loss in six.

 U.S. gold futures’ most active contract, ,  settled down $5.30, or 0.3%, at $1,751.40 per ounce on New York’s Comex. It fell 2.3% for the week. This is its highest since July 29th.

 Oil/Gas Market & Price Roundup

Oil cruised to a fourth straight weekly gain, riding on the impact of unexpected supply shortages from the three-week old Hurricane Ida, despite a risk-off sentiment across markets on Friday that weighed partially on crude prices.

New York-traded was the benchmark U.S. crude oil market. It settled at $71.97 a barrel. That’s a 64c decrease or 0.9%. WTI rose 3% over the past week.

London-traded crude, the global benchmark for oil, finished Friday’s official trade at $75.34, down 33 cents, or 0.4%. Brent gained 3% during the week.

Crude prices came under pressure on Friday as Wall Street sagged on a closely-watched University of Michigan consumer survey that found Americans’ desire to purchase houses, cars and household items near a record low due to their high prices. The U.S. economy’s largest consumer sector is more than 2/3.

Also weighing on markets was President Biden’s plan to raise corporate taxes by 5.5 percentage points to 26.5% and next week’s Fed meeting that could revisit the subject of taper for the central bank’s stimulus program that has juiced stock prices over the past 18 months.

“It’s a risk-off day that scalped a few heads, including oil’s,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “But crude is still cruising on the supply tightness caused by Ida. There’s some talk today that the situation is easing. But it’s nowhere near enough to cause a meaningful correction in oil that will happen – at some point.”

Ida forced the closure of 90% of oil and gas production facilities on the US Gulf of Mexico prior to making its landfall on Aug. 29.

As of Thursday, some 18 days after the storm’s landfall, some 513,878 barrels equivalent of oil, or 28.24% of the production in the U.S. Gulf Coast of Mexico remained shut-in, according to the Bureau of Safety and Environmental Enforcement, the government agency monitoring the situation.

U.S. dropped by 6.422 million barrels in the latest week to Sept. 10 on heavier-than-expected drawdown from inventories by refiners facing a squeeze in domestic crude supply, data from the Energy Information Administration showed. polled experts and predicted a fall of 3.544 millions barrels over the week ending Sept. 10. The previous week ended Sept. 3. Crude oil draws fell to four-week highs due to Ida-related interruptions.

Energy Markets Calendar Ahead

Monday, Sept 20

Cushing crude inventory estimates (private)

Tuesday, Sept 21

weekly report on oil stockpiles.

Wednesday, Sept 22

EIA weekly report on

EIA weekly report on

EIA weekly report on

Thursday, Sept 23

EIA weekly report on

Friday, Sept 24

Baker Hughes weekly survey on

Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.