Gold gets trashed on the first day of 2022.

January 3, 2022

Dear Fellow Investor,

Welcome to 2022. I hope it gets better from here.

So far, it isn’t working out as I’d expected or hoped, as gold has been sold off to the tune of about $30 in the first trading session of the new year.

As you can see, the first hit came as one might expect, right on the opening in New York.

My initial impression on seeing this opening take-down was that the powers-that-be were delivering a message — on the day that the Basel III regulations are to begin for London gold trading — that they were still in charge.

On further examination, however, it seemed that gold was being victimized by a surge in Treasury yields as investors temporarily shrugged off their worries over Omicron. Later in the session, a rebound in the U.S. dollar served to exacerbate the move lower in gold.

Even so, the selling in gold and silver seems overdone, and I’d expect that some of the legacy players in the metals markets took the opportunity to deliver a message.

Again, this selling comes just as the Basel III regulations finally take hold in the London bullion market. Although I’ve been skeptical that the bullion banks wouldn’t find a way around the new regulations, I have been hopeful that they would eliminate the short-selling and re-hypothecation games that have been played there for decades.

I wouldn’t take today’s action as evidence that Basel III is in fact the “nothing burger” that some have predicted. The evidence will come in over the weeks ahead, and I wouldn’t jump to any conclusions yet.

And generally, it isn’t wise to take the first day of trading in any year as a sign of what’s to come.

In light of the powerful fundamentals for gold, primarily the Fed’s inability to tighten monetary policy to any great extent, I’m still bullish for 2022.

The worst case I see now is that those fundamentals will come into play once the Fed attempts to raise rates, likely in late spring. But considering how everything moves more quickly these days, I wouldn’t be surprised if the metals start attracting bids well before that.

The Omicron Slowdown

In the meantime, I expect the Omicron variant to be a mere speedbump for the economy.

As I write, my wife is recovering from this highly transmissive variant and, true to reports, it’s been about as significant as a bad cold. Interestingly, I haven’t had even a sniffle despite extensive exposure to her.

After scouring pharmacies for home test kits over the past few days and seeing empty shelves, long lines and reduced hours, I think the effect Omicron is having on staffing will continue to be pronounced. But looking at how quickly it’s raging through the populace, I also expect that effect to be relatively brief.

So while I think this new wave will force the Fed to stay its hand on the taper, I don’t believe it will stop them for very long.

No, the big move will come when the Fed is forced to retreat from its tightening campaign, either during the taper (because the stock market forces it to) or during the early rate hikes (when spiraling debt-service costs start to overwhelm the federal budget).

These fundamental drivers seem inevitable and inescapable, but we’ll have to wait a little longer for them to impact the markets.

For gold, silver and mining stock investors, it will be well worth the wait.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

P.S. If you’d like to start the new year off with a heart-warming story, read this