I’ve been expecting gold to take another few weeks before mounting a comeback. Today’s action says I could be wrong.

August 23, 2021

Dear Fellow Investor,

I’ll be happy to be proven wrong — and gold is trying its level best to do that today.

As you know, I’ve been expecting gold to take another few weeks or so before embarking on a significant rally, based on both the fundamentals and technicals.

From a fundamental standpoint, or at least such fundamentals as the paper metal speculators consider, I believe the Fed is unlikely to make any move on tapering QE until the conclusion of its next FOMC meeting on September 22nd.

The record shows that Fed tightening can mark the bottom for gold, with the metal rebounding once such anticipated Fed action becomes reality. In the post-2008 attempt at policy normalization, that turning point was the first rate hike in December 2015.

This time around, because there’s well-earned skepticism over the Fed’s ability to actually carry through with rate hikes, that turning point for gold may come with the announcement of a tapering schedule.

I don’t expect that announcement to come before the Fed’s September meeting (although some hints could come in Chairman Powell’s speech during the virtual “Jackson Hole meeting” this Friday).

From a technical standpoint, the 14-week stochastic momentum indicator that I like to follow, as tracked by our friend Ron Griess of TheChartStore.com, is showing that gold’s momentum continues to dive toward the area where it typically posts a turn-around.

Roughly gauging the amount of time needed to complete that journey, it jibes with a mid- to late-September time frame. That’s why I’m thinking the next Fed meeting, or shortly before it as traders anticipate some action, could be the turning point.

However, silver has already reached the levels where it usually reverses course back upward. So I wouldn’t be surprised if silver leads gold, as it often does, in a rebound.

And perhaps the most powerful evidence that the next metals rally might be coming earlier than I expected is today’s action in the markets — with gold up $24 (1.35%) and silver rocketing $0.63 (2.72%) higher as I write.

Importantly, this big move isn’t due to any individual factor that I can pinpoint. Sure, today’s rally was helped along by the downside surprises in the U.S. manufacturing and services PMIs this morning, but the metals were already rallying strongly before this data came out.

The dollar is significantly weaker today, after rallying consistently since late July. And the 10-Year Treasury yield is a bit lower, but not much.

I get the feeling that, once again, gold “wants” to go higher. And I haven’t had that feeling for a long time.

We have to guard against getting sucked into a false breakout, but the bottom line is that a day like today is highly encouraging.

All the best,

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

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