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Gold Goin’ Red Ahead of the Fed

This is the most important Federal Open Market Committee vote in better than a year (since 16 March 2020) when COVID convinced ’em to cut the rate down to the present target range. Further, Wednesday’s Policy Statement — should it incorporate a hike in the rate — is a key fundamental and uplifting case (given currency debasement otherwise being ignored) that can get Gold back onto a positive track into month’s end.

For as you regular readers know: Gold has proven to have done well when the short end of the yield curve actually rises; (recall the FedFunds rate and the price of Gold increasing together through the three-year stint from 2004-2006). Otherwise should the FOMC sit tight as they see, we ‘spect Gold’s “nearer to 1800” scenario shall be what we’ll see.

To be sure, the Fed now sits upon “A Delicate Balance”–[Marian McPartland, ’66]. In recent missives we’ve derogatorily referred to the Fed as being “scared s**tless” toward (finally) upsetting the outrageously overvalued stock market by merely increasing the cost of money. The last thing the Fed wants to do given the economy having recovered from COVID is to crash the now all-time high S&P 500 (4247), for which at this writing our “live” price/earnings ratio is 53.3x, with Bob Shiller’s non-cyclically-adjusted version not far behind at 45.1x.

Already for months, the yield on the riskfull S&P (now 1.375%) has trailed that of the riskless 10-Year U.S. Treasury Note (now 1.462%), let alone that of the 30-Year U.S. Treasury Bond (now 2.152%).

“But Gold itself has no yield, mmb…”

The perfect “leading statement” there, Squire. For if one defines “yield” as that rate of return to be realized upon Gold reaching up to our opening Scoreboard’s present valuation of 3861 (i.e. its “par value”), given price having actually settled yesterday (Friday) at 1880, that’s a 105.372% “yield”.

Indeed “To raise, or not to raise, [perchance to taper] that is the question: whether ’tis nobler in the mind to suffer the slings and arrows of outrageous debasement, or to take Gold against a sea of troubles, and by opposing, end them.” (Way to ad lib the Bard’s 1600 script there, Hamlet, back at a time when Gold was — as ’tis today — a currency).

To be sure, higher Dollar interest rates bring attraction to the Buck. And yet contra to conventional wisdom — given Gold plays no currency favourites — its price can rise right in stride with the so-called oxymoron “Dollar strength”, (recall for example their multi-month ascensions together in both 2010 and 2014).

Regardless of whether the FOMC votes to raise or not to raise or taper for a phase, we have to think this time ’round there shall be dissent amongst the ranks rather than the usual unanimous “voting for the monetary policy action were” … some may stand pat, some may vote taper, some may say hike. On verra.

Either way, here is the present state of Gold’s weekly bars from one year ago-to-date, the prior “outside week” having now been followed up with an “inside week”, (i.e. a “lower high” and “higher low”) as price continues red ahead of the Fed:

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