What’s killed gold?

This one has really baked my noodle recently:

Especially as BTC, “digital gold”,  goes nuts:

This became especially weird in the last few days as Janet Yellen was nominated for Treasury Secretary, indicating a rising risk of integration between the Treasury and Fed, a clear gold positive. Yellen says she is not persuaded by MMT but she sure behaves like she is.

Also positive and most important, DXY is on the verge of a breakdown and it very unsual for gold to fall in tandem with it:

BofA cites one reason:

  • But now much more restrained citing the prospect of higher long-term interest rates ahead
  • “That will put gold’s rally on pause until inflation expectation starts rising faster than interest rates”
Forecasts average
  • $1,775 this year
  • $2,063 in 2021

But I wonder if the real problem isn’t just an excess of speculators in the metal and perhaps they need to be shaken out:

Certainly gold is not cheap. But its fundamentals are more by the measure of chaos in US monetary and fiscal settings than any direct one-to-one link to DXY. With the incoming Biden team looking uber-dovish and the Fed likely needed to offset a constrained senate conditions still look good for gold.

Or, is gold signaling that none of this is true and DXY ain’t going to fall?

David Llewellyn-Smith
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Comments

  1. It’s got me confused as well. I’m thinking (and i’m probably wrong)… REPO crisis of last year- fed funds injection- covid- fed funds injection- reality doesn’t matter anymore – fed funds injection…. There is a deliberate push to get away from sound money and move to digital, otherwise everyone goes broke.

  2. Also, many from the establishment like JPM, Black Rock.. started talking up BTC as alternative to gold. If this starts to really play out then I will join the few who think BTC was CIA creation in order to damage gold when things start to get real ugly for all fiats.
    I piece of software to replace gold? Anyone can create another BTC with same characteristics and properties. You can’t copy gold. And some that argue about scarcity, well cheap high grade gold is harder and harder to find. Only high gold prices can produce more gold.
    And if countries decide to back their currencies with gold then there is definitely not enough gold – just saying for argument’s sake and not suggesting it will happen.
    I am holding and hurting for now.

  3. ignoratio elenchiMEMBER

    Bitcoin is a confidence game. I am continually surprised that people trade it. It made sense to farm it in 2011 when you could manufacture a Bitcoin yourself with spare cycles, and I looked into it but even then it was a lot of investment for little payoff. Now the investment is huge. It uses an incredible amount of energy to build and maintain a Bitcoin. I’m not buying it.

    • i agree ignoratio. digital fairy coins are just that. it doesnt scale, its ridic slow, its easily gamed (95% of BTC is settled in RMB) and the exchanges are complete scams. and where is the use. 11 years in no one uses it, almost anywhere? the whole premise of financial collapse is deeply flawed. if the sh#t hits fan, i dont want your magical fairy coins. i will shoot you in the face, take your guns, ammo, medicine, food, water, and maybe your woman if she has any skills and BBQ your corpse. the nerds that cooked this rubbish up have never been in a fight. not a real one besides atomic wedgies and being locked in their lockers. they will be the cannon fodder if comes down to it and slaves at best.

        • just reality mate. the nerds have not run any decent monte carlo scenarios for how this plays out despite all the worlds GPUs at their fingertips cooking up fairy coins. it so ridiculous it boggles my mind. haha

      • “11 years in no one uses it, almost anywhere?”
        Enough people use it that the ATO sent out letters reminding people of CGT obligations of crypto. Not sure if specifically targeted or if everyone got them though.

        • they are targeting workwear and home offices too. but i take your point, and we both could be right. when BTC or fairy coins are outlawed and the digital Euro etc is in place etc. im with jim rogers on this. the people with the biggest guns control the strongest currency. for now that is USA not crypto nerds in emissions free areas of shenzen.

          • I’m pretty sure a “digital Euro” is already in place. A digital AUD has been in place forever(as long as I’ve had a job anyway) and has become even more used this year.

        • Just reading this morning that money transfers to Gab pro by PayPal and a long long list usual money transfers is blocked. Transfers by Bitcoin have been blocked by one platform at least however people are funding Gab by Bitcoin, It mostly a free site. With a slew of alternates emerging, duckduckgo, brave, rumble, bitchute, Parler, gab, twitch are some of more. if they are to get payments from the public it’s going to move to Bitcoin or whatever new emerges. Rebecca Mercer funded Parler. OANN has been cut off YouTube…the new media will be hit hard.
          IMO Bitcoin will be taken over by the USA govt or equivalent, like gold in the past. It won’t last as a free entity. I think a govt owned version will be created. Re the people who called me naive for suggesting a blockchain based ID and Voting sstem for USA, that was proposed but Hillary Clinton blocked it.

        • bjw you are confusing 1s and 0s and representations of fiat with actual digital dollars that will occur as they properly monetise the debt and make it impossible to hold physical. they will outlaw BTC etc, its tyranny 101. no govt is going to allow it. learn your history mate. its all been done.

        • exactly. most people dont know how to fight and generally will avoid confrontation. its why so few people control so much. we like to think we are independent and free willed. we are social creatures, we conform to “norms” alphas are rare. dude in the car is staunch, look how tough they all get once he id done smoking one of them. case in point!

    • darklydrawlMEMBER

      Crypto is having moment right now though. BTC and the major alt coins have all soared in the past week. For example, XRP has moved from AUD $0.39 on the 17th Nov to over AUD $1 this morning. Currently sitting on AUD$0.92. Would be some ride if you were in on it and can stomach the volatility (I suspect it will fall down again at some future point – dunno). It’s fun to watch though.

      • yeah the run in bitcoin is crazy (as always). On the weekly is seems exhausted though.
        Usually when the weekly RSI hits these levels it pulls back 35% or so then keep on its merry way HOWEVER….
        On the log chart something interesting is happening; It’s flattening off meaning that for some reason its gains are getting capped at a lower rate every acceleration. Based on this the next high will be around $40k

      • RobotSenseiMEMBER

        I sold off my position after >50% rises yesterday. Was a good welcome to the happysadface nature of crypto trading.

    • All money is a confidence game.
      Why is gold stashed away in vaults costing money to store so valuable? Purely because people think it was and always will be.
      Why is a piece of plastic printed by the government considered worth $100 when similar can be bought in a toy store for cents?

      • Because it is backed by the tax base (you and I), and tax collection is backed by the power of the State?

  4. gold/silver ratio has held up ok so maybe weak usd play is still on. Most traders sold when Vlad marked the top and I guess waiting for 200MA which is being hit now. In the meantime all of the above as well, real rates etc. It needed a good washout. No idea how long the 200ma holds for.

  5. I have said it a few times, it needed consolidation.
    Technical indicators were too high.
    Its still has more to drop now: 1435 – 1571 is where it will land but it depends on how hard it falls.
    Its a done trade for 3 months, then look again to get in.

  6. The Bullion Banks have been heavily short gold on the paper Comex market. The recent gold weakness (read suppression) is all about making the December long contracts close out worthless. Expect the au price to regain much of its recent loss within next few of weeks.

  7. Usually when DXY falls, money flows into Gold. DXY has been falling while Golds been falling at the same time which is unusual. However, Bitcoin has been rising at an alarming rate. Looks to me as though Bitcoin is turning into its own version of a Ponzi Bubble. I’ve been under the impression that if Bitcoin goes to the moon and pops, you’ll suddenly see a rush of people evacuating Bitcoin and diving head first into Gold. It’ll be interesting to see where this goes. I wouldnt park my life’s savings in it, thats for sure.

  8. Institutional money is now coming into bitcoin. Just wait until retail joins them. If you think this is a bubble, wait until the bitcoin ETFs hit the stock exchange.

  9. The ASX gold index (XGD) is only slightly down at the moment which to me indicates that the market is recognising S/T suppression rather than a negative fundamental change in its investment status

  10. (1) Gold is not cheap.
    (2) Outstanding debt is gigantic.
    (3) CPI will remain low so long as the outstanding debt remains gigantic because the interest bills will suck up any excess money in the economy whenever there is a sign that any excess money may be on the way.
    (4) The only way to extinguish the gigantic outstanding debt is to print much more than the Fed has ever done. The Fed is not ready to go that far and unlikely to ever become ready for it. The status-quo is far easier – keep playing with the interest rate to suck up just enough excess money in the economy. That will keep the zombie economy going.
    (5) Is the continued status-quo bullish for gold? On the one hand, bonds do not return anything these days and yet have counter party risks, which makes gold look good. On the other hand, gold is already rather expensive in historical measures.

  11. I write a monthly report on gold that’s white-labeled with a broker.

    Just been updating my models. Gold has been running well ahead of fundamentals for about 18 months with the model consistently saying it was over-valued only for the coefficient on the interest rate term to adjust (narrowing the degree of over-valuation but still pointing to over-valuation). But in the past few days we’ve seen volatility plunge and that’s more-or-less offset the weaker US dollar, stabilising fair value but leading to a sharp decline in the degree of estimated over-valuation.

    I think it’s more about positioning and sentiment than fundamentals. The key fundamentals remain intact: monetary expansion and a weaker US dollar amid increased economic uncertainty. But ETF holdings and CFTC positioning went crazy as did demand for gold call options OTC and demand for bars and coins.

    The WGC shows that global demand for gold has collapsed in Q3 – jewellery demand picked up, but off a very low base, while ETF demand and Central Bank Demand slumped… Central Banks actually sold gold in Q3 and in October we saw significant selling from Turkey…

    So… I think we can drop a bit further, maybe to the 1750 region, but that would be good long-term entry …

    • Good Find.

      Lyn might be following what Keith McCullough from Hedgeye has said, ie the US economy is going to accelerate in Q1 of 2021 resulting in economic growth with inflation and the longer dated 10 year yields are picking up on that, which in turn depresses the gold price.

      There has been a a big drop (around 70-80 tonnes) in the gold held by the GLD ETF over the last month or so. As noted above by another poster, jewelry demand has been hurt by the high gold price. It has been investment demand that has driven the gold price higher this year in particular, and that is now waning.

      The expectation is that the gold price will pick up again in the second half of 2021 when the US economy decelerates resulting in less expected pressure on long term rates.

      Perhaps a Biden stimulus package could get the gold price going again – but he may face a hostile Senate and not be able to get his big package passed.