Gold: $1600 Bottom Likely To Be Transient

 | Mar 05, 2021 05:11

The first thing you need to do is forget the impact the February US jobs report will have on the gold price beyond today. Forget it, because the impact will most likely be what Federal Reserve Chairman Jerome Powell calls “transient”.

I say that because that’s the phrase Powell used to express his nonchalance about rising price pressures in an economy still impaired by COVID-19.

The Fed chief told a jobs event hosted by the Wall Street Journal on Thursday that there was “a difference between a one-time surge in prices and ongoing inflation", before adding that “a transient increase in inflation will not affect inflation over a longer period”.

Powell’s opinion about near-term inflation—and conviction that America will not return to maximum employment this year or soon—sent US bond yields, measured by the benchmark 10-year Treasury note, ripping higher, along with the dollar.

Share prices on Wall Street, meanwhile, cascaded as investors worried about overvaluation in high-flying tech stocks such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).

Gold, already on a slow-burn meltdown over the past two weeks, got swept up in the equity market rout despite its so-called standing as an inflation hedge. The imminent Senate passage expected for President Joseph Biden’s $1.9 trillion coronavirus relief bill, which should hand the US a larger budget deficit and higher debt-to-GDP ratio—both good for gold—were ignored.

All these happened because Powell ruled out that the US central bank, under his guidance, will immediately step up bond buying to tame spiking yields. This was because of his belief that any inflationary pressure that the United States experiences this year will be transient, which should technically benefit gold. The term has become one of the Fed chief’s favorites in the pandemic era, with him using it three times in the past month alone to say he won’t be pressured into acting by temporary economic forces.

Jobs Number Will Also Be Transient For Gold/h2

Using the same logic, I implore you to look beyond the February jobs number that will be released today if you wish to hazard a direction—or more importantly, bottom—for gold in the $1,600 an ounce territory. It will be, as Powell might describe, transient in the grander scheme of an economy still struggling to get back to optimal employment, and there are many other moving parts that will decide the outlook for risk assets and safe-havens (if gold can still be called that, something I doubted a month back).

Ostensibly, the higher the jobs growth in February, the weaker the allure for gold; and vice-versa. Yet, don’t forget that jobs are the hardest things to develop in an economy and often the last to come roaring back after a prolonged devastation. For what it’s worth, there were 227,000 jobs lost in December before an expansion of 49,000 in January. So, until they get steady, they may not necessarily be the best marker for gold.

Since there are really no credible fundamentals to hang a gold outlook on to, what is the forecast from a technical point, at least?

There are various “pain” and “relief” points for the yellow metal that multiple seers, including me, have (I’ll save mine for last).

Let’s start with Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India. He sees the spot price of gold, which hedge funds rely on more than futures for gold’s direction, snapping back to $1,843 at its best and cratering to $1,460 at its worst.