Should We Declare the Gold Bull Run Dead?

The comments below are an edited and abridged synopsis of an article by Michael Maharrey

Gold’s recent performance has led some to ask whether the gold bull is dead. But to believe the gold bull run is over, the Fed would have to tighten monetary policy and the US dollar would have to remain strong.

Should We Declare the Gold Bull Run Dead?
Wild cow horns in Navarre. Village Festivals in Navarre´s villages. Running the cows.

Falling gold and silver have been driven by dollar strength. Investors have moved into the dollar due to concerns about a second wave of Covid-19 in Europe and the possibility of further economic lockdowns. The sudden risk-off sentiment has affected more than just gold and silver; US stocks have taken big hits as well.

But the big driver is the Fed. The Fed didn’t promise more stimulus at the September FOMC meeting. It maintained its commitment to extraordinary monetary policy, but the markets didn’t think that was enough.

Maharrey says the Fed raising rates is a hard no, and he gives reasons why. But there is another important question: Will the Fed provide more stimulus? Maharrey says that’s an emphatic yes.

Fed Chair Jay Powell would like Congress to pass another fiscal stimulus bill, and fiscal stimulus is monetary stimulus. If Congress spends more, it will have to borrow and the Fed will have to monetize all that debt, so more money printing.

The Fed has committed to maintaining QE at least at the current level, and that is bullish for gold. The Fed is printing money at a record pace. The money supply has increased at record levels for five straight months. It’s hard to project dollar strength long term, given that we are still in the midst of QE infinity.

To believe the gold bull run is over, you have to believe the Fed is done with stimulus. It seems clear it’s not.

There are plenty of reasons to remain bullish on gold: election uncertainty; plummeting global bond yields; more liquidity injected by the Fed; dollar weakness; global trade tensions; and the continuing Covid-19 pandemic.

In fact, gold could be back over $2,000 before the end of the year.

It all comes back to the Fed. If it was going to quit the stimulus game, gold might be in trouble. But it’s not. This isn’t a time to panic. It might just be a good time to buy the dip.

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