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Investors.com: Gold Could Be Poised for a Rally

November 05, 2021
Gold Bull Market

Article by Andy Hecht in Investing.com

Gold was the first commodity to reach a new all-time high in the aftermath of the 2020 global pandemic. In August 2020, the yellow metal rose above the $2000 per ounce level for the first time and traded to a peak at $2063 on the nearby COMEX futures contract.

Meanwhile, gold had been moving higher before COVID-19 gripped the world. In June 2019, the precious metal broke out to the upside when the price rose above the July 2016 $1377.50 high.

The rise in commodity prices has been nothing short of a bullish relay race, with one commodity handing the baton to the next.

Gold has been sitting in the background during the rallies in other commodities, consolidating and digesting its 2019 and 2020 gains. It may only be a matter of time before the bullish baton passes back to the precious yellow metal that is sitting near its consolidation pivot point at the $1800 per ounce level.

The reasons that gold will shine

The following factors favor higher gold prices over the coming months and years:

  • The FOMC met this week and announced it would begin tapering its quantitative easing program. Tapering is not tightening as the Fed will continue to purchase debt securities through mid-2022. Moreover, short-term interest rates are not likely to rise until late 2022, at the earliest. Accommodative monetary policy is bullish for gold and other commodities.
  • Chairman Powell’s term ends in early 2022. There has been no signal from the White House if President Biden will reappoint him to a second term or replace him with an economist that reflects more "progressive” sensitivities in regulation, climate change, and social equity. Chairman Powell has been dovish. Any replacement would likely be a dove that soars at an even higher altitude.
  • The US Congress continues to debate the level of spending for the budget and infrastructure rebuilding package. While the political horse-trading continues, the bottom line is that spending will be in the trillions, which is stimulative.
  • CPI data in the US and worldwide continue to point to rising inflationary pressures. Former Clinton and Obama administration Larry Summers warned of 1970s-style inflation. Square and Twitter’s founder and CEO Jack Dorsey kicked it up a notch when he recently forecasted hyperinflation in the US and the world.

Inflation eats away at fiat currency’s purchasing power. Even though the dollar index has been trading with a bullish bias, the rise in commodity prices is proof that all fiat currencies, including the US dollar, are losing value. Governments can issue more fiat legal tender to their heart’s content, but the only way to increase the gold supply is to extract more from the earth’s crust. Meanwhile, countries hold gold as an integral part of their foreign currency reserves, validating the precious metal’s role in ......

To read this article in Investing.com in its entirety and view the relating charts, click here.

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