On Tuesday gold bounced off of the $1,875 resistance level. The price of bitcoin found support at $1,850 at midnight on Wednesday, ending the subsequent decline. The price has recently bounced between round price levels.
The weakness in the US dollar alongside the yields continues to underpin gold price. The risk-off trading in the Asian equities amid looming China’s property sector concerns and global inflation risks continue to boost’s gold appeal as a safe-haven as well as an inflation hedge.
Some countries are running extremely tight economies and maintaining very low inflationary rates such as Japan, Saudi Arabia, and Switzerland. However, real concerns in the United States are mounting as the US government continues to spend dollars vis-à-vis fiscal stimulus with money it simply does not have. The United States continues to run yearly deficits well beyond the wealth it produces as seen through the GDP.
While the Federal Reserve has begun tapering its monthly asset purchases by $15 billion a month, it will continue to add to its enormous asset balance sheet at least until June of next year. With the current asset sheet of the Federal Reserve just north of $8.6 trillion, by the conclusion of their quantitative easing program, the Federal Reserve balance sheet will likely be north of $9 trillion.
Add to that the $4+ trillion in fiscal stimulus that was spent in 2020, and additional expenditures this year once again in the trillions, it is surprising to no one that the inflationary rate in the United States is out of control, now at a level not seen since November 1990.
Gold is likely to trade in a familiar range between $1,850 and $1,878 in the day, until the bulls find a strong foothold above the June 14 tops of $1,878. A daily closing above the latter will trigger a fresh advance towards the $1,900 psychological level, above which the horizontal trendline resistance around $1,904 will challenge the bearish commitments.”
“On the downside, a breach of the $1,850 demand area could expose the November 11 lows of $1,843. Further south, the previous critical resistance now supports at $1,834 will be the level to beat for gold bears.”
Unquestionably if the current administration continues down this road with tremendous expenditures that the government will have to borrow to pay for, the United States will advance our national debt. It is for the reasons we have spoken about above that I think that market participants continue to focus on gold to preserve their wealth. If this assumption is correct gold has nowhere to go but to higher pricing.