Gold Is Near A Bottom

March 5, 2021 12:30 PM
Gold bars

Gold bars

Gold has been sliding lower since January 6th, and it’s not a coincidence that Treasuries Futures have also been sliding lower since that date. The next date on the daily chart that you should pay attention to is February 11th: that’s the day that the selling accelerated. 

So why is gold being liquidated while Treasuries move lower? Because interest rates are moving higher. Yields are returning to the “savers!” Very suddenly, there’s a new way to get real returns on your money. 

Rates have moved very quickly and now even Fed Chairman Jerome Powell can’t ignore inflation any longer. He had to acknowledge publicly now that as the economy reopens, inflation will rise. Well, no kidding! Commodity traders see inflation all over the place. Lumber is at all-time highs. Copper is at 11-year highs. Crude oil is over $65.00. RBOB gasoline is over $2.05 today. Grain markets are at 7-8-year highs. 

This is inflation. It’s not yet runaway inflation, but Washington still wants more stimulus and after that, they’re finally going to look to spend more taxpayer dollars on “infrastructure.” There are too many dollars out there already. The economy is growing: it’s NOT going to slow down as we reopen. 

So, why do I think that gold is near a bottom? The short answer is that I see longer-term support around $1,675 to $1,650, and gold has now reached oversold levels. But more importantly, it’s because I still believe that gold is and will continue to be a good inflationary hedge. 

The rotation out of risky assets and into the safe returns in Treasuries will slow. The bond market is telling us all that inflation is here. Once we embrace this inflation, gold prices will begin to march higher.

If you are interested in discussing the potential opportunities in the metals futures, please contact Frank directly at fcholly@rjofutures.com

About the Author

Frank Cholly has 35 years of commodity industry experience. He spent 20 years on the CBOT trading floor.