It's a new month and that means a fresh start. No one needs it more right now than gold bugs, who have been swimming against the tide since April.
What happened then? It was the time the Fed shifted to a more-hawkish stance and it kicked off a series of rate hikes. The precous metal has been in a tailspin since, falling in seven consecutive months. That's the worst streak in 50 years and has been compounded by a rising US dollar.
It also begs the question about what's the trigger for a reversal, or at least a bounce. The Fed decision tomorrow certainly fits the bill. If it includes a pivot or at least a hint that a pivot is coming soon then it could bring gold back to life.
It's also interesting that gold is higher today despite higher Treasury yields and a recovery in the dollar. That suggests some front-running of the Fed.
Moreover, there's a report from the World Gold Council doing the rounds showing that central banks bought nearly 400 tons of gold in Q2, which takes the total this year to the highest since 1967.
It's unclear which central banks were buying but Turkey and Qatar have been in the market. It would be a surprise to no one if Russia or China were also buying.
“Not all official institutions publicly report their gold holdings, or may do so with a lag,” the WGC said in a quarterly report released today. “We can’t rule out further unreported buying.”
Technically, there's a major double top at $2070 now and the measured target is all the way down at $1380 so I certainly can't rule out a larger decline. At the same time, there's seasonal strength in gold from Dec-Feb so a bounce to $1700 or $1750 is possible. At this point, the gold bugs would settle for any kind of monthly gain.
All told though, buying gold on a dovish Fed surprise might be one of the more-straightforward trades out there.
