Gold has big daily drop following Fed and ECB announcements. The pullback lasted 2 days before a big blast higher. 
In the wake of fluff announcements by the Fed and ECB in which no reporters asked any difficult questions, gold took a mini-dump then surged twice as much two days later.
Triple Top for Gold?
Gold Weekly Chart Technically Speaking
- To answer my own question, neither triple tops nor triple bottoms tend to hold. If that view is correct, gold is headed higher.
- Seasonally speaking, gold is heading into a favorable time of year.
- Finally, this has been a long 3-year consolidation period, with gold not too far from record highs.
All things considered, the above chart is technically encouraging.
Gold Monthly Chart
That is likely the prettiest cup and handle technical formations you will ever see. It took 10 long years for gold to get back to its 2011 high. Then we had a handle build over three years.
The chart is so perfect, I wonder what’s wrong with it. This is a bullish technical pattern as well. And if everyone was jumping up and down screaming about this, I would be more concerned.
Instead, gold fell out of favor, and is still largely ignored.
Gold Does Not Follow the Dollar!
- The amount of nonsense spewed over gold and the dollar is stunning.
- With the US dollar index at roughly 90, gold has been at $400, 1,000, $1,200, and $1,400.
- With the US dollar index at 102, gold has been at $300 and $2,000!
It’s true that on any given day the dollar and gold go in opposite directions, but even then, we have seen years in which gold is positively correlated to the dollar.
Over time, gold certainly does not follow the dollar as the above chart proves.
So what does drive the price of gold?
Gold vs Faith in Central Banks
Gold does not always follow the dollar in any meaningful sense, as nearly everyone suggests. Instead, gold tends to follow faith in central banks.
I created the above chart several years ago. It’s still valid today. ECB president Mario Draghi allegedly saved the Euro, restoring faith in central banks right near the then peak in gold.
“The ECB will do whatever it takes to save the Euro, and believe me it will be enough,” said Draghi.
Q: What did Draghi do?
A: Nothing!
That’s correct, nothing at all. His speech was enough. Bond yields crashed, and faith was restored.
The same thing happened during Greenspan’s “Great Moderation”. Interest rates fell and gold fell from $800 to $250. Gold generally does terrible in disinflation (falling rates of inflation).
If you have faith in central banks, sell your gold. Otherwise, I suggest hanging on to it.
Is It Time to Bet on an Inflation Overshoot?
In a related post, I asked, Is It Time to Bet on an Inflation Overshoot?
Also consider Inflation Adjusted, Men Are Making Less Money Than in 1979, Women Are Doing Better
Earn Interest on Gold
If you are interested in earning a yield on your gold, admittedly not for everyone, please see Would You Like to Earn Interest, Paid in Gold, Not Fiat Currency?
The gold price is openly manipulated, big players dump huge paper trades that causes the price to plummet. A normal trader would spread the trades to minimize losses, but these trades are designed to lose money. The only people that don’t care how much money they lose are governments.
As long as the US can print infinite dollars, at no cost, the gold price will remain regulated.
Comparing world copper and gold numbers.
Annual copper production: 22 million tons
Copper Inventories: 0.2 million tons (3 days of supply)
Annual gold production: 3,612 tons
Gold inventories: 187,000 tons (50 yesrs of supply)
I’m not a gold person but I get it. I just get tired of conservative pundits never shutting up about it. I do think however I would be better off storing 20K worth of the most common HVAC hepa filters and selling them online in 10 years. I haven’t researched the price of them over the years but I sure as hell have noticed it. I’m more into land. Maybe I find gold on some of it one day?
How about a chart over the past 5,000 years that shows how many ounces of gold can buy a fine tailored suit. It can also have the current global reserve currencies rise and fall.
The gold market is rigged. It gets over 2000 and then is shot down. That in of itself isn’t evidence of anything. But, there have been many times the price went up and then suddenly the price would drop early in the morning before the market opened. Someone with a lot of gold would decide to sell a lot when no one was buying. No one trying to make a profit would do that. Only someone trying to drive down the price would. Like a central bank intentionally trying to lose money. I saw the same thing after the GFC with equities. Someone would buy a ton of S&P futures when no one was selling. Like they were intentionally trying to pay too much. Either they were the dumbest super rich people in the world or the FED.
What will happen to gold when Jay Powell cuts rates? Can he ever cut rates without destroying the Dollar?
Rates aren’t going to be cut anytime soon.
I think the rates might be cut in 2025 in order to boost Biden’s 2nd term. A one term pres is seen by history as a failure. A two termer is a success. Biden has to get a 2nd term for history to consider him a successful pres, and all his voters hate inflation and low rates. After he wins the 2nd term, what does he care about the future or inflation? We cant keep blowing a trillion a year just for interest payments. I think Biden has no reason after winning #2 term to keep rates high. What does he care? His history is cemented. Then the rates will drop, likely to zero again.
Pretty sure Biden is going to be considered a failure regardless of whether or not he gets a second term.
If you have physical gold you can use it for your teeth, if you need to.
Funny you should say that. Our family had a reunion last month and my brother has a gold tooth, he told his teenage kids that when he passes they can pull the tooth.
As I understand it, the gold in teeth aint all that much gold, no matter how much it sparkles
Yes, I bet not much gold in there.
Great! Now when you get mugged they take your phone, wallet and pull out your teeth.
I noticed that gold was at 1948 after the Fed selloff, but all of a sudden it was above $2000. I think the futures contract rolled over from August to the December contract (the rise in your first chart on 7/30??). So, gold is lower than what you are reporting??
Mish, I think this your best piece ever, and I saved the chart the first time you posted it. Hope you can do the same analysis with Bitcoin. I see no R-squared relationship despite what we were told about crypto as an inflation hedge.
I dont follow the many Internet predictors much anymore. What I can say about gold are these bits of news: I bought a few Eagles in 2007 for $700 each, and a few more in 2008 at $930 each, when I first got into gold. In 2023, today, a good coin place I’ve used before will give me $1,960 for each. After 15 years of inflation and a 28% tax rate on the gains, its obvious you dont make any money investing in gold. The best you get is to stay even — and sometimes that is enough.
Your timing is actually really good there, you basically matched the return of the S&P.
Taxes will kill ya, though, I agree.
I’ve diversified a bit into gold, bought a decent amount around $600 and another batch at $1200 almost a decade later. Been long term diversification after I realized just how much the printers were going brrrrr around 2003-4-5. Not great return after inflation but I sleep a little better. The Trump problem isn’t going away and with the war hawk sleepy Joe in power problem the future looks a bit unstable. I might add more on another deep pullback.
Gold is going through on this fourth attempt and will be the floor going forward. All aboard the gold train!
As recently as a couple years ago, I regretted my investment in gold and I’m sure I posted as much here on this forum, but I always planned to hold it for the long term as a hedge. It will be the last thing I ever sell.
Does the rise in gold have anything to do with the coup in Niger?
I’ve bought and sold gold a few times. Never successfully.
Some guy bitching about the government then says “buy gold”, where I think he’s right about the government, surely he’s right about gold.
The King of Statistics approves this reasoning.
Gold might rise, at least for a while.
Gold follows the cost of production. That in turn is a factor of energy prices (oil in particular), inflation (always positive), ore quality (which always declines), regulatory hassles (always increasing) and availability of new mine deposits (always declining). Thus, if traditional stockpilers of gold (mostly central banks) are not selling, the gold price always goes up, because all of the drivers are always positive (except maybe energy, at times). Thus gold will always tend towards “demand destruction” on the supply-demand curve from economics 101. It gets rationed by price.
When the gold price goes down, it is either because major holders (central banks) are net selling, people fear deflation (you’d think we’d know better by now), or people just haven’t got the money to buy it (it is, for the most part, discretionary).
The dollar index has almost nothing to do with it except for short term arbitrage. All the paper goes down together, so comparing them is really just about relative strength.
The first fed cut will close the book on the current consolidation. Gold should do well until that point but accelerate upwards, beginning with the cut.
“Gold doesn’t follow the USD.” Sure it does. You just need to look at the M2 chart.
M2 stays approximately 10 times what gold is.
“If you have faith in central banks, sell your gold. Otherwise, I suggest hanging on to it. ”
I’d say, if you have faith in governments, sell your gold. Otherwise, I suggest hanging onto it.
Fun Fact-If you search “modern day hyperinflation” using Duck Duck Go, the first result is World Economic Forum. Followed by the IMF. If that’s not enough for you, 2 more results from the IMF are just below. I wonder why they have such an interest in controlling what we think about this topic?
Well, if you live in Suriname, Turkey, Zimbabwe, Argentina, Sudan, Lebanon, or Venezuela, you would understand that gold keeps it’s value when your government decides to print money like crazy. Just wait until countries adopt a digital currency. They’ll be able to print money at the touch of a button.
If your country is still on the gold standard or doesn’t have much debt, you have nothing to worry about.
The thought I had is what does the dollar index have to do with the value of the dollar if the index is a measure relative to other fiat currencies being debased. The following is taken from Capital.com web site: “Presently, the DXY represents a weighted geometric mean of the USD’s value to the exchange rates of the world’s six major currencies, namely the euro, British pound, Canadian dollar, Swiss franc, Swedish krona and Japanese yen. The euro holds the most weight versus the dollar in the index, making up about 57.6 per cent of the weighting, followed by the yen with around 13.6 per cent.” If the whole basket is losing value, then a strong dollar is only the least dirty shirt in the laundry.
During the last three years of the 1990’s DXY was approximately where it is now and gold around $300. For me an inverse chart of gold priced in dollars is a better measure of the dollar’s value than the index, thus the comparison made in the post is somewhat meaningless.
exactly. dxy is dumb gauge. my all time favorite chart for my life is the gold/dow long term chart. also you could look at gold/house prices too. its probably the best gold chart for our times. but most men from war zones and busted countries all know, gold is just money. the rest is just currency and can be worthless due to printing or inflation or outlawing……….or just stealing by one’s government or their thugs……….
Just wanted to thank you for doing such high quality work day in and day out. You are so steady, professional and rational in your approach. I read everything you write, time permitting.
In today’s post about gold, I especially appreciated your technical analysis. We have a position in the gold miners, GDX. Any opinion on how you think they will do in this environment? I’m not really expecting you to answer this, but if you do, much appreciated.
Again, thanks very much for your very valuable public service.
I do not believe I have ever given a target on gold. My buy recommendations have generally been very good, but I have never said, sell and that’s a mistake. I like gold now.
Without using some very fat crayons, the technical pattern on GDX is very complicated. But if gold does well, I would think GDX does too.
Thanks.
What is odd about this gold rally is that silver has not followed or the miners. Typically the miners appreciate a lot more percentage wise in response to gold rising as they are leveraged to its price. A lot of conflicting signals here with gold pricing so strong.
I very much appreciate all your posts and level headed analysis across the spectrum of economic subjects. This is the first time I have seen you talk about gold and as inveterate gold bug favoring mostly miners and physical say keep it up.
With Oil turning up, think it is wise to add to Gold/Silver positions on any dips.
I own some gold for the long-term as a hedge. Will have to see if this time it can get some momentum going.
Bought some SLV recently. Last time I bought it, it ran out of steam and went straight into the current consolidation. Maybe the second time will be the charm?? Stops are in place.
SLV shares in a margin account can be loaned to those who want to short it. Doesn’t happen with Monster Boxes. Just saying.
You know what’s technically encouraging? The price of VTI over the last few decades.
Up 450% or so, assuming you reinvested your dividends.
Got gold?
Not me.
Good for you!