Gold has posted a shining start to Q4 with a $38 gain to $1697. Silver is also soaring with a nearly 9% gain.
What's the message from precious metals?
First of all, lets put the recent bounce into perspective. Through September, gold had fallen in six straight months and broke the 2021 double bottom. This isn't a pretty picture and we'll need to see $1800 to indicate a rejection of the breakdown.
Second is the bond market. I'm loathe to argue that gold is competing with bonds because the historical correlations come and go: Both have been in long-term bull markets. That said, a 4% bond is tough competition for safe haven assets.
The better argument is that gold is competing with bitcoin and crypto. Lately, the decline in interest and price of crypto is good news for gold. There's a strong interest for hedges against currency debasement and gold's long history in that department can't be matched. The argument certainly isn't done yet and there's room for both but a certain segment of would-be crypto buyers made be done with it for good.
Ultimately, it's the currency debasement argument that holds. Europe is headed for another debt crisis as energy bills mount and the political appetite for austerity anywhere is nil. Governments are addicted to money printing and it's not surprise that gold turned when the Bank of England launched a two-week emergency QE program.
Seasonally, buying from Dec-January has been one of the better trades of the past decades and I think that holds up. It's around that time I expect to see signs of a Fed pivot. In the shorter-term, I think we'll see more volatility and choppiness in this zone but precious metals are getting interesting again.
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