The past week has been crucial for the precious metal complex as the price of gold broke through key resistance at $1840. In a run that has seen the safe haven metal rise for seven consecutive trading sessions, it was last Wednesday’s price action that finally broke through this level, ending the session strong on the rise with excellent volume. .

After breaking above $1,840, which was also downtrend line resistance from its all-time high of $2,089 reached in August 2020, bullion has gained momentum. Gold futures continued to climb on warmer than expected US inflation data and despite the surge in the US dollar, which generally moves inversely to the safe-haven metal.

More importantly, with gold futures closing significantly above the critical resistance level of $1,840 per ounce on a weekly basis, this price is now becoming a strong platform of support in the move up. the top. As the metal enters a seasonally strong period, which runs from November to February, further upside is expected with sharply rising inflation continuing to focus the attention of global central banks.

It becomes clear to the market that the rise in inflation will be more persistent, and not just a transitory phenomenon. The rise in prices was mainly due to a demand shock rather than a supply shock, and is expected to intensify as wage increases are factored into the economic pie.

The 6.2% year-over-year increase in the United States consumer price index marked the fifth consecutive month that the consumer price index exceeded 5% and signaled the biggest jump in consumer price inflation since July 1982. In addition, inflation is much higher for essential consumer goods than suggested by official CPI figures, which do not take food and energy costs into account.

As mentioned in this column last week, the market has become aware that the Federal Reserve is in a trap. The central bank, both in terms of policy and political pressure, should do something about the continued rise in inflation which is running at an annualized rate of over 11%. Corn the Fed is not in a position to allow long-term real rates to rise out of control, nor does history show that this will happen as a result of a debt binge.

On the one hand, the central bank’s Catch-22 is called upon to control inflation, which means a tightening of monetary policy. And on the other hand, the largest central bank in the world should subsidize public spending, which means easing monetary policy.

The price of gold has not been able to breach the $1900 level on a monthly closing basis since mid-2020. With Gold Futures consolidating the recent upside move, a monthly close above this level would likely be the final nail in gold’s bearish coffin. And a possible catalyst for the safe haven metal to challenge the $1900 region could arrive as early as next week.

US President Joe Biden will likely decide who he will appoint to head the Federal Reserve before Thanksgiving, a White House spokesman said Wednesday. This is a critical choice for the first-term Democrat and one that may well affect how his economic agenda plays out. Current President Jerome Powell’s term is due to expire in February, and opinions are divided on whether he will be reappointed.

Last week, Biden interviewed Powell and Fed Governor Lael Brainard, who is the only Democrat on the current seven-member Fed Board of Governors. Progressive Democrats have been pushing for Brainard, who was appointed to the board by former President Barack Obama and is seen as more dovish on monetary policy while tougher on banking regulation.

A Brainard nomination would likely signal to markets that the monetary punch bowl isn’t going to be retired any time soon. But at the end of the day, no matter who is selected, the Fed will remain under tremendous pressure to print more money and let inflation solve the federal government’s funding problems.

The recent strong rise in the price of gold is causing some profit taking, with the precious metal now consolidating higher to $120 after becoming overbought in the short term. Despite some short-term profit taking, the outlook for gold and silver for the remainder of 2021 and into next year remains optimistic.

Meanwhile, with the tax-loss selling of underperforming precious metals junior stocks beginning in mid-June, much of that selling also appears to have ended early. Over the past few weeks, numerous quality issues in the junior mining space have outperformed the sector.

Although tax-loss selling season is usually late in the year, with the small gold sector an underperforming ship in a sea of ​​outperforming ships in 2021, junior gold stocks have become hated in the point of being taxed early. – surrender fueled by loss.

The combination of miners’ underperformance against the price of gold and a strong US stock market has given speculators in resource stocks little reason to hold positions underwater as the fourth approaches. trimester. Gold stocks began selling for tax loss in mid-June as nervousness over expectations of future monetary policy tightening grew.

Many gold bag holders who chased juniors making 5x to 10x higher moves, in the space of less than 5 months in August 2020, started to capitulate at the start of H2/2021. The extreme sell-off over the next 15 months has become the perfect storm for patient contrarian money waiting to pounce on tax-loss sell deals in quality juniors earlier than usual this year.

Once the Fed announced the “soft tap” after the end of the FOMC meeting on Nov. 3, a “buy the news” reaction took place in the gold complex based on an overly reactive pullback. due to “taper-talk” maintaining pressure on gold space.

I have prepared Junior Miner Junky Subscribers since the start of the fourth quarter, once the GDXJ closed above $47, high-risk, cash-flow-less juniors would begin to outperform the mining sector.

After the breakout of GDX and GDXJ inverted head and shoulder formations over the past week, many high-risk juniors have started to outperform miners, while others have yet to react to the sector’s rise. When the precious metals sector creates a major bottom during silly fiscal loss season, each individual bombed junior bottom mostly depends on when the last sizeable seller capitulates.

Many junior-grade gold stocks rose from 15 months bullish falling wedge trends since the beginning of the fourth quarter. The junior miner ETF closed well above $47 last week, which is a level that has acted as support this week. With the sector overbought in the short term, now is a good time to buy long-term holdings in quality juniors during periods of weakness.

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