Precious metal bulls have not had a great time lately. Despite all the massive macro winds at their backs, for seemingly years now, the price action has hardly confirmed their dream thesis that played out in spades (i.e., massive money printing.) Gold “bugs” are fed up, exasperated, and have all but practically given up on their once sure-footed narrative. It also hasn’t helped that the price of gold has chopped between $1650 and $1900 for a year now.
But what if gold, silver, and the miners used the now hawkish fed as an ironic launching pad for a sustained, higher rally. Here are a couple of positive pivots:
1) The last two weeks have traditionally been strong for the price of gold with an average gain of 2.6%.
2) Tax-loss selling, particularly for the miners, has likely abated by now.
3) If you look back at December of both 2015 and 2018, the last time the Fed hiked rates, the metals sector rose rather significantly immediately after. The chart below clearly demonstrates the reaction in the miners (GDX) – which encapsulates the seasonality as well.
After this week’s FOMC meeting and the subsequent doubling of the tapering to $30 billion/month, – double the amount previously thought. The Fed Funds futures are now pricing in 3 rate hikes for 2022 with the first likely coming in March. So, if the metals follow suit from the 2015/2018 playbook, the reaction of the lows may have already begun.
Technically, gold, the miners, and more specifically, silver, all put in “inverse hammer” type bottom patterns on the 15th, the day the FOMC met.
We view the metals as just another asset class to trade and analyze and will let the “bugs” argue whether it’s an inflation hedge, store of value, or useful in an apocalypse. But for now, do the stars seem aligned for an upward push – hawkish monetary policy be damned?