Gold Did Its Job
(Kitco News) - Goldhas once again proved a viable diversifier in abalanced portfolio. As investors scrambled to meet margins on equity calls and found liquidity lacking asglobal markets were swinging widely, gold provided the liquidity for investors.The catalyst of higher yields and fears of accelerating inflation causedanalysts to re-examine equity valuations,and the large expected rise in the U.S. budget deficit on the back of the taxcuts and proposed infrastructure plan leaves serious questions on what higheryields will do to debt-financing costs. At aminimum, we would expect the Fed to be more conservative on the trajectory ofinterest-rate increases, which shouldtranslate into a weaker dollar in the medium term. We remained constructive ongold last week, seeing the weakness as aliquidity event and not a fundamental reversal. The key pivot was the euro'sability to hold and bounce of the 1.22 euro/dollar print. It appears the equitymarkets have stabilized and a positive close today may be the signal that aninterim low was put in last week. Traders will look to tomorrow's inflationnumbers. Should we see another spike in inflation, that may push the 10-year back closer to 3%, which would be a negativefor both equity and gold prices. Gold support rests at $1,322, with resistanceat $1,332, with a break here suggesting a minimum print of $1,338.
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