WEEK AHEAD: AUGUST 17

Short Description

The price of gold went from record highs above $2000 per oz to its biggest one day price crash in seven years. Is it the end of the bull market? I discuss that and preview the major economic events of the week. Thanks! Rich

Video Script

Hi everyone,

It’s time to preview the week ahead in markets- and I have been getting so many messages and comments with this one question that this video couldn’t be about anything else. Is it all over for gold? Gold saw its biggest one day price drop in seven years last week and understandably traders are wondering if it means the bull market is over. I’ll give my opinion on that AND rundown highlights from the economic calendar in just a moment.

Since we’re talking about gold – Did you know it is the most malleable element? A single ounce of gold can be beaten into a THREE HUNDRED-square-foot sheet. And a sheet of gold can be made so thin that it becomes transparent. Gold is also extremely ductile. A single ounce of gold can be stretched into a gold thread 5 miles (that’s 8 kilometres) long. If you liked learning something on gold – please click the like button – it really helps us spread the word about these videos!

So we’re getting into the typical late August thinner economic calendar but there are still some things to keep our eye on. Japan’s Q2 GDP is expected to show the world’s third largest economy remains in a recession. There is inflation data from the UK and Germany. FOMC minutes is the big one mid-week and ECB minutes are released the day after. Then we have August PMIs and UK retail sales to round off the week.

So what ON EARTH happened that made gold drop 125 dollars in one day? And I haven’t even mentioned silver which fell almost FIFTEEN PERCENT! I would say there were four main causes. 

One is the price trend was turning parabolic and wasn’t sustainable- gold had risen 14 out of 15 days and gained 15%. Two is profit-taking above $2000 per oz and at record highs. Three is that the US dollar was recovering after the better-than expected US jobs report. Four is that the US government was selling large amounts of debt at auction so investors sold their bonds before the new supply came in. Bond prices dropped amid the selling, bond yields spiked and the price of gold tanked. 

The first question I’m asking myself is – are those factors that drove the gold price down going to continue? Well the overbought market is over thanks to the sell-off and Treasury bond auctions are finished for now. The US dollar is seeing some recovery off two-year lows and could be establishing a bottom but for now remains in a downtrend. So the answer is probably no.

It really all boils down to real yields- that’s bond yields which take into account inflation. Right now when you buy a 10 year US government bond, you will lose money after accounting for inflation. The reason that’s happening is that the Federal Reserve is keeping yields artificially low by buying government and corporate bonds. At the same time the government is spending lots of money to help the economy in the pandemic, which investors expect to cause inflation. While real yields remain negative it’s still a good environment for gold.

Short term I think there is going to be some push and pull between traders who expect a bigger a pullback after Tuesday’s big drop and those who missed the rally and are jumping in again near $2000. After such a strong rally, it would make sense if price consolidate a bit before making the next move.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.