Sive Morten
Special Consultant to the FPA
- Messages
- 22,093
FUNDAMENTALS
With the taking of the first steps by the Fed and US Treasury investors start guessing on their general strategy. Now the major concern stands about duration of this policy. Whether it will be 1-2 rate changes or it will turn to long cycle. At the same time, market starts understanding of the basics. This explains why gold behaves differently. Current strategy is potentially inflationary which makes impact on the market expectations and performance.
MARKET OVERVIEW
Gold extended its recovery at the end of a volatile week as oil fell, and traders weighed the Federal Reserve’s rate path after its first hike since 2023. Bullion was trading around $4,350 an ounce. Oil’s decline is allaying concerns over inflation, with supply disruptions in the Middle East looking set to ease. Higher energy prices had reinforced bets on interest rates staying elevated for longer, a negative for non-yielding bullion.
The precious metal was lifted Thursday as Saudi Arabia moved to restore flows along its crucial East-West pipeline within days. The metal is now back above the 100-day moving average, a measure of momentum. Even so, it’s still nearly a fifth below a record reached in January. Investors have been flocking to bullion in recent weeks, betting that the long-term drivers of the metal will endure. Gold-backed exchange-traded funds tracked by Bloomberg had eight consecutive days of inflows, the longest streak since October 2025.
The Fed hikes are likely to slow, rather than derail, the gold rally, analysts at Goldman Sachs Group Inc. including Lina Thomas wrote in a note, cutting their year-end target from $4,900 an ounce to $4,650.
The Federal Reserve raised interest rates by a quarter of a percentage point to the 3.75%-4% range on Wednesday and flagged more hikes in the coming months.
Traders now see a 55% chance of another US rate hike when the central bankers meet next in October, according to the CME FedWatch tool.
Chairman Kevin Warsh’s rhetoric on inflation drove up market-implied expectations for at least one more increase this year and as many as two more in 2027. The Fed flagged more hikes in the coming months, with Chair Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation that policymakers worry could worsen.
Geopolitical turmoil and fiscal uncertainty powered gold mining stocks to their best August performance since at least 1994, outpacing the advances in bullion by more than three times over, despite a turbulent end to the period following Federal Reserve Chairman Kevin Warsh’s vow to rein in inflation. Shares on average have jumped for 20-30%, while the price of gold itself jumped just 10% in August.
The US Treasury’s attempts to rein in long-term borrowing costs has sent investors flooding back to gold and its proxies. Miners, because of their fixed costs, are a leveraged bet on further gains in the precious metal. Some investors say miners are ready for another epic run. That’s the thinking of Craig Basinger, chief market strategist at Purpose Investments, who added miner Agnico Eagle Mines Ltd. to the firm’s dividend fund in mid-July when gold was defying rising yields. Agnico shares rose 40% in August.
Technical strategists who watch chart patterns are seeing green lights for gold. Derivatives traders are exercising more caution than they did during January’s rally, using exotic options and spreads to keep their costs in check. Demand for options on some of the largest gold-backed ETFs has been similarly strong. The largest such fund, SPDR Gold Shares, recently saw the highest level of outstanding call options since the early weeks of the year. The outstanding contracts can amplify volatility in bullion, as dealers rush to hedge by buying ETFs when prices rise and selling when prices fall.
Toronto-based Brompton Funds started rebuilding exposure to gold-tied equities in August, after reducing holdings during the selloff, according to Laura Lau, chief investment officer at Brompton. The firm is looking to further increase its weightings of gold stocks as it expects bullion to once again test $5,000 an ounce, like it did in March.
Bullion will remain well-supported in the medium term even if the Fed hikes, JPMorgan’s Tang said. Monetary tightening “would add pressure to parts of the economy that are already struggling with elevated energy costs and risk a widened K-shaped growth trajectory,” increasing recession risk that will be positive for gold, she said.
Not everyone is going all in on gold’s rally. At Fiera Capital, portfolio manager Candice Bangsund says gold prices could fall as low as $4,000 after moving “a little bit too far too fast.”
MARKET COMMENTS
This week not only the Fed and Boe have made decision on the rate but BoJ as well. Why it might be important. here was no additional hawkishness in the press release, although the trend of raising interest rates continues. However, the Bank of Japan, once again, appears hesitant, effectively confirming that it is unable to take any decisive action.
Furthermore, internal opposition to the rate hikes is growing, and is being fueled by Prime Minister Sanae Takaiichi. It is fundamentally difficult for them to raise interest rates more quickly (more than 0.5 percentage points per year) – there could be problems in the financial system. They must continue to balance, trying to prevent the situation from getting out of control... hoping that the processes of interest rate increases and inflation in the world will reverse before their options are exhausted...
Since the beginning of the year, Japan has lost $169 billion in reserves, and its portfolio of securities has decreased by $164 billion, while deposits have decreased by $5 billion. However, this has only prevented further depreciation of the yen, which has again risen above 157 yen per dollar. Given the accelerating inflation in the world over the next six months to a year, real interest rates will remain deeply negative. The differential with interest rates in the US could widen even further, and reserves will have to be spent again. The yield on ten-year bonds is around 3%, and the yield on thirty-year bonds is above 4%.
And this is not unique situation to Japan. In the US we see the same. More and more investors start asking questions about inflation calculations. PCE and CPI are not more true indicators. And it is not a secret that currency devaluation is one of the measures that the Fed is trying to apply to resolve debt problem - printing more and repaid "old expensive dollars" with " cheap modern ones".
As a result of this tactics, investment flows to the US are narrowed. China is buying twice as much gold as officially reported. ccording to Goldman Sachs, central banks bought 44 tons of gold in July, twice the average for before 2022. The leading buyer actually purchased 35 tons, but officially reported only 19.9 tons. Reserves are already at 2,386 tons (5th place in the world), an increase of 122% since 2015. At the same time, investments in US Treasuries have fallen by 41% since 2020, indicating a clear shift from the dollar to gold.
Simultaneously, institutional demand is growing in Asia. India has allowed pension funds and equity funds to invest up to 35% of their assets in gold/silver, and the largest insurance companies in China are now allowed to hold up to 1% of their assets in physical gold.
Meantime, a golden autumn for oil is on the horizon. There's just the "paper" Brent price left to break through to the levels of physical deliveries, but in this situation, the "paper" price is the strongest, and banks are backing it. Nevertheless this barrier should be overcome within a month: strategic reserves are running out, and they need to be replenished sooner or later. The market will also eventually realize this fact. By the way, a gold/Brent ratio of 30 is a working, crisis-level ratio. Currently, it's higher (39-40), but this is precisely because of the release of the SPR (Strategic Petroleum Reserve).
Omani oil is already at $150 a barrel, and judging by the price surge, it's being snapped up like hotcakes. After all, unlike Saudi or Iraqi oil, this grade is available here and now, not in 2 or 3 months, and not from a port where you can't even ship it out.
On a back of all this stuff, NYT released a scathing article on how global economies are increasingly distancing themselves from the United States. Investors are fleeing U.S. government bonds, despite the artificial optimism of the Treasury Secretary. Various blocs of countries – China, Hong Kong, Thailand, Saudi Arabia, the UAE, and countries within the G7 – are building alternative platforms for settling transactions using cryptocurrencies, bypassing American banks. The United States is increasingly finding itself in isolation. It seems that Trump has alienated everyone.
Despite pledges by foreign companies and nations to invest in the United States — in many cases to curry favor with the White House — capital is starting to seek alternative destinations.
The United States is not yet an investment pariah. Private investors are still pouring money into American financial markets and stocks, artificial intelligence infrastructure is booming and no rival currency is poised to topple the dollar imminently. But cracks in America’s economic dominance are starting to show.
The most glaring example has been in the bond market. Yields have been soaring as investors nervous about the mounting national debt demand a higher rate of return for buying Treasury bonds. The ominous bond threshold was crossed a week after the Treasury Department purchased $5.2 billion of its own debt maturing in the next 10 to 20 years.
With the United States’ long-term fiscal situation looking shaky, some countries are starting to wonder if America is a wise investment. This month, Norway’s sovereign wealth fund, the largest in the world, said it planned to reduce its holdings of U.S. Treasuries as it looks elsewhere for stronger returns. And then there is the future of the dollar.
Although the euro and China’s renminbi do not appear ready to overtake the dollar anytime soon, the emergence of central bank digital currencies, stablecoins and cryptocurrencies gives U.S. adversaries new avenues to circumvent the American financial system when making international transactions. While some countries are focused on digital money, others are going for the gold as they fret about the stability of the United States.
Demand for gold is so high that some countries also want to keep theirs closer to home. With geopolitical unrest rising and Mr. Trump lobbing tariff threats against European allies, some have even taken the rare step of relocating the gold that they keep in vaults at the Federal Reserve Bank of New York. The Trump administration has not threatened to seize foreign gold held in the United States, but Mr. Trump has raised questions about his views of international law by floating the idea of colonizing places like Greenland and Canada.
CONCLUSION
Currently it is becoming more evident what the Fed and other central banks want to do. They want to escape clear financial crisis with crushing of the markets but they want to devalue it gradually via inflation. Not only in the US but in Japan real rates will remain low or even negative which is potentially supportive to gold. It is a big uncertainty now about whether they will succeed with resolving a debt problem via devaluation, so no guarantee here. But what they definitely will get - an inflation and another spiral of real rates drop. Because positive real rates and assets devaluation are mutually exclusive things in current situation. Big energy crisis could not just increase inflationary pressure but become a trigger of a real recession if expenses burden will be too heavy to keep business. Since the nature of inflation in the US is structural, any rate change doesn't cut expenses of companies, or create cheap oil or whatever. It just increases the cost of the money that only spinning up inflation again. This explains why gold behaves so different compares to FX market. Investors start understand this. As we said - the US has no solution except QE and controlled stock bubble devaluation via real negative interest rates and dollar value. But all these process are starting almost in all G7 countries - we do not see it, because relative balance holds in currency pairs. And it seems that nothing is going on. This is because all of them are becoming cheaper together. And we see this reflection in gold price. I don't know how it will go further but now it is very interesting.
TECHNICALS
MONTHLY
Big charts are not impacted yet by gold volatility as it stands in relatively tight range. So, September now is just an inside month for August. What is really important here is uncompleted B&B "Buy" with the target around 4960$.
WEEKLY
Trend remains bullish here. Price is not in touch yet with the MACD line, but it could happen within 2 weeks. Since overall long-term context is bullish, grabbers would be quite welcome here.
DAILY
Right in the beginning of the next week gold comes in touch with the MACD. Although bearish pattern here doesn't fit to the sentiment, it still could be formed. Upward performance now looks fragile as well. The one thing that we said right - this is not the H&S and more looks like the wedge pattern. If even you treat it as H&S - here is the obvious sign of "Failure" when price starts forming the third shoulder.
INTRADAY
Anyway performance is slow. 4H shows that our grabber are done, but price now stands at K-resistance area. Despite that divergence is still valid - this is not the best place for taking of a new long position. Especially under risk of the daily bearish grabber. Most probable scenario for Monday here is a downside pullback as a response on K-area
It seems that most important picture for Monday stands on 1H. First is we have a bearish grabber (as well as on futures) that suggests pullback at least to 4335$ support. And this is absolutely fine, since market stands at K-resistance and formed upside reversal swing, which suggests even deeper retracement. So, I wouldn't exclude here the drop back to 4300$ support. If it goes slowly - it also could become a re-test of broken trend line. Finally, this scenario also gives us reverse H&S pattern. So, maybe it is even more preferable plan.
With the taking of the first steps by the Fed and US Treasury investors start guessing on their general strategy. Now the major concern stands about duration of this policy. Whether it will be 1-2 rate changes or it will turn to long cycle. At the same time, market starts understanding of the basics. This explains why gold behaves differently. Current strategy is potentially inflationary which makes impact on the market expectations and performance.
MARKET OVERVIEW
Gold extended its recovery at the end of a volatile week as oil fell, and traders weighed the Federal Reserve’s rate path after its first hike since 2023. Bullion was trading around $4,350 an ounce. Oil’s decline is allaying concerns over inflation, with supply disruptions in the Middle East looking set to ease. Higher energy prices had reinforced bets on interest rates staying elevated for longer, a negative for non-yielding bullion.
The precious metal was lifted Thursday as Saudi Arabia moved to restore flows along its crucial East-West pipeline within days. The metal is now back above the 100-day moving average, a measure of momentum. Even so, it’s still nearly a fifth below a record reached in January. Investors have been flocking to bullion in recent weeks, betting that the long-term drivers of the metal will endure. Gold-backed exchange-traded funds tracked by Bloomberg had eight consecutive days of inflows, the longest streak since October 2025.
The Fed hikes are likely to slow, rather than derail, the gold rally, analysts at Goldman Sachs Group Inc. including Lina Thomas wrote in a note, cutting their year-end target from $4,900 an ounce to $4,650.
The Federal Reserve raised interest rates by a quarter of a percentage point to the 3.75%-4% range on Wednesday and flagged more hikes in the coming months.
Traders now see a 55% chance of another US rate hike when the central bankers meet next in October, according to the CME FedWatch tool.
Chairman Kevin Warsh’s rhetoric on inflation drove up market-implied expectations for at least one more increase this year and as many as two more in 2027. The Fed flagged more hikes in the coming months, with Chair Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation that policymakers worry could worsen.
Geopolitical turmoil and fiscal uncertainty powered gold mining stocks to their best August performance since at least 1994, outpacing the advances in bullion by more than three times over, despite a turbulent end to the period following Federal Reserve Chairman Kevin Warsh’s vow to rein in inflation. Shares on average have jumped for 20-30%, while the price of gold itself jumped just 10% in August.
The US Treasury’s attempts to rein in long-term borrowing costs has sent investors flooding back to gold and its proxies. Miners, because of their fixed costs, are a leveraged bet on further gains in the precious metal. Some investors say miners are ready for another epic run. That’s the thinking of Craig Basinger, chief market strategist at Purpose Investments, who added miner Agnico Eagle Mines Ltd. to the firm’s dividend fund in mid-July when gold was defying rising yields. Agnico shares rose 40% in August.
Technical strategists who watch chart patterns are seeing green lights for gold. Derivatives traders are exercising more caution than they did during January’s rally, using exotic options and spreads to keep their costs in check. Demand for options on some of the largest gold-backed ETFs has been similarly strong. The largest such fund, SPDR Gold Shares, recently saw the highest level of outstanding call options since the early weeks of the year. The outstanding contracts can amplify volatility in bullion, as dealers rush to hedge by buying ETFs when prices rise and selling when prices fall.
Toronto-based Brompton Funds started rebuilding exposure to gold-tied equities in August, after reducing holdings during the selloff, according to Laura Lau, chief investment officer at Brompton. The firm is looking to further increase its weightings of gold stocks as it expects bullion to once again test $5,000 an ounce, like it did in March.
Bullion will remain well-supported in the medium term even if the Fed hikes, JPMorgan’s Tang said. Monetary tightening “would add pressure to parts of the economy that are already struggling with elevated energy costs and risk a widened K-shaped growth trajectory,” increasing recession risk that will be positive for gold, she said.
Not everyone is going all in on gold’s rally. At Fiera Capital, portfolio manager Candice Bangsund says gold prices could fall as low as $4,000 after moving “a little bit too far too fast.”
MARKET COMMENTS
This week not only the Fed and Boe have made decision on the rate but BoJ as well. Why it might be important. here was no additional hawkishness in the press release, although the trend of raising interest rates continues. However, the Bank of Japan, once again, appears hesitant, effectively confirming that it is unable to take any decisive action.
Furthermore, internal opposition to the rate hikes is growing, and is being fueled by Prime Minister Sanae Takaiichi. It is fundamentally difficult for them to raise interest rates more quickly (more than 0.5 percentage points per year) – there could be problems in the financial system. They must continue to balance, trying to prevent the situation from getting out of control... hoping that the processes of interest rate increases and inflation in the world will reverse before their options are exhausted...
Since the beginning of the year, Japan has lost $169 billion in reserves, and its portfolio of securities has decreased by $164 billion, while deposits have decreased by $5 billion. However, this has only prevented further depreciation of the yen, which has again risen above 157 yen per dollar. Given the accelerating inflation in the world over the next six months to a year, real interest rates will remain deeply negative. The differential with interest rates in the US could widen even further, and reserves will have to be spent again. The yield on ten-year bonds is around 3%, and the yield on thirty-year bonds is above 4%.
And this is not unique situation to Japan. In the US we see the same. More and more investors start asking questions about inflation calculations. PCE and CPI are not more true indicators. And it is not a secret that currency devaluation is one of the measures that the Fed is trying to apply to resolve debt problem - printing more and repaid "old expensive dollars" with " cheap modern ones".
As a result of this tactics, investment flows to the US are narrowed. China is buying twice as much gold as officially reported. ccording to Goldman Sachs, central banks bought 44 tons of gold in July, twice the average for before 2022. The leading buyer actually purchased 35 tons, but officially reported only 19.9 tons. Reserves are already at 2,386 tons (5th place in the world), an increase of 122% since 2015. At the same time, investments in US Treasuries have fallen by 41% since 2020, indicating a clear shift from the dollar to gold.
Simultaneously, institutional demand is growing in Asia. India has allowed pension funds and equity funds to invest up to 35% of their assets in gold/silver, and the largest insurance companies in China are now allowed to hold up to 1% of their assets in physical gold.
Meantime, a golden autumn for oil is on the horizon. There's just the "paper" Brent price left to break through to the levels of physical deliveries, but in this situation, the "paper" price is the strongest, and banks are backing it. Nevertheless this barrier should be overcome within a month: strategic reserves are running out, and they need to be replenished sooner or later. The market will also eventually realize this fact. By the way, a gold/Brent ratio of 30 is a working, crisis-level ratio. Currently, it's higher (39-40), but this is precisely because of the release of the SPR (Strategic Petroleum Reserve).
Omani oil is already at $150 a barrel, and judging by the price surge, it's being snapped up like hotcakes. After all, unlike Saudi or Iraqi oil, this grade is available here and now, not in 2 or 3 months, and not from a port where you can't even ship it out.
On a back of all this stuff, NYT released a scathing article on how global economies are increasingly distancing themselves from the United States. Investors are fleeing U.S. government bonds, despite the artificial optimism of the Treasury Secretary. Various blocs of countries – China, Hong Kong, Thailand, Saudi Arabia, the UAE, and countries within the G7 – are building alternative platforms for settling transactions using cryptocurrencies, bypassing American banks. The United States is increasingly finding itself in isolation. It seems that Trump has alienated everyone.
Despite pledges by foreign companies and nations to invest in the United States — in many cases to curry favor with the White House — capital is starting to seek alternative destinations.
The United States is not yet an investment pariah. Private investors are still pouring money into American financial markets and stocks, artificial intelligence infrastructure is booming and no rival currency is poised to topple the dollar imminently. But cracks in America’s economic dominance are starting to show.
The most glaring example has been in the bond market. Yields have been soaring as investors nervous about the mounting national debt demand a higher rate of return for buying Treasury bonds. The ominous bond threshold was crossed a week after the Treasury Department purchased $5.2 billion of its own debt maturing in the next 10 to 20 years.
With the United States’ long-term fiscal situation looking shaky, some countries are starting to wonder if America is a wise investment. This month, Norway’s sovereign wealth fund, the largest in the world, said it planned to reduce its holdings of U.S. Treasuries as it looks elsewhere for stronger returns. And then there is the future of the dollar.
Although the euro and China’s renminbi do not appear ready to overtake the dollar anytime soon, the emergence of central bank digital currencies, stablecoins and cryptocurrencies gives U.S. adversaries new avenues to circumvent the American financial system when making international transactions. While some countries are focused on digital money, others are going for the gold as they fret about the stability of the United States.
Demand for gold is so high that some countries also want to keep theirs closer to home. With geopolitical unrest rising and Mr. Trump lobbing tariff threats against European allies, some have even taken the rare step of relocating the gold that they keep in vaults at the Federal Reserve Bank of New York. The Trump administration has not threatened to seize foreign gold held in the United States, but Mr. Trump has raised questions about his views of international law by floating the idea of colonizing places like Greenland and Canada.
CONCLUSION
Currently it is becoming more evident what the Fed and other central banks want to do. They want to escape clear financial crisis with crushing of the markets but they want to devalue it gradually via inflation. Not only in the US but in Japan real rates will remain low or even negative which is potentially supportive to gold. It is a big uncertainty now about whether they will succeed with resolving a debt problem via devaluation, so no guarantee here. But what they definitely will get - an inflation and another spiral of real rates drop. Because positive real rates and assets devaluation are mutually exclusive things in current situation. Big energy crisis could not just increase inflationary pressure but become a trigger of a real recession if expenses burden will be too heavy to keep business. Since the nature of inflation in the US is structural, any rate change doesn't cut expenses of companies, or create cheap oil or whatever. It just increases the cost of the money that only spinning up inflation again. This explains why gold behaves so different compares to FX market. Investors start understand this. As we said - the US has no solution except QE and controlled stock bubble devaluation via real negative interest rates and dollar value. But all these process are starting almost in all G7 countries - we do not see it, because relative balance holds in currency pairs. And it seems that nothing is going on. This is because all of them are becoming cheaper together. And we see this reflection in gold price. I don't know how it will go further but now it is very interesting.
TECHNICALS
MONTHLY
Big charts are not impacted yet by gold volatility as it stands in relatively tight range. So, September now is just an inside month for August. What is really important here is uncompleted B&B "Buy" with the target around 4960$.
WEEKLY
Trend remains bullish here. Price is not in touch yet with the MACD line, but it could happen within 2 weeks. Since overall long-term context is bullish, grabbers would be quite welcome here.
DAILY
Right in the beginning of the next week gold comes in touch with the MACD. Although bearish pattern here doesn't fit to the sentiment, it still could be formed. Upward performance now looks fragile as well. The one thing that we said right - this is not the H&S and more looks like the wedge pattern. If even you treat it as H&S - here is the obvious sign of "Failure" when price starts forming the third shoulder.
INTRADAY
Anyway performance is slow. 4H shows that our grabber are done, but price now stands at K-resistance area. Despite that divergence is still valid - this is not the best place for taking of a new long position. Especially under risk of the daily bearish grabber. Most probable scenario for Monday here is a downside pullback as a response on K-area
It seems that most important picture for Monday stands on 1H. First is we have a bearish grabber (as well as on futures) that suggests pullback at least to 4335$ support. And this is absolutely fine, since market stands at K-resistance and formed upside reversal swing, which suggests even deeper retracement. So, I wouldn't exclude here the drop back to 4300$ support. If it goes slowly - it also could become a re-test of broken trend line. Finally, this scenario also gives us reverse H&S pattern. So, maybe it is even more preferable plan.
