Gold had another precipitous drop on Wednesday (Sept. 23), falling through the support level at $1,900 to a 2-month low. That has led some to ask – is the gold bull dead?
The concern is understandable but I think it’s too early to declare last rites.
In order to believe the gold bull run is over, you have to believe the Federal Reserve is actually going to tighten monetary policy and the dollar is going to remain strong.
That seems rather unbelievable.
The big drop in gold and silver has primarily been driven by dollar strength. The dollar index hit a two-month high on Wednesday. Investors have moved into the dollar due to concerns about a resurgence in coronavirus in Europe and the possibility of further economic lockdowns. The sudden risk-off sentiment hasn’t only clobbered gold and silver. US stocks have taken big hits as well. In some ways, it looks a little bit like March when everything was selling off.
But the big driver of all of this is the Fed. In many ways, the selloff we’ve seen both in stocks and precious metals is a big temper tantrum because the Fed didn’t promise more stimulus during the September FOMC meeting. Sure, the central bank maintained its commitment to extraordinary monetary policy. But the markets don’t think that’s enough. As Peter Schiff put it in a podcast earlier this week, there’s this idea out there that the Federal Reserve is not loose enough. The Fed’s monetary policy is not dovish enough. What we have is not enough. The addict wants even more of the monetary drug.