On a technical basis, the sentiment for gold is undeniably bearish, said Gary Wagner, editor of TheGoldForecast.com.
Gary Wagner editor of the Gulf forecast.com joins us now to discuss market action, Gary, welcome back. We're talking all things gold and monetary policy. As we're speaking, Jerome Powell has wrapped up his first session of his testimony with Congress. Very few of his quotes were a surprise to the markets and indeed the markets did not really react today.
The stock market is a up a little bit, but not substantially. Gold is down five bucks as we speak at around 3:30 PM. Eastern time, crypto markets have moved, but now I'm sure that's not because of power. So anyway, how you're reading Jerome Powell, his messages, he's basically saying the toolkit is open for monetary policy and that he still doesn't think that the economy has recovered to his goals for full employment and inflation.
So nothing really new there. Right. I mean, the way that I look at it is Jerome Powell has said a consistent course throughout this entire pandemic, starting with taking interest rates to zero to 25 basis points we've ever really seen it move up that much. They're still purchasing a one. $120 billion per month of mortgage backed securities and bonds.
And so whether there's a real sense that they've done everything that they can, and really what we're waiting on is fiscal stimulus. Of course, we spent 4 trillion last year, but what's on the table. So to speak is the $1.9 trillion budget that, uh, by president Biden has proposed. And the fact of the matter is.
They can run that through, uh, both Congress, as well as the Senate, without any Republican support. It can be a bipartisan bill because they've got 50, 50 in the Senate and they've got a tie breaker with the vice-president and that's how they put the budget resolution through last week. I believe that they'll do the same thing.
With fiscal stimulus onwards run through with, or without Republican support. I think that will be bullish for gold. I also think that will be bearish for the dollar. Well, what's the relationship. What's the direct relationship here between fiscal stimulus and gold. So can you walk us through the mechanism?
Suppose they introduced fiscal stimulus? W what then what, how, how does gold react? Why does a react. Well, first of all, it's, it's a pretty clear cut relationship. And that is that since the dollar is trading or gold is trading, excuse me, against the dollar. Uh, fiscal stimulus is creating additional debt.
So if we add $2 trillion to our debt, it's. Uh, expanding the pool or the amount of dollars out in circulation and our debt that has to take the dollar lower. And if the dollar goes lower, you get the reciprocal reaction in gold. Gold will go higher. The two components to how gold trades or price changes.
Is dollar sensitivity, whether it's strong or weak and whether a traders are buying or selling. And so the dollar is a huge component. And if we do fiscal stimulus, it creates additional debt and that debt converts to a lower dollar, a lower dollar converts to higher. I see. And how long does that process take before?
Let's say, let's say we get stimulus next week. How long before goal reacts? What's the lag there. I think that they're partially baking it into the market right now. That's why we saw the market really hit the lows at around 1760 and then pop up the other day back above 1800. Right now we're trading at 1805.
So we've seen. Really a bottom form in there. It's really a double bottom, because if you look at the charts it's on the screen, uh, back at the end of November, you also hit these lows. The question on a technical basis is that we are in a bearish mode because we've got a series of lower. Highs and lower lows.
We also had the death cross when the 50 day moving average cross below the 200 day. So on a technical basis, it's got a ways to go before I get extremely bullish again, but it does seem as though at least tentatively it has formed a bottom. It has formed a bottom. All right. Let's. Come back to golden just a minute.
I want to go back to monetary policy. Now Powell made an interesting statement to me. At least he said the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial, further progress to be achieved. I wonder if the markets disagree with that statement because as you know, bond yields have risen substantially since the beginning of the year and economists and traders alike are saying that yields are rising because of improving economic expectations.
Uh, so clearly this disconnect there. Well, th the disconnect is the way that market participants look at equities and bonds. They're not looking at where we're at today. They're, they're attempting to forecast where they believe it will be in the future. I think that in terms of equities, it's definitely gotten ahead of itself.
We've seen a series of all time record highs in the, uh, the Dow NASDAQ and S and P of course has backed off recently. And. Because of that, that forward thinking they're looking and saying, well, by the end of this year, 2021, the belief right now is that we should have enough vaccines throughout America and North America, meaning Canada, where we start to begin to get herd immunity.
And that of course will create a normalization of the economic environment when people can travel when they can move around the country freely, when they're not. Locked down, so to speak in, in their homes, right? That's changed. You're looking at, but clearly that's down the road. And what Powell made perfectly clear is that as good as we believe the economy might get, the fact is that we still have over 10 million unemployed Americans.
That's a huge, huge number. And so. He wants to continue to create policies, to get to that mandate of full employment. And he's willing to let inflation run hot to do that because their target for years has always been 2%. In other words, if they saw inflation tick up around one and a half, One and three quarters, they were ready to pull the trigger and raise rates.
They also took a lot of heat back in 2009, because it was believed that they raised rates too quickly and they don't want to repeat that mistake. And so that's why I think that. Even though we're seeing changes in the yield curve. I think that's getting ahead of itself. And Paul even said disregard what you're seeing in terms of yield curves.
We're fully committed to keeping interest rates low and as long as they do that and have that accommodative monetary policy, well infuse the liquidity that is needed. Along with fiscal stimulus to restart our economy and not go back to pre pandemic days. But after pandemic days, there'll be some sort of a new normal, but it is improving.
That's the key, well, inflation is ahead of itself. Yeah, well, you're right. Inflation and employment are still below the Fed's target levels, but I'm wondering. Are they wrong? Is the fed wrong about CPI. There's some speculation amongst investors and, uh, and traders and our viewers alike that look, they're looking at data and the data is not suggesting that inflation is picking up, but that's not reflecting real life.
Correct. I would have to agree with that. The key right now is that what he is looking at are the sectors itself that have been hit the hardest, the travel industry, the airlines, the, uh, the cruise ships and the service areas, meaning the hotels. And all that is related all of the workers that work in the tourism industry.
And I can tell you from my personal experience, living in Hawaii, I went down to, uh, Waikiki, which is the typical tourist spot. And there were people walking around again. So we have people coming in, staying in our hotels. Granted they might only be at 25 or 30% capacity. But that's a huge, huge difference than when they had shut their doors.
And so, because of that, we are seeing subtle small upticks in the economy, but. The market participants are aggressively looking towards the future. And I think they might be just a little bit ahead of themselves, but I don't think that they're wrong in that the economy is improving. It's going to just take some time and that's what Powell underscored.
That's what Dr. Fowchee underscored. That's really going to be the end of 2021 this year, when things begin to really normalize. Okay. Let's tie this back into the markets. Now, how would you characterize sentiment? Could you put a pulse on it? Do you think traders are a little more greedy right now or a little more fearful?
Well, you know, you talked about the fact that we didn't see a huge spike after Powell spoke in us equities, but they were down and they were down pretty strong. They moved off of those lows as he spoke. So they took it, um, in a very positive light. All right. Gold. Then you, you mentioned earlier in the interview that we're, we've hit a bottom.
All right. Well, that's good news for gold investors. Can you elaborate on that pattern? Well, the, I mean the bottom of the double bottom that we have, if you look at the chart, you can see that we've had a series of two lows, one coming in mid November, and one coming in just recently. And this is a daily chart.
But you have to look at the caveats to that. And that is, we still have strong resistance. I am looking at 1850. That is 1850. One is a 50 day moving average. Uh, 1850 is the 38.2% Fibonacci retracement and then 18. 66 is the 100 day moving average. So you've got that area where you could see substantial resistance come in the market.
And that's only about $40 away. I think that if we can have an effective, close above, call it 1850, then we're off to the races again. So to speak, we then have a level of 1880. And then of course at around 1980 to 1990, But the one thing that is troublesome to me is that we have had this series of lower highs and lower lows on our daily chart.
And that definitely that, and the fact that we had a death cross between the 50 and 200 day is saying that market sentiment with gold is bearish right now. Okay. What do you think is causing this bearish sentiment? I I've spoken to various, um, experts on this subject and the consensus seems to be that gold has been reacting to real interest rates, not moving at all.
And I wonder if you agree with that. Well, I, I, I see it a little bit different. Sure. Right now you've got us equities that have been doing exceptionally well. And so when you look at liquidity theory, you want your, your. Assets producing income for you. And so when the, when you've got certain stocks that were raging, Tesla was going up, uh, you had the tech sector up until the last couple of days, really moving strongly.
The mentality of the market participants are going to put their money and move it into equities and out of a safe Haven asset. In other words, The, it, it seems as though the worst of the pandemic is now over because we have definitely seen down ticks in terms of number of cases. Number of hospitalizations.
Now, granted the somber effect is that yesterday it was announced we had 500 million souls lost in the United States deaths. But the key is, is that that number, the curve is going down. They vaccinated, I believe they said about. Uh, 13% to 20% of the U S population. So there, there's also supply chain issues in getting everybody vaccinated.
And that is a key right now, the quicker they can get shots in the arm. The quicker we will see the economy return. And so the reason gold is under pressure is there's money to be made in equities. And the fear factor that depend demic will continue to steamroll and get worse has definitely been alleviated.
And there's no question about that, but then th th the tempering effect is when you hear a drone Powell, yes. Those things are happening, but it's gonna take time. And that's why people are looking at the third and fourth quarter of this year effectively to get to some sort of normalcy again. And what concerns him is that dual mandate with the expressed a concern about unemployment at 10 million individuals, because.
You know, to get to full employment, we've got a ways to go, to get back to predict pandemic days. What were around three and a half percent in terms of unemployment. We've got to get back to those types of numbers and we're still quite a ways. Right. Okay. So you think that gold has been reacting more to a bullish sentiment and the equities of risk on sentiment more than yields?
Is that that's your, that's your view? That is my view. I think that that's been a great factor. The dollar has seen some strength come back into the market. I think that that's a short term move right now. I still think overall throughout the year, we'll see a lower dollar, but for the, you know, the last week or so, we've seen upticks in the dollar.
So when you have bullish sentiment in us equities, and you have dollar strength, you're going to get weakness and gold. Okay, well then let's talk about the U S equities then, because, um, according to your analysis is an important factor, determining gold. I'm looking at the S and P 500, it's been more or less flat over the last couple of weeks.
Uh, you said earlier that markets have gotten ahead of itself. I wonder if you still think that, uh, markets are, are, are, uh, you know, overbought right now where maybe investors are starting to pick up on this fact, and that's why it's trading sideways. What do you think? Well, I, you know, I wouldn't call it sideways.
I just put up a, the standard and Poor's 500 index chart. This is the, of course the big one, not the mini S and P and 38 90 point 75. You can see that the low that came in today at 37 96 was. Approximately, or I would say within striking distance of the 50 day moving average. So we can see genuinely that as the market came up, we've got a rounded top.
It came down today, tested those lows and then came back up and is now in positive territory. All right. Okay. So final question. Then let's put all this together. If you were to deploy capital right now, given your analysis on, on, on the equities and gold and perhaps other metals, what would you be buying if you had to buy something now, what would it be?
Well, I, I think that, you know, every, every investor is, is different, but you should always have, I believe. Uh, 10 to 15% of your portfolio into the heart acid gold and, and a lot of that being physical gold, buying it, holding it. It's just something you want. It is not a stock market, but rather a, uh, it's a market of stocks.
And so selection is critical. And so we're seeing rotation right now out of. These, uh, the tech heavy NASDAQ, which has been under pressure and they're moving into some secondary markets are also moving into international equities. So I think that where you would put your money is equities are still a place you're going to put a good portion of it.
I like silver. Uh, we've been long sober, um, both through SLV and the futures, contracts and Forex for quite some time. And that seems to be a strong market because the differentiate, the differ rents between gold and silver is that when equities are doing very well, you get the industrial component of silver kicking in.
And so that's why we saw silver continually outperform gold over this last month. So I'm ex I'm extremely bullish on silver platinum had a major move, but then that sold off over the last couple of days. I think that's due to the thinness of that market itself and the lack of liquidity. It has the smallest open interest of any futures contract.
So I think silver for the metals in terms of speculation, certain equities. That's where you want your money. All right. Now I just, I want to make sure I understand you, you, you said earlier that, uh, you are. You are somewhat bearish on gold in the interim, in the short term, based on the technicals yet gold has bottomed.
Am I, am I understanding that correctly? We've got a technical bottom that came in and we're off the bottom 1750. We're only about $55 above that. However, we buy the fact that we've had a series of lower lows and lower highs. And are below the 200 day. Moving average on a technical basis is bearish. You, you, there's no way to deny that the market's simply so overcome that and move back about that area.
All right. So investors who are wondering, because if you look at a multi month chart of gold, it's been trending downwards. The wondering, went to buy the dip. If they suppose they bought last summer, where last year were before that, for example, and you're saying maybe, maybe wait for more pullbacks. Well, I, I, we might have seen the final pullback back when it hits 1750, but I'm seeing the market right now, uh, really having difficulty moving to certain areas.
And of course, lastly is Bitcoin has stolen some of the thunder of gold itself. Um, you've definitely gotten the millennials who have some speculative dollars in the market moving into that. I mean, it's. Down hard today at around what? Um, 46 is that I believe coins down about 20% from its highest from yeah.
A few days ago. Yeah. Right. Which was what? 55? 57,058. Yeah. Uh, 58. Yeah. So yeah, that has stolen some thunder. You unquestionably. All right, well, let's follow up again, Gary. And, uh, w we look forward to speaking again on the next price move. Thanks very much for coming on today. My pleasure as always have a great day, David, and thank you for watching Kitco news.
I'm David Lynn. .