Ask yourself what will be central banks do after the initial taper? Interest rates are not expected to be raised next year by the Federal Reserve and European central banks. Bank of England has a slight chance of interest rate hike in the last quarter of next year. Taper or withdrawal of stimulus money will begin before the end of the year. There will be a slight reduction of global money supply.
If inflation remains stable or does not rise then money supply will also remain stable. Taper over and central banks continue without any change in monetary policy till second quarter of next year. Base metals, emerging market stocks and silver and energies will continue to rise. Gold will consolidate in $1630-$2030 wider range. Bond yields will rise.
The big question is that of policy change by central banks if headline inflation continues to rise. In my view central banks will tolerate all inflation rise till the first quarter of next year as preference will be for growth and job creation. There will be measures (other than interest rate hike) to reduce money supply and reduce investment demand in commodities. Most Asian central banks are expected to start raising interest rates from the first quarter of next year. Gold will reach $2500. Silver $50.00. Industrial metals and stock markets will see boom-bust type of price moves. Emerging market stocks will also crash first but will manage to hold 2021 lows. Bond yields will crash. Investment in bond will rise sharp on safe haven demand.
Paper assets are for short term. Hard assets are for long term. Convert at least fifty percent of profit from short term paper investment into long term hard assets like bullion, land etc. Inflation or stagflation, taper or delayed taper remove these economic terms from your mind. Central banks are just playing with your mind on taper and inflation related themes.
Short term and long term economic fundamentals are the key to every nation and every asset class (except crypto currencies). Why did gold and silver crash after the release of US August jobs numbers (NFP and ADP).? Why did industrial metals rise sharply after the release of US August jobs numbers? It is the fundamentals. In USA there are more job vacancies than the number of people going for jobs. Sooner or later these vacancies will be filled and upcoming US jobs numbers is expected to see a very sharp rise. Delta variant will not have any significant impact on US economic growth. There is expectation that US economic fundamentals will continue to be strong in September and rise every month till the first quarter of next year. Gold sold off after August NFP. Industrial metals rose on expectation that copper and nickel will remain in deficit this year and till 2023. Aluminium rose of higher demand prospects from copper substitution. Traders are trading and investing in industrial metals on long term demand fundamentals.
Technical Views (weekly)
Comex Silver December (closing price on 10th September $2377.30)
- Silver has to trade over $2333.20 this week to rise to $2488.20 and $2580.50.
- Failure to break $2503.50 by 24th September will result in a plunge to $2193.50 and $2009. (this is the technical view).
- We prefer to use any $125-$175 fall (if any) to invest for Diwali with a stop loss below $2009 and a price target of $2771.00 and more.
- Weekly Support: $2193.50, $2276.00, $2333 and $2363.00
- Weekly resistances: $2446.70, $2488.20, $2511 and $2580.50.
WTI Crude Oil future (closing price on 10th September $70.02)
- Crude oil will remain firm as normalcy will return only in a few weeks in US crude oil production facilities in the Gulf of Mexico.
- Crude oil has to trade over $66.20 to rise to $74.10 and $77.30
- Bearish trend will be there only if crude oil trades below $66.20 for alteast three consecutive trading days.
- Weekly Support: $62.10, $65.30, $66.20 and $67.90
- Weekly Resistances: $71.40 and $74.20.
US Consumer Price Index number on 14th September is the key. Traders will start taking position for Federal Reserve meet (after CPI numbers) on 22nd September. Pre FOMC market manipulation continues by various Federal Reserve speaker. They are commenting everyday on economy, virus and taper. Just ignore theme and focus on your own trading and investment. The current Federal Reserve chairman Powell office expires in January 2022. As of now there is no certainty over his re-election. Whispers over continuity of Federal Reserve chairman will increase volatility on US dollar Index but only after FOMC meet.