Events have conspired to impede gold’s expected rise June 3, 2022
[Adam Hamilton] “This recent epic Fed hawkishness didn’t directly hammer gold stocks lower, as they really don’t care what the FOMC is doing. All that matters to the gold miners is the price of gold, which is influenced by the Fed’s machinations. The primary driver of gold’s short-term price action is leveraged gold-futures trading. Low margin requirements enable huge leverage around 25x+, which is crazy-risky necessitating a myopic focus.
As gold has been the ultimate global currency for millennia, gold-futures speculators watch the fortunes of the US dollar for their main trading cues. When the dollar rallies, they usually sell gold futures which has an outsized impact on gold’s price due to their extreme leverage. The US dollar in turn is heavily affected by the FOMC’s monetary-policy direction, as interest-rate differentials are important in world currency trading.
So gold stocks follow gold, which is often slaved to leveraged gold-futures trading, which usually runs inverse to the US dollar, which is very dependent on what the Fed is doing! This causal mechanism is the sole reason gold stocks were eviscerated in that month between mid-April to mid-May.”
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“All that heavy gold-futures and gold-ETF-share selling hammering the yellow metal is the sole reason GDX plunged 26.2% within that same month-long span. That was a brutal kick in the teeth for gold-stock speculators and investors, slamming the miners’ stocks low enough to trigger a frustrating mass-stopping in mid-May. Cascading capitulation-like selling tripped even loose trailing stops, forcing out most traders.”
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“Once they set expectations for a series of consecutive big 50bp rate hikes and the biggest-and-fastest-ramping quantitative tightening ever attempted, Fed officials had to have hit peak-hawkishness. The lower their aggressive tightening batters stock markets into serious bear territory, the greater the odds the resulting negative wealth effect will spawn a severe recession or even a devastating full-blown depression.”
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“So that anomalous gold-stock plunge from mid-April to mid-May effectively reloaded gold stocks for more big upside! Their prices were battered back down to major support from which their last prematurely-truncated upleg launched. That offers traders a rare second chance to deploy in this high-potential sector before it powers much higher. Raging inflation and a Fed-tightening-driven stock bear are super-bullish for gold!”
[Full article highly suggested]
https://www.zealllc.com/2022/fdrlgdsk.htm