Printer is Coming

Gold prices have raced to record highs in the last few weeks, with spot prices ripping upwards of $2,750. Why is this occurring, and what signal is it sending to markets?

This week, Gold hit a new record high of $2,772 an ounce after retracing from previous all-time high made last week. This comes after an eight-month bull market that began back in February, pulled upwards by massive Chinese demand emerging.

Steadily throughout the course of this year, gold has steadily climbed higher, despite macro indications that aren’t particularly favorable to a bull market, at least not until recently (the Fed rate cuts). Gold has always had highly unusual price action, never seeming to rally when it should and falling in price when it shouldn’t- something many have attributed to central bank manipulation or bullion bank naked shorting. In fact, an international conspiracy to manipulate gold prices in exchange for cheap oil from Saudi Arabia and the Middle East was discussed in a series of posts on internet message boards in the late 1990s by an anonymous account named “ANOTHER”, something I discussed in this post here. 

Central bank manipulation almost certainly exists, but the price can be manipulated in other ways. Bullion banks, for example, can be structurally short gold futures because they have to hedge client gold flows or gold holdings. Traders, such as those at JP Morgan’s Metals Desk, have been caught spoofing trades, a practice known to move prices substantially in either direction. In fact, just last August, their Head of Global Precious Metals and Head of Gold Trading were sentenced to prison for knowingly engaging in market manipulation and fraud using techniques such as spoofing. 

Their power to manipulate prices is strong, but not infinite, something we have finally seen break through here over the course of 2024. Gold has historically been a great predictor of where central bank balance sheets are moving- typically front running waves of QE by between 12-18 months on average.

Look at the price action comparison between gold and Fed Net Liquidity (calculation for this provided in a prior substack). Gold here begins it’s rally in December 2018, as the Fed is in the midst of a tightening cycle and markets are falling off a cliff. On Christmas Eve, 2018, the Dow Jones Industrial Average has its worst day since the Great Depression, and both the NASDAQ and SPY enter bear market territory, down 20%. All that month, however, gold continues to rally.

Powell pauses the taper as the warning signal from equity markets finally hits home. He does not, however, decide to reverse course and increase the Fed’s balance sheet- that doesn’t come until later in 2019, after the Repo crisis.