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My buy level on Gold between $1778 and $1788 has worked well so far. But the $1848 level, which was once support, now becomes resistance, along with the 50 day moving average and the 2011 highs at $1923. I’ve no idea how it will play out, I just know there was a confluence of support in that zone and choose that level to add to my position. Negative real interest rates are generally supportive for Gold prices.

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Weakness in the USD dollar persists. After falling to break above the $94.60 resistance level, the next downside target was $91.01. That was hit yesterday, and now the next downside target comes in around $88.72 – $89.56. Time will tell if support can be found in that zone. A decline in the dollar can increase inflationary pressures. Today’s employment report showed average hourly earnings grew 0.3% month over month, which surpassed the expectations of 0.1%. One month does not make a trend, but it still raises the question; could we be seeing some signs of inflation already?

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The velocity of money moved higher in Q3. It was the first uptick in almost 2 years. It could be nothing, but then again maybe not.

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From one quarter to the next, it was one of the biggest percentage increases on record.

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Even though the year over year percentage change is still very low. Maybe I’m grasping at straws here, but I feel that inflation is really the only thing that can derail this bull market in asset prices. Fiscal stimulus is coming soon, and a return to normal seems increasingly likely by the 2nd half of next year. The Fed has stated they plan on holding rates at 0% for at least throughout the end of 2023 (so more than two years after a return to normal).

I find this very hard to believe. The Fed isn’t out of bullets as long as inflation is muted. The new policy approach states the criteria before raising rates is inflation averaging above 2% for an extended period of time (whatever this means). To me, something will have to give. Either the Fed will need to raise rates earlier than projected (perhaps much sooner than expected), or accept inflation above their target objective. History shows that given the two options, the Fed usually goes with the raising rates option. But today seems different.

The criteria for raising rates is inflation averaging and full employment. What happens if one criteria is met without the other? There are a lot of “what-ifs” here, which is why I’ve come around to inclusion of Gold within a diversified portfolio. The monthly inflation reports come out next week. This is a story that will likely take time to play out.