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Gold prints falling wedge on FOMC dayDespite battling with 200-HMA, gold stays inside a bullish chart formation on a key day. Also favoring the metal buyers is a one-week-old rising trend line and likely US dollar weakness due to the expected dovish comments from the US Federal Reserve. However, sustained trading beyond $1,855 becomes necessary for the bulls to target $1,875 and then head towards the monthly peak surrounding $1,960. During the run, the $1,900 round-figure can play its role to test the upside momentum. Meanwhile, the stated support line near $1,843 and the lower end of the wedge, at $1,842 now, can restrict the yellow metal’s short-term downside before $1,830. Should the gold bears remain dominant past-$1,830, coupled with a surprise US dollar strength, the monthly low near $1,803 holds the key to heavy fall targeting November bottom close to $1,764. It should be noted that market consensus favors no rate action from the US central bank but downbeat statements and weak economic forecasts can’t be ruled out. As a result, a surprise move, like cautious optimism due to covid vaccination in the Fed’s tone can propel the US dollar and back the gold sellers.
OANDA:XAUUSDLong
by MTradingGlobal
PART 1/2 Connecting the dots: QE, MMT and inflation Inflation is a tough one to get your head around, and QE, MMT and fiscal spending is popular terms these days. I will try to connect the dots short and sharp in two posts. I’ll use gold as an inflation metric, i.e. higher gold price equals higher inflation. First, "inflation is always and everywhere a monetary phenomenon", Milton Friedman once said. There are many inflation terms (e.g. cost pull and demand pull), but in terms of Friedman, real inflation must come from a rise in money. Where do money come from? The only entity that can print US dollars is the US government, but do US dollars have to come from the government? During the great inflation, government spending was low, but the effective Federal funds rate went from 3% to almost 20% in order to deal with the inflation. If government spending was low, and interest rates (IR) was high, how could the money be flooding the streets? The answer is the private banking system. QE are bank reserves the private banks CAN use in order to make new loans (US dollars). I write can in capital letters, because that’s the important point. If the private banks don’t use the banks reserves to make new loans, every single dollar of bank reserves printed by the Federal Reserve never enter the real economy, and, hence, can’t be inflationary. Bottom line: QE can be inflationary but is NOT as long as the private banks don’t want to take on more risk and make new loans (US dollars). If the private banks can’t make the US dollars needed, MMT is a popular solution these days. MMT brings the money creation from the private banks back to the US government. If MMT is a good or a bad idea is not the purpose of this post, but put simple, this is what you need to know: MMT is a response to the private banks not making sufficient US dollars the global economy (USD = world reserve currency) needs in order to grow. Summary: QE is potentially inflationary but it’s not as long as the private banks don’t use the bank reserves to make US dollars. MMT is the response to the insufficient flows of US dollars from the private banking system.
FRED:FYFSD
by eirikb007