An Alternative to Cash
The gold market may see continued buying interest on Tuesday as the trading week gets underway. Monday saw little action as U.S. markets were closed in observance of the Presidents Day Holiday. As traders and investors return, the focus for markets is likely to be centered around equity markets, the threat of rising inflation and monetary policy.
The big news over the last several days is without a doubt, the acquittal of former President Donald Trump. Although the vote carried significantly more “guilty” votes than “not-guilty,” the senate still lacked the necessary two-thirds majority required by law for a conviction. The biggest question now is how might Trump look to remain heavily involved in Republican politics. Of course, time will tell how Trump will play his cards. In the meantime, however, the government and even some Republicans will try to figure out how to move on in his absence.
One of the major issues that the Trump administration dealt with is energy independence and the need for domestic oil. The Biden administration has already placed a moratorium on new oil and gas leases and drilling permits in a move that could potentially send the price of oil higher. Crude oil futures for March delivery have recently breached the $60 per barrel level on the upside. This higher price of crude oil could be indicative of rising inflationary pressures that could send the cost of everyday goods and services sharply higher.
Not only have oil and some other markets provided possible clues as to rising inflation, but the massive stimulus package currently being discussed by U.S.leaders could also fuel rising prices even in the face of the ongoing viral pandemic.Treasury Secretary Janet Yellen, a former Fed Chairwoman, recently suggested in an interview that the stimulus bill carries with it the risk of inflation, but that the risk of not doing enough to fight the pandemic is greater. Although significant inflation could be and likely is a ways off still at this point, the more it is discussed the more that investors may seek out perceived safe haven asset classes to hedge their risk. The threat of rising inflation, now or down the road, could keep investors turning to alternative asset classes such as gold to mitigate their inflation risk, especially if the dollar weakens further.
Gold’s allure as an alternative monetary asset is not limited to investors, either. The state of Idaho recently approved a bill that would allow the state to hold physical gold or silver as a means of hedging inflation and a debased currency. The House Bill 7, as it is known, will now head to the state Senate for another vote after receiving widespread backing in the House. The Senate could meet as early as this week to begin discussing the legislation.
The gold bulls have been patient, but their patience could eventually lead to downside in the market if there is a lack of upside for the bulls to get excited about. With the market currently sitting around the $1818 area, the bears will look for a close under $1800 while the bulls may need to see a close above $1900 before getting more aggressive.