Gold Still Needs More Inflation One of the biggest questions that metals investors are asking right now is, “Why hasn’t gold had a meaningful rally this summer?” After all, there are a number of legitimate catalysts for gold to respond to, including widespread worries over the spreading coronavirus variants and the growing threat of inflation. So why hasn’t gold—the ultimate “fear barometer”—taken flight in response to these fears? The short answer to this question is that there isn’t yet enough fear among investors, nor inflation in the economy, to warrant a sustained gold price rally. Typically for the yellow metal to really take off on the upside, there must not only be widespread worries present, but the overall level of fear (or “climate”) must be intense. Gold’s last two rallies of intermediate-term (3-9 month) proportions provide a good example of this. Take for instance the bull market that kicked off in the fourth quarter of 2018. As that year progressed, there was a steadily increasing fear that the Federal Reserve’s tapering initiative would torpedo the equity bull market that was underway at that time. The Fed Funds Rate went all the way up to 2.2% by October 2018—its highest level of the last decade—adding to those fears. Then there was the accelerating trade war between the U.S. and China that started that summer and hit a fever pitch by October. The uncertainties surrounding China and trade, more than perhaps any other factor, caused a plunge in the S&P 500 Index while the crude oil price cratered 40% in the last three months of that year. (See chart below comparing the performances of gold, oil and the S&P during this time.) 
During the devastating fourth quarter of 2018, gold was one of the few assets to experience meaningful strength in an otherwise weak environment. Bullion prices rose 10% from their August lows until the end of 2018 and eventually went on to log a 45% gain before peaking in February 2020, just prior to the coronavirus panic. Gold’s next fear-driven bull run occurred shortly after the March 2020 panic. While most financial assets imploded during the virus-led crash, gold was down “only” 15% (compared to significantly bigger losses for stocks and other commodities). Moreover, gold’s March 2020 decline was short-lived, lasting just two weeks. By the first week of April, gold was already at a higher peak. The yellow metal commenced the next phase of its bull market in the spring of 2020, rising steadily from its March low of $1,480 before peaking just under $2,100 in August for a more than 40% gain. The March-August 2020 gold bull market was driven mainly by the intense fear of inflation, fueled by runaway fiscal and central bank stimulus. And unlike the previous bull market, the U.S. dollar declined for most of gold’s 2020 bull run—further underscoring the inflationary threat. Compare gold’s two mini bull markets of 2018 through 2020 to today’s market climate and it’s easy to see why gold hasn’t broken out of its year-long trading range yet. There are still plenty of fears to keep gold prices within fairly close reach of last year’s all-time high of $2,063 (the gold price is just 13% below it as of this writing); rising Delta variant cases globally, worries surrounding the U.S. withdrawal in Afghanistan and concerns over the global economic outlook in the wake of new coronavirus restrictions are just some of the factors weighing on investors’ minds right now. Then there’s the ever-present fear over rising inflation. The latest concern was manifested in the latest headline U.S. employment numbers. Last week’s Labor Department report showed the U.S. economy created the fewest jobs in seven months in August. The disappointing job growth numbers gave investors pause for concern and prompted worries that the new $3.5 trillion U.S. spending bill would create too much liquidity in the face of diminished production (the classic prerequisites for inflation). Yet for all the bluster, the U.S. dollar index (USD) doesn’t appear overly concerned with the prospect of severe inflation. While the dollar index is currently below its widely followed 50-day moving average, it’s still above its nearest benchmark chart “support” at 91.75. (See the graph below for details.) 
I’ve emphasized before that a weak dollar isn’t always necessary to propel gold prices higher. But when inflation is a major concern, I’d argue that a declining dollar index is imperative for a sustained bull market in gold prices. The USD being below the 50-day line has been sufficient to allow gold to rally in the last few days. But for a sustained, runaway-type rally (the kind that most gold investors really want to see) we need to see the dollar index break under 91.75. This would let us know that the market is truly worried about inflation taking off in the near term (as opposed to just being mildly concerned at the distant prospect for rising prices). For the December gold futures contract, a decisive close above $1,834 (the nearest resistance) is needed to confirm that bulls have complete control over the short-term trend and the latest rally was more than just short covering. In the bigger scheme of things, however, gold’s next bull market of intermediate-term proportions will likely require either a return of intensive fears (i.e. anything that seriously threatens the economic outlook) or a serious breakout of inflationary pressures (which would require more sustained dollar weakness to confirm). Updates In June, I recommended that we buy into the Global X Lithium & Battery Tech ETF (LIT) on weakness. This ETF is what I view as a nice fit with our somewhat related positions in the cobalt (via Wheaton Precious Metals) and neodymium-Praseodymium (via MP Materials) spaces. Investors who haven’t already done so should book some profit in our conservative trading position in LIT after its recent rally of over 20% from our initial entry point (per the rules of our technical trading discipline). I also suggest raising the stop-loss on the remainder of our position in LIT to slightly under 80 (near the 50-day moving average) on a closing basis. HOLD Participants recently purchased a half position in the GraniteShares Gold Trust (BAR) after its decisive close above the 50-day trend line. I suggest using an admittedly tight protective stop by choosing level slightly under 17.75 as stop-loss on this trading position. BAR should ideally break out decisively above 18.25 in the coming days to confirm that buyers have complete control over the dominant interim trend (thereby establishing a series of higher highs). BUY A HALF Last week I recommended that speculators purchase a half position in the iShares Silver Trust (SLV). I further recommend using an initial stop-loss slightly under the 21 level (intraday basis) on this trading position. A decisive close above the 50-day moving average is needed to confirm a reversal of the intermediate-term downward trend in SLV. BUY A HALF After the recent strength in steel prices, I placed steel and steel products manufacturer Nucor Corp. (NUE)—America’s largest and most diverse steel maker—on Buy a Half on August 3. Traders accordingly purchased conservative position in NUE using the 96 level as the initial stop-loss on an intraday basis. NUE closed decisively above its 50-day moving average in late July to confirm the breakout after reporting a 103% year-over-year revenue increase, to nearly $9 billion, for Q2 while net earnings hit a quarterly record of $1.5 billion (versus $109 million in the year-ago quarter). Shares of the steel and steel products manufacturer were up decisively as of August 27, and our position now shows a gain of 15%. Accordingly, I recently suggested taking partial profits and raising the stop-loss on the remainder of the trading position to slightly under 104 (our initial entry point) on an intraday basis. I now suggest raising the stop to slightly under 110 after Nucor’s additional strength since then. On the company front, the top brass said it expects increased profitability across the steel mills segment going forward, and analysts anticipate 97% sales growth for Q3. An impressive record of 48 consecutive years of dividend increases—putting it on the illustrious dividend aristocrat list—is the icing on the cake. HOLD New Positions Alcoa (AA) is one of the world’s largest aluminum producers, and as such stands to benefit from the persistent strength in the global aluminum market. Its operations include bauxite mining (aluminum ore), alumina refining (for smelting) and the primary aluminum manufacturing. With aluminum prices at 10-year highs, Alcoa is expected to see significantly higher free cash flows going forward. This is a big reason for the recent strength, especially after a string of high-profile institutions upgraded the company. Another reason for the optimism is the anticipated increase in automotive demand for the metal going forward. On the financial front, revenue was up $685 million, or 32%, from the year-ago period in Q2 on higher aluminum prices. Second-quarter earnings per share was $1.63, $0.70 per share higher than the prior quarter, and $2.69 per share higher than the year-ago quarter. For Q3, the top line is expected to increase 19% from a year ago and 18% the following quarter. Add to that a possible dividend reinstatement within a year and we like what we see here. Accordingly, I recommend buying a half position in AA on pullbacks, using an initial stop-loss placed slightly under the 40 level. BUY A HALF 
Portfolio
| Stock | Price Bought | Date Bought | Price 9/7/21 | Profit | Rating |
| Alcoa (AA) | New | - | - | - | Buy A Half |
| GraniteShares Gold Trust (BAR) | 18 | 8/27/21 | 18 | -1% | Buy A Half |
| Global X Lithium & Battery ETF (LIT) | 69 | 6/10/21 | 85 | 23% | Hold |
| iShares Silver Trust (SLV) | 22 | 9/1/21 | 22 | 1% | Buy A Half |
| Nucor Corp. (NUE) | 104 | 8/3/21 | 115 | 10% | Hold |
Buy means purchase a position at or around current prices. Buy a Quarter/Half means allocate less of your portfolio to a position than you normally would (due to risk factors). Hold means maintain existing position; don’t add to it by buying more, but don’t sell. Sell means to liquidate the entire (or remaining) position. Sell a Quarter/Half means take partial profits, either 25% or 50%.