The document discusses tips for trading gold in the context of the Fed becoming more hawkish. It notes that while a hawkish Fed is fundamentally negative for gold prices, gold may still find support if high inflation persists or if the Fed causes economic turmoil by tightening too much. The tips provided strategies for analyzing gold prices, related markets, indicators, ratios, cycles, and sentiment to help time entries and exits from gold positions. Monitoring other assets and investor behavior was recommended to help identify potential tops and bottoms in gold.

1. Gold Survive Hawkish Fed

2. Points To Be Covered Today:
• Will Gold Survive Hawkish Fed?
• Gold Asks: Will the Economic Boom Continue?
• US Nominal & The Real GDP
• Threats To Growth
• Recession & Gold
• Gold Trading Tips

3. Will Gold Survive Hawkish Fed
• The recent Fed’s hawkish turn is fundamentally negative for gold
prices but there is still some hope.
• The hawkish counter-revolution within the Fed continues. On Friday,
St. Louis Fed President James Bullard said that the recent FOMC shift
towards a faster tightening of monetary policy was a natural response
to faster economic growth and higher inflation than anticipated:
• We were expecting a good year, a good reopening, but this is a bigger
year than we were expecting, more inflation than we were expecting,
and I think it's natural that we've tilted a little bit more hawkish here
to contain inflationary pressures.

4. Fundamental Gold Report
• Bullard also noted that “Powell officially opened the taper discussion
this week”.
• Indeed, in my Friday edition of the Fundamental Gold Report, I
focused on the changed dot-plot, which suggested
that FOMC members were ready to hike interest rates twice in 2023.
• However, the second major shift in the stance of the US central bank
was that the Fed officials started to “talk about talking about”
tapering.

5. Implications For Gold
• The Fed triggered some panic selling in the gold market last week.
• The bearish reaction is understandable, as the Fed’s readiness to
reduce its asset purchases and end the policy of zero interest rates is
fundamentally negative for the yellow metal.
• More hawkish FOMC implies higher real interest rates and a stronger
dollar, the two most important drivers of gold prices.
• Furthermore, when the US central bank becomes more hawkish, it
means that it’s more confident in the economy – and gold struggles
when the economy is strong.

6. Gold May Struggle During The Upcoming Tightening Cycle
• However, some analysts claim that the selloff was exaggerated. After all,
the Fed still maintains that higher inflation is transitory; but transitory
inflation doesn’t mix with earlier interest rate hikes.
• So, we will have either more lasting high inflation (but the Fed is slow to
admit it), or the Fed doesn’t really want to increase its interest
rates substantially.
• In both cases, gold should benefit, either from higher inflation and lower
real interest rates, or from more dovish Fed than it’s currently perceived.
• So, the bullish case for gold is not dead yet, but if the Fed really becomes
more hawkish and determined to tighten its monetary policy (while high
inflation turns out to be transitory), gold may struggle during the
upcoming tightening cycle, unless it triggers some economic turmoil.

7. Gold Asks: Will the Economic Boom Continue
• The US GDP has already recovered from the pandemic recession.
What’s next for the economy and the gold market?
• The economic crisis has ended. Actually, not only is
the recession over but so is the recovery! This is at least what the
recent GDP readings are indicating.
• As the chart below shows, the US nominal GDP has already jumped
above the pre-pandemic level.
• The real GDP, which takes inflation into account, remained in the first
quarter of 2021 below the size of the economy seen at the end of
2019, but it will likely surpass this level in the second quarter of the
year.

8. US Nominal & The Real GDP

9. US Nominal & The Real GDP Annual Growth

10. US Nominal & The Real GDP Annual Growth - I
• As one can see in the chart below, in terms of GDP growth, the
situation is a bit worse, as the annual percentage changes are still
below the pre-epidemic level.
• However, this should change in the second quarter of 2021 when the
growth pace is likely to peak amid base effect and reopening of the
economy.
• So, the question is: what’s next? Will the economic boom become
well-established or will we see a lot of volatility or even new slumps?
• Given the recent flux of disappointing high-frequency indicators that
fell considerably short of expectations (just think about
April’s nonfarm payrolls), the question is very relevant.

11. Threats To Growth
• There are many threats to growth, that’s for sure.
• The first is, of course, the ever-evolving coronavirus and its new variants.
However, judging by preliminary evidence, the vaccines should remain
effective, allowing economies to function freely.
• The second obvious danger is clearly the economy overheating and higher
inflation.
• The Fed and the Congress injected a lot of liquidity into the economy
although it would recover if it was left to its own devices thanks to the
rollout of vaccinations and easing lockdowns.
• So, much of government funds arrived just when the economy practically
recovered, which is a recipe for higher prices and inflation-related
turbulences in the financial markets.

12. Threats To Growth - I
• Third, the increase in debt – both private and public – makes the global economy more
fragile. Given the level of indebtedness, even small increases in real interest rates would
be dangerous.
• They would increase the costs of servicing debts for the governments and could hit the
asset prices.
• The fact that the Fed will be under great pressure to remain very dovish is, of course,
positive for gold prices. Even if we see some effort to normalize the monetary
policy, interest rates and the Fed’s balance sheet will never return to the pre-recession
levels.
• Last but not least, there is a threat of financial crisis. Many people are worried that there
is a bubble in the stock market (and in other markets as well, such as the cryptocurrency
market).
• Indeed, the equities have been reaching new peaks and the valuations are elevated. The
margin debt has also jumped. Not surprisingly, the relative frequency of Google searches
for the “stock market bubble” has recently risen (just as for the word “inflation”).

13. Recession & Gold
• The US economy has already recovered from the coronavirus
recession, which is bad for safe-haven assets such as gold, as the yellow
metal doesn’t like economic expansions. However, there are important
threats to sustainable economic growth, which should support the price of
gold.
• Actually, there is still room for gold to rally further.
• This is because we are in an inflationary phase of the economic expansion
(this boom will be more inflationary than the post-Great Recession period).
• All the money created during the pandemic has flowed into the asset
markets, pushing their prices into elevated levels not necessarily justified
by fundamentals (just think about Dogecoin).
• Gold could benefit from such a bubble, as well as from an inflationary and
hot environment.

14. Gold Trading Tips
• Some say that gold is one of the most difficult markets to trade and there is
some truth to that – gold doesn’t move like other markets and if investors
want to be successful trading it (and it can be very rewarding), they have to
keep several things in mind.
• Over the years of monitoring and analyzing the gold market we noticed
many profitable rules and patterns.
• We successfully applied them and are still applying them for our precious
metals trades and we will share our knowledge on this page.
• It took years of analyzing, testing and using our own capital to make sure
that these points are really useful.
• The tips that you find below should make trading gold easier and much
more profitable.

15. Gold Trading Tips - I
• Keep the sizes of your gold, silver and mining stock trading positions small. The higher
the chance of being correct, the bigger the position can be (that’s why sizes of long-term
investments are bigger than sizes of short-term trades).
• Pay attention to cycles and turning points – many markets have cyclical nature (for
instance the USD Index and silver) and cycles can be a great help in the case of short- and
long-term trades.
• Check the efficiency of each indicator that you want to use on the gold market (or other
markets) before applying it and trading real capital based on it.
• Consider using RSI and Stochastic indicators for gold, silver and mining stocks as they
have proven to be useful over many years. Other indicators can be useful as well, but be
sure that you examine them before you decide to make trading decisions based on them.
• If a given indicator works “almost as well” as you’d like it, but you see that it has
potential, don’t be afraid to modify it.
• For example in case of RSI, you see good selling opportunities when this indicator moves
to 65 or so instead of the classic 70 level) then it can be useful and profitable to either
add additional overbought / oversold level, breaking which would generate a signal (in
this case a sell signal) or to change the parameters of the indicator, deviating from the
standard values.

16. Gold Trading Tips - II
• Use moving averages only if they have been working for a given market in the
past – if a given market has been ignoring a certain moving average, most likely so
can you.
• Keep track of the price seasonality – in our opinion its best to use True
Seasonals as expiration of derivatives can also have an important impact on the
price of gold, but if you can’t get access to them, it’s better to use regular
seasonality than none at all.
• Use trend lines and trend channels – they have often proven useful as support
and resistance lines / levels in the case of gold, silver and mining stocks. The more
significant lows or highs are used for creating a given trend line or channel, the
stronger the support or resistance is.
• The previous highs and lows can and often serve as support/ resistance levels as
well – in the case of the precious metals market, the strength of the support /
resistance is strength of the support / resistance created as rising or declining
trend lines.
• The more significant the high or low is, the stronger the resistance or support.

17. Gold Trading Tips - III
• Note that markets have not only a cyclical nature, but a fractal one, too. The rallies and declines
are self-similar, which means that price patterns that we saw on a bigger scale are quite likely to
be seen on a smaller scale (proportionately).
• This observation can be of great help when determining how low or how high gold, silver or
mining stocks will move. We have a tool – the Fractalyzer – that can help determine the similar
sessions in their advanced mode, but even if you choose not to use it, be sure to be on the
lookout for the self-similar patterns (if the current price move is similar to the previous ones, it’s
quite likely that the final part of the pattern – that’s still ahead – will also be similar, which allows
you to position yourself to take advantage of it).
• Pay attention to volume. The volume is a very important, yet often overlooked, piece of
information. If a rally is accompanied by rising volume, then it’s likely a start of an even bigger
rally.
• If a rally is accompanied by low or visibly declining volume, then it’s likely ending. If a decline is
accompanied by high or rising volume (unless there is a day when the price visibly reverses), then
the decline is likely to continue. If a decline is accompanied by low volume, then there are no
meaningful implications (yes, the situation is not symmetrical in this case).
• The above are general guidelines, and before applying them to the current market situation, be
sure to check if the above (the part of the above that currently represents the situation on the
market) really worked in the way above – if it didn’t, then it’s generally better to expect the same
type of reaction that previously accompanied a certain price/volume pattern.

18. Gold Trading Tips - IV
• Look for price formations (like a head and shoulders formation), but before you apply them (believe that a
certain formation is “in play” and likely to cause a certain move which would cause you to enter or close a
given trade) be sure to check if this kind of formation worked on this market previously.
• For instance “breakouts” (which are not a formation by themselves, but this example illustrates what we
mean) in silver have quite often resulted in price declines (breakouts were invalidated) instead of rallies, so
their real implications were the opposite of what one might have expected based on the classic definition of
a breakout.
• Wait for confirmations. It’s usually best to wait for breakouts / breakdowns confirmation before taking
action. In the case of the precious metals market, based on our experience, it’s worth waiting for three
consecutive closing prices below / above the critical price level before viewing the breakout / breakdown as
“confirmed” and thus meaningful. Invalidation of a breakout is a bearish sign and invalidation of a
breakdown is a bullish sign.
• Analyze more than the market in which you want to trade. In today’s global economy no market can move
totally independently.
• Gold and the rest of the precious metals sector are no exception – their price moves are often linked to
the moves on the currency market, moves on the general stock market, interest rates, Fed’s comments, and
performance of gold stocks and silver stocks are just the most important ones. Be sure to check what
markets were moving in tune or in the opposite direction to gold before and make sure that their impact is
likely to be supportive of the trading position that you are about to open.
• For example, if gold was moving in the exact opposite to the USD Index and you’re considering opening a
long position – if you see that the USD Index is very close to a major resistance level and it’s already heavily
overbought, then the odds are that the USD Index will top and contribute to or even trigger gold’s decline.

19. Gold Trading Tips - V
• Analyze ratios. Of course, not just any ratios – the ratios that have proven to provide important signals for
gold (like the gold stocks to gold ratio or gold to silver ratio – they both have a history of leading gold, but
this has not been the case during the post-2011 decline), that are important due to fundamental factors
(gold vs. bonds ratio – both can be seen as safe-haven assets and major bottoms and tops in this ratio take
place along with major tops and bottoms in gold, so it can be used as a confirmation) or because they are
often discussed (gold to oil ratio).
• Sometimes ratios can be utilized to see something from a non-USD perspective (gold to UDN ratio is the
weighted average of gold priced in currencies other than the US dollar, with weights as in the USD Index –
this ratio can be used to confirm major moves in gold or suggest that these moves are just temporary as they
are only visible from the USD perspective).
• Analyze other time-frames than the one that you’re focusing on. Even if you are placing a short-term trade,
be sure to check the medium- and long-term trend. Generally, the longer the time frame, the stronger the
support and resistance levels, so even if you analyzed the short-term picture, it can be the case that a given
move will be stopped by a medium- or long-term resistance.
• If you’re focusing on the medium- or long-term trades, the short-term picture can help you fine-tune the
moment of entering or exiting the market.
• Be on the constant lookout for anomalies. When you see something odd, investigate and find the reason
behind it and check if anything similar happened previously – if yes, check what happened next. If similar
things were always followed by the same kind of price pattern in gold, silver and/or mining stocks, it might
be a good idea to trade it.
• If not, then perhaps the reason behind the anomaly resulted in something else that had a more specific
effect on the precious metals prices.

20. Gold Trading Tips - VI
• Monitor investor sentiment. If the vast majority (!) of precious metals investors and traders are bullish, then
gold is likely close to a top (in this case it makes sense to look for selling signals and / or confirmations that
the top is in and – if they are present – exit long positions and / or enter short ones). Conversely, if everyone
and their brother is bearish on the market, then a bottom is very likely close to being in or already in.
• The ways to estimate sentiment include checking how often people look for gold-related terms (like “gold
stocks”) in Google Trends, monitoring outcomes of surveys with questions like “where will gold price be in 3
months” and similar queries, and also checking the traffic of gold-related websites on Alexa.
• On a side note when you see that a certain, big gold-related website is very slow or crashes after a big move
up or down, then it likely means that the traffic / interest in gold was enormous, which is another way of
detecting that a major price extreme is well-nigh (we saw that in 2011 when gold topped).
• Even if your primary approach is to trade gold, we still encourage you to consider dedicating a part of the
capital to long-term investments – it should lower the overall variability of your returns and making gains
more stable. There are also other benefits that we outlined in our very first report in which we discussed
whether trading gold or investing in it is more profitable.
• Our gold portfolio report includes a sample portfolio for “Trader John”, which might serve as an example (of
course, it’s not investment advice) of how traders could structure their portfolios and benefit from
diversified strategies.
• Before you decide to follow a given analyst, be sure to check how long they have been in the business and if
they are known for their good performance.
• If you do decide to follow someone, it’s usually a good idea to stay with them even if they happen to be
incorrect about the market one or even a few times in a row as markets are sometimes moving almost
randomly (they are emotional, not logical in the short term) and everyone has to be incorrect eventually
(that doesn’t necessarily imply following what they do using your capital – it means monitoring their
performance to see for yourself if they can grow your capital over time)

21. Gold Survive Hawkish Fed

22. Thanks for listening
Gold Survive HawkishFed