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Gold’s underperformance is puzzling, especially as it’s hard to imagine a more bullish set of circumstances for the yellow metal. Over the last 2 years, we’ve had massive deficits due to the coronavirus leading to lower tax receipts and substantially higher spending. In total, 2020’s deficit was $3.1 trillion, and it’s estimated to be $3 trillion this year. Additionally, central banks all over the world slashed rates and purchased assets to ensure that the financial system remained solvent and liquid. On top of this, inflation has also been quite strong and has reached multi-year highs.
I believe that gold’s underperformance, during a period of strong fundamentals, is an ominous harbinger for its near-term outlook. On top of this, there are some bearish catalysts that could lead to more selling.
