Wednesday's Market Minute: What Happens To Gold Doesn't Stay In Gold

The S&P 500 is making highs, small-caps are surging, and bitcoin is flirting with a record. But, the most important move is the sell-off in gold.

Gold is down five percent, crashing through technical support and confirming a months-long downtrend in price. It’s the biggest event to happen in markets since the Nasdaq peaked the first week of September, and confirms financial markets are again undergoing regime shift. Gold bugs were looking for inflation, destabilizing political outcomes, and COVID to cripple the economy enough to force another big round of stimulus.

Today, vaccines are pushing forward the timeline for organic recovery, the Presidential transition is happening with little more drama than a timeline of blocked tweets, and American spenders running on a single dose of stimulus seem bent on propping up the economy no matter how daunting the COVID curves get. Still, gold’s story has not just been about bad things happening. It's specifically about one group of investors’ opinion about what happens when interest rates are held lower indefinitely. But, what’s been so interesting the past two years is that both the pessimists and the optimists all built their views off the same cornerstone assumption: lower rates. So, the backbone of the gold story has a good deal of overlap with everything else, and should be a heads-up that the most extreme versions of this story are not happening.

The Fed's reversal in 2018 kicked off an almost two-year long "Everything Rally" that took a brief pause as COVID hit, but quickly revived even stronger as the solution to the virus was more of the same: lower rates and stimulus. Today, we see developments that lower the odds of a double-dip recession and even more aggressive monetary action. Gold’s sell-off is not just about things getting better, it's about the steady progression out of monetary-policy driven markets, which will mark the beginning of the end of the Everything Trade: the first crack in the bullish Pangea.

Photo by Sabrinna Ringquist on Unsplash