Gold holds near $4,000, but risks are rising
Gold continues to find support around $4,000 an ounce, but Carley Garner believes that level may not hold indefinitely. The veteran commodities trader and co-founder of DeCarley Trading sees the metal facing a more difficult environment as the US dollar gains strength.
In an interview with Kitco News, Garner said the next major challenge for gold could come from Federal Reserve Governor Kevin Warsh and his apparent focus on reversing the long-running trade built around dollar debasement.
Warsh’s policy focus could change the gold story
Garner argued that markets may be underestimating the importance of Warsh’s message. In her view, his emphasis is not only on interest rates, but also on reducing excess liquidity in the financial system.
If that approach succeeds, she said, the result could be a stronger dollar. That would weaken one of the main arguments that has supported gold’s historic bull market in recent years.
Garner said Warsh appears focused on pulling money out of the system and reducing the money supply as a way to control inflation through currency strength. Such a shift, she warned, would be negative not only for gold, but also for silver, copper and most commodities.
The dollar becomes the central variable
For years, many investors have used gold as protection against currency debasement. Garner believes that narrative would be fundamentally challenged if policymakers convince markets that the dollar can regain credibility.
“The key to all of this is the U.S. dollar,” she said.
Her broader view is that commodities would struggle if the liquidity-driven inflation trade that followed the pandemic begins to unwind. A stronger dollar would reduce the need for investors to hold gold as a monetary hedge.
Speculative capital may be leaving risk assets
Although Garner remains positive on gold over the long term, she expects more weakness before the next durable buying opportunity appears.
She described the current market environment as a “slow-motion train wreck” and said speculative money appears to be leaving several areas that previously benefited from abundant liquidity.
Those areas include meme stocks, cryptocurrencies, precious metals and, more recently, technology stocks. As risk appetite fades, Garner expects investors to favor US Treasuries and the dollar.
Treasuries could attract defensive capital
Garner said Treasury securities may become especially attractive if investors want safety while still earning meaningful yield.
She noted that US Treasuries are among the few places where investors can still receive yields near 4% or 5%. In a more defensive market, she expects both the dollar and Treasuries to benefit from capital moving away from speculative assets.
Possible bottom seen near $3,600 to $3,700
Garner expects gold’s correction to continue before a stronger base forms. She is watching for a potential bottom between $3,700 and $3,600 an ounce.
In her view, a decline into that range would represent a healthier reset after gold’s powerful advance. It would also fit her expectation that markets still need to absorb the excess liquidity created during and after the pandemic.
Garner said many asset classes remain inflated by extraordinary monetary stimulus rather than underlying fundamentals. She argued that the financial system must still work through that artificial liquidity before prices can more accurately reflect reality.
Options are expensive, but rallies may create trades
Garner is not interested in aggressively shorting gold at current levels. However, she said she prefers downside strategies if the right setup appears.
According to Garner, extreme volatility has made options difficult to trade because premiums have become expensive. One approach she has found useful is buying inexpensive, far-out-of-the-money put spreads during strong rallies.
She said this type of trade normally performs poorly in orderly markets, but has worked better in the current environment because of sharp price swings.
A possible put-spread setup above $4,350
If gold rises back into the $4,350 to $4,400 range, Garner said she would consider a bearish options strategy involving a $3,600 put and a $3,800 put.
She said a $200 spread positioned that far out of the money would likely be inexpensive. The goal would not necessarily be for gold to reach those strike prices, but for a large downside move to lift the value of the spread.
For now, Garner expects summer trading conditions to add to the pressure. She remains cautious on gold in the near term, even while maintaining a more constructive long-term view of the metal.
