Gold – Still Making up its Mind
Commentary for Friday, Oct 15, 2021 (www.golddealer.com) – Gold closed down $29.50 at $1767.20 today and silver closed down $0.13 at $23.33. Not to see gold follow through after the big jump in prices Thursday will disappoint the bulls. And some will suggest today’s loss is the result of a big jump in retail sales, but I think profit taking makes more sense. Regardless of the reasoning gold remains stuck at these higher levels. Supported by dovish FOMC or weak economic news and weakened by news that quantitative easing will be modified. There is however a persistent feeling that inflation is a threat. Which is why gold has spent most it its time wandering between $1750.00 and $1800.00 since April. The kind of prolonged consolidation we see in gold is usually a negative influence, but investors have consistently bought the dips, which is why immediate delivery can be a challenge. Last Friday gold closed at $1756.30 / silver at $22.68 – on the week gold was up $10.90 and silver was up $0.65.
The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 3 to 6 weeks coming from the manufacturer. My guess, however, is that delays will continue to shorten.
Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.
On Monday gold opened flat, sold off and recovered – this typical back and forth pattern still suggests uncertainty over FOMC quantitative easing intensions. And today is Columbus Day, a federal holiday so I would expect a round of “quiet” trading.
I think most are getting used to the idea that the Fed will soon taper. But few have a clue as to how, when, or possible outcomes. Still, rising Treasury yields, 1.7% as of last Friday suggest we should see at least the first moves towards decreasing quantitative easing.
And it is not surprising gold is left footed as the Dollar Index remains steady above 94.00 -despite the poor jobs showing last week. But there is a developing debate as to whether the economy has suffered permanent pandemic-linked scarring according to MarketWatch.
The argument against higher gold prices because it failed to hold recent gains will take time to dissipate. And while traders are defensive, they are not exactly down beat. Reuters – “Gold is seeing some “bearish pressure” after not being able to hold on to Friday’s gains, said Kinesis Money analyst Carlo Alberto De Casa. However, “a good part of tapering is already priced in” and as long as bullion holds above $1,750, it’s a positive for the metal, limiting “big volatility”.
Zaner (Chicago) – “The gold market remains vulnerable to further liquidation after last Friday’s noted failed rally attempt and because of a 3-day low on the charts early today. Surprisingly, the gold market has not drafted support from news overnight that Indian gold imports reached 93.5 tons in September compared to a dramatic pandemic influenced 8.4 tons of imports last year! Certainly, some buying in September is seasonally related and could be a one-off event, seeing Indian gold imports reach 100 tons per month puts their total imports back on a “near normal” standing. While some traders suggested that the failed rally last week was the result of increased economic uncertainty from the non-farm disappointment, others indicated that the failure was the result of dollar strength. However, the dollar had some negative chart action on Friday with a four-day low and a temporary probe below 94.00 and that argues against a tight gold/currency correlation. Last week gold ETF holdings declined by 199,063 ounces and posted the 8th straight daily decline. Even though the gold market added significantly to its net spec and fund long markedly in the latest weekly positioning report, the overall net spec and fund long remains modest and within recent ranges. The October 5th Commitments of Traders report showed Gold Managed Money traders added 25,718 contracts to their already long position and are now net long 67,841. Non-Commercial & Non-Reportable traders were net long 212,122 contracts after increasing their already long position by 16,287 contracts. Going forward, the markets are likely to be less concerned about tapering with many anticipating Friday’s news delayed the US taper start until December. However, there is still a portion of the market that sees inflation as a developing problem that the Fed may want to get ahead of. In the event the Fed displays a definitive hawkish turn by tapering between meetings, that could be very negative to gold and silver pricing. On the other hand, physical demand statistics for China and India are improving relative to year ago levels and the markets could draft support from that “return to normal”. Seeing demand improve from India and China is always material given that they are number one and number two in the world consumer list but given small imports last year, the year over year comparison is difficult. Critical pivot point support seen at $1,745.40 and resistance moves closer in at $1,771.” On the day gold closed down $1.70 at $1754.60 and silver closed down $0.04 at $22.64 in very light trading.
Gold on Tuesday opened choppy, sold off and in a surprising turnaround pushed to $1770.00 before once again settling off highs but still in the green. So, this market remains fidgety for lack of a better word. This latest strength is hard to figure because the Dollar Index this morning topped weekly highs at 94.50, likely capping this morning’s bullish sentiment which is inflation driven according to Reuters. Tomorrow’s focus will be on the Fed’s September 21-22 policy meeting and the consumer price index, both could be big players on Wednesday.
Zaner (Chicago) remains cautious noting – “In addition to the potential financial crisis in China from 3rd missed interest payment by a huge real estate company, China is battling severe flooding which in turn has interrupted the flow of coal. Seeing the flow of coal interrupted accentuates the pre-existing energy crisis in China and should have provided lift to gold this morning. The gold market has also not reacted to fresh saber rattling by North Korea with its push toward a nuclear missile. However, it should be noted that Indian gold imports recently surged and have returned to near normal levels in a development that could help underpin gold prices on weakness. In other words, Indian buyers have been bargain-hunting buyers and with gold prices more than $100 below the summer highs, Indian wholesalers could be interested in rebuilding their pandemic reduced inventories.”
The latest news from the International Monetary Fund (IMF) may also be adding to this underlying inflation scenario according to Anna Golubova (Kitco) – Gold price sees double-digit jump as IMF cuts global growth outlook, cites ‘dangerous divergence in economic prospects’ – “This modest headline revision, however, masks large downgrades for some countries,” the IMF said in the report. “The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.”
The 2021 growth forecast for the U.S. was slashed from 7% to 6% due to supply constraints. Also, the report warned that if the U.S. does not pass President Joe Biden’s infrastructure package worth $4 trillion, it would cut the forecast for the U.S. even further. China’s growth forecast for this year was trimmed just by 0.1 percentage point to 8%. Growth projections for Japan, the U.K., Canada and Germany were also cut. Meanwhile, the euro area growth outlook for 2021 was raised to 5% from 4.6%.
The IMF also warned that the COVID-19 recovery looks increasingly divided. “Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Gita Gopinath, the fund’s director of economic research, said in the report. “The dangerous divergence in economic prospects across countries remains a major concern.”
The disparity in this economic recovery primarily comes from what the IMF calls the ‘great vaccine divide,’ noting that 96% of the population in low-income countries remains unvaccinated. With rising stagflation fears worrying investors in the last quarter of the year, the IMF report stated that it sees inflation returning to 2% in advanced economies by the middle of next year. However, emerging and developing nations are still likely to see inflation at 4.9% next year. For now, however, inflation risks are “skewed to the upside,” while growth risks are “tilted to the downside,” the report pointed out. “Inflation risks are skewed to the upside and could materialize if pandemic-induced supply-demand mismatches continue longer than expected,” the IMF said. For central banks, this means being ready to change tactics quickly and tightening monetary policies if inflation is more persistent.
“Although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible.” On the day gold closed up $3.70 at $1758.30 and silver closed down $0.15 at $22.49.
On Wednesday gold prices opened mildly higher then dipped on rising inflation data which some believe encourages Fed intervention (tapering). But just as quickly the market pivoted on lows and moved dramatically higher, pushing above $1791.00 which was not surprising as the Dollar Index was generally lower today. So, what is encouraging the bulls, when common wisdom says the Fed likes what it sees in the latest economic numbers and could begin tapering as early as next month? Gold bulls would like to believe this latest push to higher ground despite today’s normally bearish tapering news is the game changer which gives them the perfect storm for higher gold numbers. World stagflation (slow growth coupled with rising inflation) has been hinted at by professionals but frankly this scenario is not appealing to me. Still, it could be the real deal so I’m paying attention but consider that today’s rally will have to prove itself. A big sell off when the Fed finally does roar will prove this suspicion false. On the other hand, if we are considering $2000 gold by Christmas the Fed might is behind the inflation curve and the world is stocking up for more troubled times especially outside the US.
Zaner (Chicago) – “In looking ahead to today’s action US consumer price readings and the release of the last FOMC minutes will bookend the Wednesday trade. Inflation expectations are relatively muted compared to recent readings with an anticipated gain in month over month readings for September of 0.3%. In our opinion, if inflation is building today’s CPI should come in above 0.3%. However, gold could be limited by two separate Fed interviews yesterday which resulted in views that the Fed should begin tapering just in case inflation is not transitory. In fact, one Fed member (the St. Louis Fed’s Bullard) suggested it was looking like inflation was lasting longer than they expected. While we see gold and silver prices remaining in a sideways chop, the gains in gold yesterday were impressive considering strength in the dollar and general deflationary influences from other physical commodity markets. On the other hand, headlines touting hacking losses of bitcoin holdings by small investors could exert pressure on bitcoin as investors realize the risk associated with cryptocurrencies. On the other hand, it is possible that a slight downshift in cryptocurrencies interest could result in some rotation into gold. Furthermore, it would appear as if US interest rates have started to fall back which will alleviate some pressure from rising interest rates. It should be noted that inflation chatter has moderated but the prospect of tapering in November remains in place. We see critical consolidation low support in December gold at $1,745.40 and solid resistance at the $1,782 level.”
This from Anna Golubova (Kitco) – ‘This is a game-changer for gold’: Shift in Fed’s rate hike expectations take gold price towards $1,800 – “The new U.S. inflation data release has triggered a rollercoaster ride in gold, with the latest move taking the precious metal nearly $40 higher on the day. September’s inflation numbers showed price pressures accelerating to 5.4% annually, slightly more than the market was expecting.
“We are starting to see the market growing nervous about the U.S. consumer. After digesting this report, it shows that the market is now anticipating sooner rate hikes. At the same time, we see the yield curve flattening, and that is good news for gold,” OANDA senior market analyst Edward Moya told Kitco News. “Gold is entering a period where risks now outweigh the reopening trade, and we’ll see more safe-haven flows into gold. This is a major reversal of trends and very positive for gold.”
More persistent inflation could mean a more aggressive Federal Reserve when it comes to tightening. “Potentially, gold will no longer see significant weakness whenever we get more inflationary pressures because now inflationary pressures will mean growth concerns,” Moya said. And an environment of higher inflation and lower growth is known as stagflation, which is when gold is known to thrive, said Blue Line Futures chief market strategist Phillip Streible. “The IMF is continuing to downgrade global growth and rising inflation, and that is the stagflation environment that gold thrives so well on,” he said. “The inflation data reaffirms the Fed’s position on tapering this November.”
Moya pointed out that a more persistent inflation pressure guarantees that the Fed will begin its tapering in November, and it could be more aggressive than what Fed Chair Jerome Powell had described a month ago. “Initially, Powell highlighted that tapering will be completed by the middle of next year. Now, expectations are that it will be done sooner, before we get to hot summer months,” he said. This reset in Fed rate hike expectations “is a game-changer” for gold, Moya highlighted. And if growth concerns continue to rise, gold has a chance to re-test those all-time highs of above $2,000 an ounce seen over a year ago. “Gold right now is facing massive resistance at $1,800; we’ll test this level a handful of times. But I am still looking for further momentum. We’ll see prices continue to move towards $1,840, which is where prices will consolidate more,” he said. Streible noted that he first needs to see what gold does at $1,800 an ounce, stating that he is using this time to lighten some of his overweight positions. “Even if gold broke through that 50-day moving average, now it has $1,800 as psychological resistance, then there’s $1,825-35 and then $1,850,” he said. “Tapering could mark a bottom in gold.”
The markets are closely watching the release of the Fed’s minutes from its September meeting this afternoon. And this massive reset in Fed rate hike expectations following the inflation report could be what gold needs, Moya said. “There’s now over 90% chance that the Fed will raise rates by September 2022. There’s uncertainty with the global energy crisis and the potential that Biden will make an announcement on China. Investors are scrambling for safe-haven positions.” Investors are looking for signs from the Fed that it is leaning towards the idea that inflation is more persistent than transitory, which will continue to drive rate expectations hikes, Moya added. “Fed has done everything it can on the employment front. Even if we see sluggish job growth, with infrastructure spending, you’ll see stable hiring in the first half of the year. This could allow gold prices to rally because the market will become more fixated on the inflation.” On the day gold closed up $35.40 at $1793.70 and silver closed up $0.66 at $23.15.
On Thursday gold pushed mildly higher on inflation fears and seemed to ignore the bearish news that US weekly jobless claims moved lower this week. I was surprised that we did not see some sort of correction from yesterday’s jump in gold prices and remain cautious. If gold runs out of gas at these higher levels a round of profit taking might be in order. And the $1800.00 overhead resistance has been problematic going back to last summer.
But there is no denying this upward pressure on the price of our shiny friend with inflation at 13-year highs. The big question is whether gold will continue to perform because of inflation or safe-haven fears if the Fed begins tapering next month and continues with this hawkish program through next year? This flies in the face of traditional thinking in which higher interest rates will send gold bulls to the sidelines. Still gold and confused world economics are old friends. So problems outside the US may reinvent the bullish sentiment that was so common when traders were thinking $2300 gold was right around the corner.
Both gold and silver are now looking at a four-week high. Pushed by rising inflation worries, supported by a weaker Dollar Index which has moved from 94.50 through 93.75 since Tuesday of this week, and rising energy concerns as winter approaches.
Treasury yields also dipped today reacting to lower-than-expected producer inflation. The notion that higher inflation numbers may not be transitory is supported the fact that crude oil pricing has moved from $35 through $80 a barrel this past year.
It is too soon to take yesterday’s pop in prices seriously but there are enough moving parts to this inflation equation to keep the price of gold in the news. At the same time the bulls should consider whether QE modification and higher gold prices can walk on the same road.
This from Reuters – “Current high levels of inflation may not abate as soon as many U.S. Federal Reserve policymakers expect, St. Louis Fed President James Bullard said on Thursday, as he once again urged the central bank to pursue a faster taper of its bond-buying program.
“I think this is concerning,” Bullard told a virtual gathering of the Euro50 Group, with regard to inflation. “While I do think there is some probability that this will naturally dissipate over the next six months, I wouldn’t say that’s such a strong case that we can count on that happening.” Bullard added that he sees only a 50% probability either way.
The Fed signaled on Wednesday it could start reducing its crisis-era support for the U.S. economy by the middle of November amid growing worries on inflation, and said a reduction of its bond-buying program would last until the middle of next year.
Bullard has been among the fiercest advocates among policymakers for an accelerated completion of the Fed’s tapering of its bond-buying program, which was put in place at the onset of the COVID-19 pandemic to stabilize financial markets and keep borrowing costs low. He has said he would like to finish the taper by the first quarter of 2022 as doing so would allow the central bank to raise interest rates sooner than expected if inflation remains uncomfortably high.”
On the day gold closed up $3.00 at $1796.70 and silver closed up $0.31 at $1796.70.
Gold was weaker on Friday snapping a three session rally this week as US bond yields moved higher, the dollar steadied and a surprise increase in September retail sales refocused the idea that an improving economy would further encourage the Fed to modify quantitative easing.
Today’s weakness also looks like a round of profit taking as gold once again failed to move above resilient overhead resistance at $1800.00. So, the buy the dips and sell the rallies trading model persists. Strong stocks and a new high in bitcoin also helped the bears.
Zaner (Chicago) – “December gold set back overnight but still held more than half of Wednesday’s gains. Inflationary expectations may have taken a hit yesterday with the lower-than-expected PPI number, and traders may be interested in taking profits. Inflation is in the headlines, even outside the financial news, with reports of higher grocery and gasoline prices, which could be encouraging more investors to look for safe-haven instruments like gold. ETFs even added 12,245 ounces of gold to their holdings yesterday, bringing this year’s net sales to 8.39 million ounces. It seems like the idea that inflation will not be transitory is gaining traction as well, with Bank of America CEO Moynihan and Morgan Stanley CEO Gorman both stating they expect it to stay around. And a spate of strike actions by various unions suggest there is something at work beyond just supply-chain issues. St. Louis Fed President Bullard has given inflation a 50% chance of sticking around. September PPI was up 0.5% from August and up 8.6% from a year ago. The core PPI rose 0.2% from August and 6.8% from year ago. This was the smallest gain for core all year, which could have been a disappointment to the bulls. The FOMC minutes appeared to confirm the Fed would begin tapering by mid-November, but this news did not seem to discourage the bulls. The inflation story seems to be driving the market rather than fear of dollar strength induced by Fed actions. Jobless claims dropped 36,000 to a seasonally adjusted 293,000 for the week ended October 9, the lowest since March 2020, which further supporting tapering ideas. There may not be a dominant fundamental to drive gold higher, but the market seems to be more open to inflationary expectations than it has in some time.”
On the day gold closed down $29.50 at $1767.20 and silver closed down $0.13 at $23.33.
Platinum closed up $6.20 at $1056.70 and palladium closed down $74.30 at $2079.40.
My Brothers and Sisters, we thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. All our in-house staff have received the vaccine and one stepped up for the booster! We continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary
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