Gold – 3 Month Peak – Safe Haven Demand
Commentary for Friday, October 20, 2023 (www.golddealer.com) – Today gold closed up $14.10 at $1982.50, and silver closed up $0.46 at $23.35. Both gold and silver finished the week trending higher, helped by safe haven demand, an improved technical picture, and Chief Powell’s dovish hints. This fresh interest in metals, however, is driven by fear of more Middle East escalation. I’m sorry to say that the world’s list of hot spots is growing, and possible answers are less effective. Unless the forces at war do not stand down and find a way around this impasse the innocent will continue to suffer. Last Friday gold closed at $1927.40 / silver at $22.73 – on the week gold was higher by $55.10 and silver was higher by $0.62.
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On Monday the price of gold traded between $1915.00 and $1923.00, not much of a spread considering the serious problems brewing in the Middle East. The plus here for gold is that it remains above $1900.00.
There is talk that the Fed will pause in November, but I think this is unlikely given rising inflation. The variables relative to precious metal pricing are moving towards the more “confusing side” at a time when most traders were hoping for a quiet holiday season.
So, what’s a good choice when the investing world is getting more confusing? Physical gold or silver bullion? ETFs? Stocks or Bonds? The crazier it gets (to a point) the better good old cash looks! This approach allows the investor to take advantage of bumps in the road. And it’s a pretty safe bet to expect bumps and volatility along the way.
Goldman Sachs (Reuters) – “The Federal Reserve is unlikely to raise interest rates at its Oct. 31-Nov. 1 meeting, Goldman Sachs strategists wrote on Saturday, while also forecasting the U.S. central bank would lift its economic growth projections when policymakers gather next week. “On November, we think that further labor market rebalancing, better news on inflation, and the likely upcoming Q4 growth pothole will convince more participants that the FOMC (Federal Open Market Committee) can forgo a final hike this year, as we think it ultimately will,” the investment bank’s strategists wrote in a report. Goldman’s strategists, however, wrote that they expect the Fed’s “dot plot,” which reflects policymakers’ interest rate projections and will be updated on Wednesday, to show “a narrow 10-9 majority still penciling in one more hike, if only to preserve flexibility for now,” they wrote.”
FXEMPIRE (Christopher Lewis) – Gold Pulls Back to Moving Average – “Gold markets have pulled back a bit during the trading session on Monday, as the overbought condition from Friday abated. That being said, it looks like the 200-Day EMA is of course offering a little bit of support, so it will attract a certain amount of attention. Ultimately, if we break down below the 200-They EMA, it’s likely that the market will continue to correct, at least to the $1900 level. All of that being said, it is difficult to go short of a market that rallied 3 ½% during the previous session. At this point, I think we are overbought, but whether or not we get a true correction remains to be seen. In fact, I would not be comfortable shorting this market until we break down below the $1900 level again. Alternatively, if we turn around a break above the $1950 level, gold could go looking to the $2000 level after that. It’s probably worth noting that we are at the apex of the previous triangle, so we are essentially in an area where the market is going to be doing a lot of fighting. Because of this, I would be very cautious about putting a lot of money into the market, and I would also keep a close eye on interest rates in America, because the higher they go, the lower gold goes, at least that’s the typical correlation. It certainly has been the way the market has been behaving recently, so it is something worth paying attention to. The size of the candlestick on Friday is very telling, and of course volume spiked as well. It is because of this that I think the market is trying to do everything he can to change directions, but the question at this point is whether or not it can break through all of that previous noise? Pay attention to the peripheral markets, meaning the bond markets, and how they behave, as well as the US dollar. It’s worth noting that the US dollar can and will rise right along with gold at times, especially in geopolitical situations like we have now. In other words, you can’t just trade the “higher dollar, lower gold” scenario. You need to be a bit more nimble.”
On the day gold closed down $6.30 at $1921.10, and silver closed down $.12 at $22.61.
On Tuesday gold remained quiet, moving from $1915.00 through $1930.00, before settling on the day. Traders remain watchful of developments in the Middle East. And fresh interest rate hints from Chief Powell later this week will also be pondered carefully.
The price of silver began moving higher in the overnight Hong Kong and London markets, consolidated, and then challenged daily highs ($23.00) in the domestic trade. This could also portend a meaningful shift in the physical silver market.
Not sure what to make of this so early on, but the technical guys suggest a short-term bottom is in place and higher silver prices are in the making. Even a false rumor is worth $1.00 or more in the silver market which thrives on such comings and goings. Being suspicious is always a good rule, but someone is taking this latest speculation seriously, we sold almost half our available silver bullion to half a dozen people looking for immediate delivery.
This latest silver surge is interesting in that gold, while supported by the Middle East tragedy, remains threatened over the likelihood of further interest rate hikes. Which leads some insiders to suggest that the “green” environmental movement may make silver a better bet than gold both in the short and long term. Not a new idea but one worth considering.
Reuters (Harshit Verma) – Gold firm on Middle East conflict, focus on Fed Chair’s speech – “Gold prices edged higher on Tuesday as investors took stock of developments in the Middle East and awaited Federal Reserve Chair Jerome Powell’s speech later this week for cues on the U.S. interest rate path. “The precious metal is likely to remain heavily influenced by Fed rate expectations and geopolitical risk. Much focus will be on Jerome Powell. If Powell strikes a hawkish tone, this could boost Fed hike bets, pressuring gold prices as a result,” FXTM senior research analyst Lukman Otunuga said. U.S. President Joe Biden will visit Israel on Wednesday as the country prepares to escalate an offensive against Hamas militants that has raised fears of a broader conflict with Iran. Gold is often used as a safe investment during times of political and financial uncertainty. “It (gold) has eased to around $1,920 but there seems to be some pushback against a steeper retreat amid the volatile nature of this conflict that’s keeping investors on alert,” Raffi Boyadjian, lead investment analyst at forex broker XM, said. Investors’ focus will be on Powell’s speech on Thursday after dovish signals by top policymakers in recent weeks raised expectations that rates may have peaked. The U.S. retail sales report and industrial production data, due later today, will also be scrutinized to gauge the economic strength of the world’s biggest economy. The benchmark U.S. 10-year Treasury yield rose to a more than one-week high, lowering non-yielding bullion’s appeal. Meanwhile, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.8% on Monday.”
On the day gold closed up $1.60 at $1922.70, and silver closed up $0.25 at $22.86.
On Wednesday the gold trade moved between $1940.00 and $1960.00 before settling, so pricing spreads were similar to Tuesday, even as safe haven demand escalated, and the Gaza nightmare continues. Professionals see even higher prices in the short term but I’m still in a “wait and see” mode. This market may already be overbought but for now that is a minority opinion.
If you consider the 1-year gold pricing chart you will see that gold is now facing very strong overhead resistance between $1900.00 and $2000.00. Traders, even if they are still bullish, will be expecting consolidation and perhaps a round of profit taking.
Reuters (Ashitha Shivaprasad) – Gold advances as Middle East tensions spur safe-haven demand – “Gold rose to a more than one-month peak on Wednesday as the escalating conflict in the Middle East sent investors flocking towards the safe-haven metal. “Elevated risks in the Middle East are prompting safe-haven demand for gold and silver, the technical posture for both has also improved. I think gold will push above $2,000 in the near term,” said Jim Wyckoff, senior analyst at Kitco Metals. “Gold will pull back if the Middle East situation simmers down, but right now the marketplace is expecting a further escalation.” Gold, considered a safe store of value amid political and financial uncertainty, has climbed more than 5% so far in October. While Wall Street’s main stock indexes have dipped amid risk aversion. About 500 Palestinians were killed in a blast at a Gaza City hospital on Tuesday that Israeli and Palestinian officials blamed on each other. Market focus is also on Federal Reserve Chair Jerome Powell’s speech due on Thursday, which could offer some clarity on the Fed’s interest rate path after recent dovish comments from several U.S. policymakers. Traders are pricing in a 60% chance that the Fed will leave interest rates unchanged this year, according to the CME FedWatch tool. Ole Hansen, head of commodity strategy at Saxo Bank, highlighted in a note that asset managers, many of which trade gold through exchange-traded funds (ETFs), continue to focus on U.S. economic strength, rising bond yields and potentially another delay in peak rates. Holdings in bullion-backed ETFs continue to decline, the paper market is still in sell mode, added Hansen.”
On the day gold closed up $32.60 at $1955.30, and silver closed up $0.08 at $22.94.
On Thursday the price of gold in early trading drifted between $1950.00 and $1956.00. Waiting for Fed comments by Chief Powell today in New York. His thoughts, mid-morning still suggested that caution is warranted. But noted that our economy remains strong and higher bond prices might reduce the need for further tightening. His was relaxed, tending toward dovish.
Still, traders lean toward a hawkish Fed. (Reuters) “Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said, citing the progress made since inflation peaked last year but also noting that one of the Fed’s main measures of inflation remained at 3.7% through September, nearly twice the central bank’s target.”
Gold seemed to ignore the Chief’s comments as it finished the day surprisingly in the green. It did not fade in price likely because this “news” was anticipated and thus already factored into the pricing model. And gold is further supported by continued bad news from the Gaza Strip, yet both these factors are tenuous, and if support weakens a profit taking round would be typical.
Still, it is unlikely this market will “lurch” dramatically, one way or the other. It appears “higher for longer” is the best choice, but like I have been saying the downside here for gold may be surprisingly mild during this transition.
Reuters (Ashitha Shivaprasad) – Gold firms on Mideast conflict, Powell takes center stage – “Gold crept higher for a third consecutive session on Thursday as growing tensions in the Middle East sparked safe-haven demand, while investors strapped in for U.S. Federal Reserve Chair Jerome Powell’s speech later in the day. Israel pounded Gaza with more air strikes, as British Prime Minister Rishi Sunak followed U.S. President Joe Biden on visits to demonstrate support for the war against Hamas while urging Israel to ease the plight of besieged Gazans. Gold prices have risen nearly $120 since the start of the Middle East conflict. But while gold has gained due to the war, “buying exhaustion is fairly imminent,” said Daniel Ghali, commodity strategist at TD Securities, adding prices should consolidate around the $1,950 range in the near term. Fed Chair Powell will take the podium at the Economic Club of New York, with his colleagues at the U.S. central bank in apparent agreement to hold interest rates unchanged at their next meeting in two weeks. Markets are pricing in around a 94% chance the Fed will leave interest rates unchanged, according to the CME FedWatch tool. “Any signs of deteriorating data in the U.S. is required to get discretionary interest into the precious metal, which has been a large missing piece. Recession would allow Fed to cut rates and help prices move north of $2,100,” Ghali.
On the day gold closed up $13.10 at $1968.40, and silver closed down $0.05 at $22.89.
On Friday the price of gold moved higher for the fourth day in a row over rising Middle East anxiety. Today’s surge peaked at $1995.00 but settled at the higher end of its trading range going into the weekend. This does not suggest a tired bull but profit taking should be anticipated.
Selling has increased across our trading desk; the public is taking advantage of these higher prices. The tough overhead resistance ($2000.00) established in April is problematic.
With higher interest rates anticipated expect a bumpy ride, profit taking, and volatility.
Reuters (Harshit Verma) – Gold hits 3-mth peak as investors take cover from Middle East risks – “Gold climbed to a three-month peak on Friday, enroute to a second straight weekly rise, as fears of a further escalation in the Middle East conflict bolstered safe-haven demand. “There’s an enormous amount of uncertainty around Israel and Gaza at the minute, and two days can feel like a very long time under the circumstances. So (there are) safe-haven flows and risk aversion going into the weekend; I don’t think that would be a surprise to anyone,” said Craig Erlam, senior markets analyst at OANDA. Israel levelled a northern Gaza district on Friday and ordered the evacuation of the biggest Israeli town near the Lebanese border, as it made clear that a command to invade Gaza was expected soon. Gold has risen 2.5% this week, and added nearly $150 since the onset of the conflict. Gold was also supported “as fears of another Fed rate hike in 2023 subside,” Fitch Solutions said in a note, forecasting prices to average $1,950 an ounce this year. Fed Chair Jerome Powell on Thursday agreed “in principle” that the rise in bond yields was helping to further tighten financial conditions and “at the margin” might lessen the need for additional rate increases. Higher interest rates raise the opportunity cost of holding gold. Markets are widely expecting the Fed to keep rates on hold at its policy meeting next month, according to the CME FedWatch tool. Spot gold is expected to extend gains into a range of $1,998-$2,010 per ounce, as it has broken a resistance at $1,972, according to Reuters technical analyst Wang Tao.”
On the day gold closed up $14.10 at $1982.50, and silver closed up $0.46 at $23.35.
Platinum closed up $7.40 at $896.70, and palladium closed down $17.70 at $1104.00.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the near-term technical advantage and have momentum. Prices are trending higher on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $2,000.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at the overnight high of $1,997.60 and then at $2,000.00. First support is seen at $1,980.20 and then at $1,968.90. The silver bulls have the slight overall near-term technical advantage. Prices are trending higher on the daily bar chart. Silver bulls’ next upside price objective is closing December futures prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at this week’s high of $23.49 and then at $23.80. Next support is seen at $23.00 and then at Thursday’s low of $22.78.”
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