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Gold – A Bright Spot Do I See?

Gold – A Bright Spot Do I See?

Commentary for Friday, July 29, 2022 ( – Today gold closed up $12.60 at $1762.90 and silver closed up $0.33 at $20.16. Gold moved higher on Friday as the Dollar Index continued a soft drift towards 106.00. The markets are trying to resolve the interest rate / recession conundrum. But since Powell’s less hawkish and even uplifting Wednesday talk the gold trade seems a little lighter. And safe haven more in focus into the weekend. Today’s momentum above the important $1750.00 psychological overhead resistance is a welcome change from the drubbing gold and silver have recently taken. Last Friday gold closed at $1727.10 / silver at $18.59 – on the week gold higher by $35.80 and silver was up $1.57.

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On Monday gold moved higher in the overnight Hong Kong market but in typical fashion traders sold the rally in London and the domestic trade. Likely because the Fed will boost interest rates ¾ of a point this week.

Still the gold bulls were disappointed that the gradual price slide in New York ignored a weaker Dollar Index. Gold did catch a small bounce higher at $1716.00 but it was unconvincing.

Most professionals see lower prices responding to a bearish technical picture. Another setback to the bullish gold scenario is the slide in crude oil prices. Crude has lost $25.00 these past 2 months over recession talk. And the dip may not be transitory. Higher oil fueling inflation was a bullish gold cornerstone in the early days of the Ukraine war.

The big question at this point is whether the bulls will gather themselves after this week’s FOMC rate hike. Or remain defensive. Gold is already trading at a big discount and anything that even hints at a more dovish view may prompt a relief rally.

As you can imagine there is zero bullish buzz in this slow summer trade. But the trend that long-time gold and silver believers continue to buy weakness remains intact. This is especially true if they can find live quality bullion products.

This optimism comes from the notion that precious metal “insiders” believe the economic system and the central banks are either broken or corrupt. There are others who want to place a portion of their wealth outside the traditional financial system. And not subject to third-party intrusion. These are the “just in case” folks. And there are more of them than you might imagine.

We begin this week with several significant customer bullion sales. Which may eventually prove interesting. I can’t believe there are many “weak hands” left considering that the bearish storyline has been around since the Fed began talking higher interest rates. The idea is that the bearish scenario is old, and all the bears have already sold, clearing the way for higher prices.

Silver’s negative pricing picture may soon resolve itself. The reasons for the drop in prices are complicated. Some believe silver jewelry demand in top consumers India and China has fallen due to the number of stores being closed after the Covid-19 outbreaks. The initial optimism for rising prices because of industrial demand and the “green movement” pushed prices to $25.00. But recession fears have reversed these gains to the pricing channel between $15.00 and $20.00. Which has been in place for 6 years. We see this $5.00 spread as a great value play today.

Because industrial demand will return, perhaps gaining strength if we avoid a recession. If we cannot dodge the recession bullet, we believe the downside is small for practical reasons. Silver bullion is scalable, a convincing argument. Everyone can participate and begin to build private wealth, outside the typical financial system. Finally remember that silver at these lower and lower levels is more and more subject to large, short covering rallies.

On the day gold closed down $8.10 at $1719.00 and silver closed down $0.30 at $18.29.

On Tuesday gold was typically choppy and flat with what Reuters calls the “jitters” over the now in process FOMC meeting. Most expect a ¾ point rise in interest rates which will continue to create trouble with the gold trade. “The relief we’ve seen in yields is a good sign for gold… persistent fear in the equities market, geo-political issues and if the energy squeeze intensifies, there will be strong demand for safe-haven,” Edward Moya, senior analyst with OANDA.

Consumer confidence is again on the slide over inflation and the public’s fear of recession. Yesterday CNBC cited a recent poll which claimed that nearly half of Americans belief we are already in a recession. This is a reach and most traders do not believe the Fed will push the US into recession. It makes no sense to welcome unemployment and less working taxpayers simply to battle inflation. This most current reasoning leads to the notion that the FOMC will raise interest rates this week but is running out of ammunition. And will soon be forced to perhaps even lower interest rates to fight recession.

I’m not sold on the recession idea because of the number of “help wanted” signs. So, it is too soon to dismiss the bearish potential of large interest rates hikes. Under these circumstances it makes sense to keep your powder dry if you are thinking about buying gold bullion.

Just a note here, the premium on US Eagles is being raised by the US Mint and will be passed on to consumers. It is too soon to tell if this increase is caused by higher operating costs or demand.

It is surprising that gold did not react to the latest development in the Ukraine. Reuters – “Russia said it will cut gas supplies to Europe from Wednesday in a blow to countries that have backed Ukraine, while missile attacks in Black Sea coastal regions raised doubts about whether Russia will stick to a deal to let Ukraine export grain.” This may simply suggest intense focus on this week’s big FOMC decision. Or perhaps the US audience is resigned to the notion that Putin is crazy and there is little more that can be done outside of humanitarian aid.

On the day gold closed down $1.30 at $1717.70 and silver closed up $0.20 at $18.49.

Zaner (Chicago) – “Despite higher initial action today traders should brace for position squaring selling as traders move to the sidelines ahead of what is expected to be another “jumbo” US rate hike. With the gold market unable to rally off news yesterday of a Japanese import ban on Russian gold (starting August 1st) and discounting news of a significant jump in Hong Kong gold exports to mainland China, the bear camp retains control. In retrospect, the dramatic oversold technical condition from the July washout of $137 has likely been balanced by last week’s low to high bounce of $59. Unfortunately for the bull camp, both gold and silver ETFs continue to see disinvestment, with silver ETF holdings yesterday declining by 38,682 ounces and gold holdings declining by 41,711 ounces.

Furthermore, gold holdings have been down for 19 straight sessions and have seriously reduced the year-to-date inflow to only +3.8%. Silver on the other hand has seen a year-to-date reduction of ETF holdings of nearly 9%. Clearly, the combination of a series of US rate hikes, expectations for more global central bank rate hikes and rising concern of global recession leaves the precious metal bull camp without much ammunition.

However, it should be noted that last week gold prices managed a significant recovery rally in the instant aftermath of the ECB rate hike! Going forward, the wildcard for the gold trade is the direction of the dollar with the 106.00 level currently seen as the line of demarcation between a bullish currency impact on gold and a bearish currency impact on gold. However, with the dollar faltering from the July high, despite the looming aggressive US rate hike potential the dollar bulls appear to have lost some resolve. Pushed into the market, we are a seller of both gold and silver at corrective resistance of $1,756 in October gold and at $19.15 in September silver.”

On Wednesday gold prices were hemmed in awaiting a Fed decision on the next interest rate hike. This will probably be released after the market closes, but most expect a ¾ point jump. If the FOMC goes big (a full point) gold will adjust downward but likely less than expected.

Reuters – “The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the most intense breakout of inflation since the 1980s, with “ongoing increases” in borrowing costs still ahead despite evidence of a slowing economy. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the rate-setting Federal Open Market Committee said as it lifted the policy rate to a range of between 2.25% and 2.50% in a unanimous vote.”

The actual increase is no surprise, but two paths of reasoning will likely follow. The first is simply that higher gold prices after the announcement will be transitory because we are looking at a relief rally for those figuring a full point was the next FOMC move. The bears will sell the rally and move to the sidelines, a very typical pattern these days.

The second, and the one I favor comes from the notion that the Fed will “adjust the stance of monetary policy as appropriate”. The Dollar Index did move lower by almost a full point after Powell’s comments. So, if your natural bent is toward “recession” this may yet turn into a realistic dovish pivot. But it will require patience.

Today’s higher aftermarket was enough to steady the fearful bulls. But not enough to materially change the fact that lower gold pricing since late June suggests a bearish technical picture.

There are still plenty of bears in those woods. But it’s important to note that the FOMC will not formally meet again until November. Which essentially takes this issue off the table until late this year helping the flagging bullish scenario.

The good news is that gold is in the fight for the higher ground. I don’t see much capitulation in these numbers. The world inflation numbers are a mess. And most likely the best encouragement for the bulls is that quality physical bullion products do not sit in our safes for long.

On the day gold closed up $1.40 at $1719.10 (with a + $15.00 aftermarket) and silver closed up $0.06 at $18.55 (with a + $0.55 aftermarket).

On Thursday gold moved higher in the opening domestic trade, reflecting yesterday’s higher aftermarket. And added something I have not seen lately, a positive buzz. It is still too soon to judge the Powell comments but the at least developing theory is that the FOMC has left the door wide open to options. This morning the Gross Domestic Product fell for the second consecutive quarter setting off more warning bells about recession.

I’m not an economist but apparently the process of declaring an official recession can be drawn out and complicated. But they may make a believer out of me yet if the GDP does not recover.

At any rate, traders are buying the idea that a recession is on the way. And, at least on the short term figure the Fed will become less hawkish and modify its interest raising plans.

This is something of a non sequitur because the next FOMC confab is not until November. So, no one is expecting any new information until year end. Which effectively places the interest rate question on the back burner for the rest of the year because I can’t imagine the Fed raising on the Christmas season. Santa would not like such a rash and unnecessary move because the Fed may have already planned on slowing this program down through the summer month of next year.

I would not describe today’s gold trade as a firecracker start to the bullish gold scenario. We have seen $1750.00 plenty of times and higher numbers represent formidable overhead resistance. But there are at least some sparks in that old chimney. If gold is finally accepted as being cheap, relative to highs traders might even see that bullish scenario burn brighter.

On the day gold closed up $31.20 at $1750.00 and silver closed up $0.10 at $871.90.

Zaner (Chicago) – “Not surprisingly, the gold market has forged a significant recovery/relief rally after clearing the FOMC rate hike meeting. However, the rally has more credence given it has been forged after 2 weeks of general grinding gains! Apparently, gold, and other physical markets gleaned hope from market chatter embracing the potential that the rate of US interest rate hikes may slow. However, the Federal Reserve chairman generally forecast another robust rate increase in the next meeting but suggested the pace of rate hikes “would slow at some point”. Commodity markets are likely to continue to draft lift today from the Fed chairman’s rejection that the US is “in recession”. In a very minimal supportive overnight development gold ETF holdings broke the July chain of daily outflows with a minimal inflow of 15,878 ounces. Unfortunately for silver bulls large daily silver ETF outflows continued yesterday with the exit of 3.8 million ounces. The gains in gold this morning are particularly impressive given World Gold Council projections that Chinese first half gold consumption declined by 12.8%, Chinese production increased and with the Council also calling for Chinese demand for gold jewelry, bars, and coins to fall below year over year levels in the 2nd half of 2022. In fact, the WGC expects the year-over-year decline to register in double digits because of the contraction in disposable income and lingering impacts from periodic infection flares. For the time being, recession pressure on gold and silver has moderated especially with the US durable goods report yesterday much stronger than expected and Powell denying the US is in recession. With the rally in the dollar yesterday not overly impressive, and the currency Index violating the 106.00 support early today, the currency impact on gold and silver today leans in favor of the bull camp. Not surprisingly, gold, and silver prices managed new highs for the day yesterday in the immediate aftermath of the US Federal Reserve policy change. While we suspect a large portion of the buying/recovery in prices is a relief rally, news that the US economy might not be in recession adds to the “temporary” bounce. On the other hand, from a technical perspective the upside breakout today to the highest level since July 8th shifts the charts bullish and produces an upside target of $1760.20. Not to be left out, the silver market has also extended yesterday’s impressive recovery and posted the highest price since July 5th in the early action today and that could project prices in the near term back above $20.00.”

On Friday gold opened firm. Likely a combination of further short-coving and the fact that inflation in Europe is still running above 8%. Which encourages safe haven demand. This makes sense because recent gains in gold are large enough to suggest a short-term bottom is in place.

We are seeing fresh public interest in buying both gold and silver bullion with this recent uptick in prices. They are not standing in line, but the action is no longer sluggish. The technical picture a week ago was bearish but is improving nicely over the possibility of a FOMC dovish pivot.

For gold to continue higher the Dollar Index must weaken on the short term. Not an easy job if the FOMC fails to lighten up on its hawkish sentiment. But there may be another bullish light at the end of this tunnel. I would not bet the farm, but 10-year Treasury yields have managed to settle below support at 2.7% (FXEmpire). This may be the key to a lower Dollar Index.

Reuters cites the latest Michigan Consumer Sentiment, claiming the public expectation of higher inflation may have peaked. Even if this “cooling” is modest it would be another plus for the gold bulls. The FOMC would be given the gift of time in its interest rate reduction plans.

On the day gold closed up $12.60 at $1762.90 and silver closed up $0.33 at $20.16.

Platinum closed up $13.00 at $884.90 and palladium closed up $49.50 at $2128.90.

My Brothers and Sisters, thank you for your business and friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry. All our in-house staff have been vaccinated and have the booster! We continue to enforce ridged safety standards between people and product. Be careful, the contagious Omicron variants remain dangerous. At the same time trust that God will soon get us back to normal and our traditional business model.  As always, thank you for your patience. Richard Schwary

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