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Gold – A Deserved Rally

Gold – A Deserved Rally

Commentary for Friday, Dec 17, 2021 (www.golddealer.com) – Gold closed up $7.20 today at $1803.80 and silver closed up $0.05 at $22.51. Gold pushed higher on the open today but saw significant overheard resistance at $1815.00 and traders sold the rally. Still this week has revitalized bullish gold sentiment as the FOMC delayed interest rates hikes. Stock weakness and treasury yields falling below 1.4% also encouraged light safe haven buying in gold. Gold traders ignored news that the Fed would speed up its bond taper and the talk of 3 interest rate hikes next year. Fed Chief Powell talking down interest rate concerns opened the door to timetable changes depending on continued pandemic recovery. Both gold and silver had a solid week for as interest rate concerns are diminished, which capped recent gains in the Dollar Index. And it seems that gold’s near-term weekly bottom ($1760.00) might now be considered oversold territory.

Last Friday gold closed at $1782.90 / silver at $22.16 – on the week gold was higher by $20.90 and silver was up $0.35. Both surprisingly steady considering.

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 3 to 6 weeks coming from the manufacturer.

A trend worth noting. The Canadian Royal Mint is raising premiums. Likely because of inflationary pressures, transitory or not. Look for similar moves by other world mints.  

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.

Gold opened choppy Monday on both sides of $1786.00 with a mild upward bias. But these markets remain defensive, in anticipation of the FOMC meeting this week on Tuesday and Wednesday. The Dollar Index is holding steady around 96.25 – a strong reading which has capped gold gains for mid-November but the fact that the dollar has stabilized might suggest traders believe the Fed will not get even more hawkish before the first quarter of next year. Another hint at perhaps a more dovish Fed at least through the holiday’s is a whiff of Omicron fear on Wall Street this morning. Of course, all of this is transitory – the Fed is considering tapering and possible interest rate changes on a day-by-day basis. The November CPI came in hot which supported gold, but if the December number cooled it would give the FOMC more latitude as to possible action so at this point patience is still the name of the game. Still, the wet blanket on the bullish scenario is the fact that gold has not challenged recent $1860.00 highs, ignoring rising inflation rates both here and in Europe. This coupled with trader fear of the strong dollar, encouraged by possible rate hikes creates that bearish haze. It’s worth considering that the holiday season is traditionally quiet, even though there are several “upset” scenarios in the works. Yet the Fed has nothing to gain by being particularly hawkish this week. So, I would not be surprised to see gold prices continue to channel between $1760.00 and $1800.00.

This from Zaner (Chicago) – “Just as gold and silver failed to rally off one of the hottest US CPI readings in nearly 40 years, the markets have not rallied off similarly much hotter than expected German wholesale prices. Yet another failed bullish catalyst for gold and silver came from the Chinese government with Bloomberg headlines overnight touting the Chinese government “pivoting toward growth policies”. Fortunately for the bull camp, both gold and silver ETF holdings increased last week in a fashion that signals some investment interest. Unfortunately for the bull camp the US dollar has forged a 4-day high in the early going today and the risk on vibe flowing from global equities has put gold and silver off balance in the early trade. In the end, the trade remains ultra-confident in the Fed’s ability to snuff out inflation before it becomes entrenched, and that confidence is highlighted in the bullish resiliency of US treasuries. However, with a Fed rate decision/statement due out later this week, the impact of the Fed this week is likely to be negative for precious metals. Some traders indicated the lack of robust response in gold and silver to the US CPI last week was the result of high market expectations for the report while others point to talk of a faster taper rate as the culprit. For today an as expected PPI report should help gold and silver to add fundamental support to consolidation support which is pegged as $1,766 in February gold and at $21.81 in March silver. However, a potential bright spot for the bull camp is the US dollar’s lack of significant upside action following the hotter than expected US CPI report last week. The most recent positioning report in gold shows a middle of the road net long compared to the 2021 range in positioning and that equates to the 20-day sideways consolidation as a balancing force. Gold positioning in the Commitments of Traders for the week ending December 7th showed Managed Money traders net sold 11,570 contracts and are now net long 93,422 contracts. Non-Commercial & Non-Reportable traders were net long 255,268 contracts after decreasing their long position by 13,192 contracts. The silver market on the other hand damaged its charts last week with a trade below $22.00 and with the high to low decline from the latest positioning report of $0.70, the silver net spec and fund long probably sits in the lower portion of the 2021 positioning range. The Commitments of Traders report for the week ending December 7th showed Silver Managed Money traders were net long 17,860 contracts after decreasing their long position by 9,718 contracts. Non-Commercial & Non-Reportable traders net sold 9,075 contracts and are now net long 44,089 contracts. In gold, we expect further sideways coiling and in silver we expect more erosive price action.”

Gold closed up $3.40 today at $1786.30 and silver closed up $0.13 at $22.29.

On Tuesday gold sold off in early trading reaching $1765.00 before catching a bid in a typical reaction to hawkish FOMC concerns. The Federal Open Market Committee will meet today and Wednesday with statements released after the market closes on Thursday. Today’s sink might be the perfect “sell the rumor” “buy the fact” Wall Street adage. Many are convinced the Fed will speed up tapering and suggest a timetable for raising interest rates to combat inflation fears.

But this analysis is not new and I’m rarely on board when everyone is on the same page so keep your options open. Still, it appears our shiny friend remains defensive. How defensive will depend on Fed action – “what they do” and “to what degree”. If gold holds up at $1760.00 it would be mildly bullish, but I still see a threatened market. Especially if gold continues to ignore inflation numbers. A breakdown at $1760.00 would set up another test of the strong double bottom ($1730.00) seen in August and October this year. Still there are some traders who believe that as gold trends lower these sell-off numbers will get smaller and the markets will quiet down.

The main concern traders have through next year will be centered around interest rates. The taper is in process and to some degree is factored into the price of gold today. The fear of substantially higher interest rates is misplaced, rate hikes in due time will be modest at best and world banks will follow this pattern.

On the shorter term keep the traditional bigger picture in mind. Not much has changed although the Fed has done a great job at holding everyone’s hand. Today’s PPI (Producer Price Index) inflation numbers (9.6%) were even higher than this week’s CPI numbers. Hopefully reminding the world that gold and silver bullion are needed more than ever to keep everyone honest.

Zaner (Chicago) – “We see the near-term trend in gold and silver as mostly sideways/choppy with a modest downward bent. Fortunately for the bull camp the dollar has not managed more definitive gains, but the index has forged a 3rd straight day of higher highs this morning. While the gold and silver trade have not displayed significant correlation with equities, we see prices tracking equities tightly in the coming days because of the FOMC statement and press conference tomorrow. There has been a plethora   of predictions for the outcome of the Fed meeting with some predictions calling for the Fed to actually “hike” rates while most analysts expect the Fed to announce a “quickening” of tapering. Given the potential for a faster tapering announcement, we see thick fundamental resistance hanging above gold around the 200-day moving average of $1,796.60. A recent World Gold Council paper suggested Western ETF demand was holding together while Eastern ETF demand was soft, and they also indicated demand could be in the throes of changing following China’s shift to more support for their economy. In addition to their reserve rate requirement reduction 2 weeks ago, the Chinese have also continued to focus on rural/poor consumers in their stimulus efforts and that could be a more direct stimulus than sending liquidity through the banks. Unfortunately for the bull camp, significant Covid variant infection concerns swirl in the UK and Europe and that creates a deflationary cloud hanging over gold and silver. Pushed into the market, we expect gold to temporarily retest consolidation low support down at $1,770.40. On the other hand, the silver market showed impressive action in the face of red ink in many physical commodity markets yesterday and perhaps that signals the market has found value around the $22.00 level.”

On the day gold closed down $15.90 at $1770.40 and silver closed off $0.40 at $21.89.

Grant on Gold (Zaner) – (1) Consolidative trading below $1800 prevails as the gold market anxiously awaits the outcome of the December FOMC meeting on Wednesday. (2) Silver fell to a 10-week low last week and notched a fourth consecutive lower weekly close. (3) Platinum set an 11-week low at $920.50 last week but managed to close modestly higher on the week, ending the string of consecutively lower weekly closes at three. (4) Palladium remains on the ropes, extending to the downside on Monday to establish a 21-month low at $1677.50.

On Wednesday the ongoing FOMC meeting will conclude, and Chief Powell will offer live comments after the markets close today. Frankly, no one knows what the Chief will say but analysts believe the Fed will bring an end to the tapering program in March instead of June and perhaps even lay out a plan for two interest rate hikes next year. I believe traders will be less fearful of these changes once they are initiated. In the meantime, bearish sentiment prevails because higher interest rates equal a stronger dollar. Still, most expect rising inflation rates to continue well into next year supporting gold’s longer term bullish scenario.

I have always thought that a strong “rising interest rate” scenario is a busted flush. Lower treasury yields of late (1.49%) seem to suggest that Wall Street is expecting a less hawkish response from Jerome today. Also keep in mind that today’s proposed monetary changes are held together on the promise of continuing good news in the pandemic fight. The infection average in LA County is down to 1500 cases but the world average remains stubbornly high around 600,000 cases weekly since last November. Finally, US and world debt numbers are staggeringly – worse, all central banks are still ignoring pay back plans.

Update – The Fed kept interest rates unchanged but doubled the taper pace to $30 billion a month and may raise interest rates three times next year. Obviously, treasury yields moved higher, and the Dollar Index moved to highs of the day – providing gold headwind. The good news however is that Wall Street did not jump out the window. Which again suggests even three interest rate hikes in 2022 will not sink this financial ship. It is important to note that gold was up $15.00 in the aftermarket, so this latest FOMC shift was not Grinch-like, it encouraged the bullish gold scenario. Powell noted in his public comments that if growth slowed the interest rate plan would be modified so Uncle Sam remains the master of leaving the financial door open!

Zaner (Chicago) – “Yesterday instead of an inflationary rally, gold and silver prices fell sharply and signaled their fear of a shift in policy later today. On the other hand, pressing the short side of gold near consolidation lows of $1,760.20 could prove painful if the net take-away from the Federal Reserve meeting later today is less than a doubling of tapering. In a surprising development, the House voted to raise the US debt ceiling by $2.7 trillion, which historically would have lifted gold and silver prices from an inflationary perspective but instead the markets saw no reaction. Even the Chinese are contributing to the global inflation equation with November activity data thought to stimulate both fiscal and monetary support for the Chinese economy. It should be noted that overnight a wave of international consumer price and producer price index readings showed inflation equal to the historically hot readings seen in the US yesterday. Looking ahead today the US will present export and import price readings and retail sales both of which are expected to produce results that are conducive to inflation and growth. With the dollar forging a fresh high for the move yesterday and extending a pattern of very uniform higher highs and higher lows, the currency impact on precious metals is likely to remain bearish today. Yet another outside market negative for gold and silver is seen from ongoing corrective action in energy prices and it is also possible that further risk off selling in equities will weigh on gold and silver prices. However, fear of the Fed is currently all-encompassing within the precious metal markets and in many other physical commodities. Therefore, the path of least resistance is down with those looking to get long advised to implement stops below $1,740. In a developing negative for silver prices, silver ETF holdings have had several large daily declines recently. In fact, silver ETFs yesterday declined by 2.5 million ounces and are now only 1.4% higher year to date. A similar stop point for long March silver positions is $21.40.

While the PGM markets were not tracking inflationary conditions, the markets were pressured because of fears that the very long period of low rates is likely to come to an end later today. However, with the aggressive range down washout we suggest the net spec and fund short in palladium will register a fresh record short Friday after the close. On the other hand, without bullish classic fundamental news, an oversold technical condition could become even more oversold. In our opinion, the net spec and fund short in palladium might be 3 times as large as the number of contracts traded in just one session! Like palladium, the platinum market is poised to feel pressure from today’s Fed meeting and from fresh technical damage on the charts. Earlier this week J.P. Morgan forecasted platinum prices to average $1,144 next year while Commerzbank projected platinum to price at $1,100 by the end of 2022. The German bank indicated higher demand for catalytic converters and substitution for palladium justify higher platinum prices. It should be noted that platinum ETF holdings yesterday declined by a very significant 37,569 ounces for a daily decline of 1% and a net decline on the year of 4.9%. Near term downside targeting is even numbers of $900 but given another broad-based risk off day, we see the September low of $892.90 taken out on the downside.”

On the day gold closed down $7.80 at $1762.60 and silver closed down $0.38 at $21.51.

On Thursday gold surged higher as the Dollar Index moved off weekly highs losing almost a half point after yesterday’s close of the latest FOMC meeting. As usual the news is a mixed bag – as traders digest news from the Bank of England (BOE) and European Central Bank (ECB).

In a surprise inflation move the BOE raised interest rates a quarter point and is the first of the nine major central banks to move interest rates higher since the pandemic. The ECB reduced their bond purchase program but left interest rates unchanged and promised unprecedented monetary support for the euro zone economy in 2022 according to Reuters.

Higher gold prices were helped by some weakness in the US Purchasing Managers Index for November. These numbers did not look like a big deal to me but anything pointing to a recovery slowdown suggests our “cheap money” standard used during the pandemic will remain in place.

Believe it or not, today’s jump in prices will be viewed with suspicion. Is this a legitimate turnaround because the Fed continued traveling the road of moderation yesterday. Or are we looking at a surprise short covering rally in an oversold gold market as hawkish FOMC sentiment dissipates, and traders realize interest rate changes will be postponed?

Keep in mind this is a significant rally which broke above the $1780.00 congestion channel in place a week before yesterday’s FOMC meeting. And the final answer as to what the Federal Reserve will do with interest rates is still in the wind. My guess is that unless gold moves above the most recent $1800.00 ceiling established in late October with some conviction, we are looking at another cautionary trading market which fears FOMC interest rate changes.

The two very big loose ends are not new – inflation and the virus. Everyone will be keen to see if the small interest rate hike in England will tap down their inflation – if not this spinning top wobbles. Consider the latest Omicron variant a heads up. Are we winding down or not?

Zaner (Chicago) – “We see the sharp recovery rally in gold and silver prices this morning as a “relief rally” with a small measure of assistance for the bull camps coming from the reversal in the dollar. Apparently, the gold and silver trade think the US Federal Reserve outcome left the path of interest rates unchanged for the near term, with others suggesting a mere tapering of bond purchases will not be effective in battling inflation. In a surprise and very supportive development, Indian gold imports last month surged off an estimated 2.5 million wedding ceremonies leading some analysts to project gold imports in 2021 could reach 900 tons. The imports last month were reportedly the highest in 6 months and a 900 ton and annual import tally would put Indian gold imports close to “more normal” levels again. Unfortunately for the bull camp gold ETF holdings yesterday declined by 98,992 (down 8.4% year-to-date), while silver ETF holdings forged another large decline of 1.2 million ounces reducing the net gain in silver ETF holdings to 1.3%. However, the bull camp saw a significant lift overnight from a bullish gold view from Black Rock Inc. who predicted more upside risk in gold than downside in 2022. Obviously, the gold market was relieved with the passage of the US Federal Reserve meeting yesterday even though the results of the meeting were as expected. Apparently, some traders felt the Fed would surprise with something more hawkish while others simply saw gold prices down at $1,750 as “too cheap with inflation in the air”. For the time being, the Fed has tamped down inflation fears and that should discourage sellers who were selling gold more than $100 below last month’s highs. Into the low yesterday, the net spec and fund long in gold had probably come down enough to view the Wednesday low as a possible key low. In the silver market, a similar range down washout and recovery was posted, but we do not see a full shift in fundamentals to predict a key low and gains ahead. In fact, silver ETF holdings have shown several large drawdowns over the past two weeks, suggesting investors are cool toward the metal. However, given the magnitude of the oversold condition, a short covering bounce to $22.55 is possible.”

On the day gold closed up $34.00 at $1796.60 and silver closed up $0.95 at $22.46.

On Friday once again moved higher but traders took profits at historically tough overhead resistance ($1815.00). On the day the bulls settled for modest gains in what turned out to be a turbulent week. There is no doubt that gold moving above $1800.00 has helped bullish sentiment and its short-term technical picture is now in the green. I suspect however that trader worry about the ongoing changes in central bank pandemic relief programs will limit upside gains in gold.

As the world refocuses its attention on inflation and continued pandemic problems this uncertainty will likely support gold prices. If the coming interest rate hikes are modest. As usual there are plenty of opinions. Goldman claims this morning that crude oil could reach $100 a barrel in the next two years supporting the inflationary scenario while CNBC warns that the Omicron covid variant will dent global oil demand. This kind of fuzzy vision will add to the confusion factor and support the metals into next year. The end result here is problematical as the Fed must keep interest rates low enough to keep this financial top spinning and at the same time high enough to combat growing fears of inflation next year and beyond.

Zaner (Chicago) – “Seeing gold and silver extend gains today after a significant pulse up trade yesterday should embolden the bull camp and should threaten the bear camp. In fact, the gold market has managed the upside pulse today without a downside breakout in the dollar and in the face of lower energies and lower equities. However, despite the significant pulse up move yesterday, gold ETF holdings managed only a small gain of 1,888 ounces and remain 8.4% lower on the year. Even more surprising is the fact that yesterday’s large run-up in silver prices coincided with another daily decline in silver ETF holdings of 243,476 ounces. In retrospect, it is very surprising that gold and silver were able to manage the gains this week as the less than hawkish US Federal Reserve meeting was followed up by more hawkish than expected Bank of England and Bank of Japan central bank meetings. Some traders suggested that the extreme volatility in bitcoin in the face of recent hot inflation readings has degraded its inflation fighting reputation and perhaps allowed some flight to quality money flow to gold and silver. On the other hand, gold and silver have clearly underperformed versus historical record given the historical surge in consumer and producer price inflation readings last month. From a technical perspective yesterday’s rally in February gold pushed prices above the 200-day moving average and above the psychologically important $1800 level on the charts shifting several technical signals in favor of the bull camp. The 200-day moving average today is located just below this morning’s low at $1797.80. Initial resistance is seen at $1815.20. Overnight the March silver contract broke out to the highest level since December 1st and appears to be capable of clawing out more hard-fought gains on the charts. However, short covering in silver probably contributed significantly to the prior two days gains and the market should see less of that influence today.”

The World Gold Council –  The gold price averaged US$1,789.5/oz in Q3, marginally lower than the Q2 average. The y-o-y comparison shows a 6% fall, reflecting the August 2020 record high US dollar price. Gold’s performance is consistent with its demand and supply dynamics and a macro environment of higher interest rates and risk-on investor appetite.

Year-to-date, gold demand is 9% lower. A doubling of central bank buying and 50% growth in jewellery demand over the first three quarters only partly offset the decline in ETF demand. Y-t-d demand remains notably weaker when compared with the same pre-pandemic period of 2019.

Gold supply is flat y-t-d. Mine production has steadily increased throughout 2021 and the y-t-d total is up 5%, but recycling has slowed down significantly, contracting by more than 12% over the same period.

Our full-year 2021 outlook shows a picture similar to the year so far. Ongoing economic recovery will benefit jewellery and technology; investment should draw support from continued inflation fears but relatively modest ETF flows compare negatively with 2020’s record inflows. Central banks are poised for an above-average year of net purchases.

On the day gold closed up $7.20 at $1803.80 and silver closed up $0.05 at $22.51.

Platinum closed up $5.60 at $933.90 and palladium closed up $62.00 at $1782.60.

My Brothers and Sisters, we thank you for your business and friendship. 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 many now have the booster! And we continue to enforce 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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