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Gold – A Lift from Inflation Talk?

Gold – A Lift from Inflation Talk?

Commentary for Friday, March 19, 2021 ( – Gold closed up a surprising $14.60 today at $1741.40. Gold certainly showed this week that it can stay in the game given a strong dollar and higher treasury yields. This perhaps more optimistic view for gold was encouraged by Fed Chief Jerome Powell’s commitment to do whatever is necessary to get America back on her feet and working. And no doubt just the talk of inflation has supported gold prices despite negative sentiment. For now the Chief has managed to calm the bond markets and assure everyone that the Fed was not going to change its extremely accommodative monetary policy, which translates into zero interest rates through next year. This past Friday gold closed at $1719.50 so on the week so on the week we are up $21.90.

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Monday of this week gold opened firm (modest short-covering) pushing towards $1740.00 before once again selling off in a round of profit taking. The Dollar Index was modestly higher, and this latest reach to higher ground was capped by 10-year Treasury yields (one-year peak). At least the talk of inflation is back with Biden’s $1.9 trillion stimulus. Reuter’s “The strength shown by gold could be hinting that prices are close to bottoming out on a longer-term basis if gold’s role as an inflation hedge is creeping back into investor’s thoughts. We will have a clearer picture by the end of the week,” OANDA senior market analyst Jeffrey Halley said.”

This week the FOMC will meet Tuesday and Wednesday and commentators will be looking for more dovish assurance from Fed Chief Powell. Why, I am not sure because the Fed has already supplied the “Full Monty” and “the whole kit and caboodle” if you do not mind me saying. The physical gold and silver world are just waiting for the inflationary results of all that money. And this will happen sooner if the world economies come roaring back like the current Chinese model. The Fed has assured everyone that it would ignore inflation so why not believe them?

Technically gold pricing is still bearish – in a nine-week downtrend – yet bullish sentiment is making a slow comeback. This second look is still a minority opinion looking for confirmation. Still, gold has recently threatened $1735.00/$1740.00 overhead resistance twice. Granted it has failed on both occasions, but this suggests bargain hunting. More importantly the public have been strong physical buyers for weeks. And yet the gold trade has not developed much buzz. And recent price weakness will not be easy for traders to forget. The bulls will have to move above $1750.00 with momentum to get their mojo back. I do not see any problems in the stock market but nothing goes up forever. If stocks get rattled it would be another reason to own the metals. On the day gold closed up $9.40 at $1728.90 and silver closed up $0.37 at $26.25.

On Tuesday of this week gold traded choppy as the dollar drifted mildly higher. The case grows that gold has put in a short-term bottom, however tenuous. I think the balance between bullish and bearish trends still favors the bears, but professional traders have a lot of conflicting information to consider. Continued ETF gold outflows remain problematic – at the same time price inflation is rising in France, China and in the US. The 30-day price picture for gold remains technically heavy, moving down from $1820.00 yet finding support at $1690.00. This support looks like a short-term bottom as gold has managed a small uptrend threatening $1740.00. This small encouragement looks like legitimate bargain hunting and a short covering rally. But higher numbers on the open today quickly ran into profit taking which may support the common notion that longer term holders continue to sell into rallies. This assumption is logical but could also be misplaced as the latest CFTC numbers suggest large fund selling is over again suggesting a real bottom is in place. So, this marketplace continues to offer a mixed basket of positive and negative factors, all of which can change short-term direction and sentiment. As always, I prefer a longer-term view which uses smaller accumulation steps – be patient taking advantage of lower pricing instead of trying to decide that perfect place to make your next purchase. What the bulls are looking for as the pandemic threat recedes is the return of safe-haven buying driven this time by a weaker dollar, falling stocks or enough inflation to create public worry. On the day gold closed up $1.70 at $1730.60 and silver closed down $0.28 at $25.97.

The overnight gold markets in both Hong Kong and London were flat Wednesday and the domestic US market continues to struggle with 13-month high treasury yields. The Dollar Index is also problematic for gold – since last Friday it is threatening 92.00. There is no buzz in the gold paper trade, but a lot of worry. I suspect renewed gold interest in China and India will either disappear or gain no momentum if prices remain above $1700.00. Expect a rerun from Jerome in today’s news conference. I believe the markets place too much importance on these releases given the Fed has already released trillions of created dollars and interest rates are already at zero. Most believe Powell will discount inflationary pressures as temporary and this will push treasury yields higher. Obviously, a bad scenario for gold bulls but not something new. At the same time, the Fed Chief will assure everyone that interest rates will remain low. The Fed and Wall Street are so leveraged at this point that raising interest rates is no longer an option. Traders will embrace the first and ignore the second. When you couple this with no bullish enthusiasm and fading gold momentum it figures our shiny friend may test support. The Asian interest will bargain hunt and the cycle will repeat itself. On the day gold closed (before Powell) down $3.80 at $1726.80 and silver closed up $0.06 at $26.03.

What did the Fed Chair actually say and how did the aftermarket react? Powell said the central bank is optimistic about growth, will remain accommodative and interest rates will remain unchanged through 2023. The Dollar Index not unexpectedly dropped a half point and gold moved from lethargic to up $25.00 in the aftermarket at $1750.00. You may see these higher gold prices reflected in the domestic market tomorrow. This Fed balancing act continues (they are doing a great job considering the world faces catastrophe). But the big question remains. Can the Fed and other world banks provide this huge liquidity, bring the economy and employment back to life and unwind this inflationary package? Today is Saint Patrick’s Day and I hope central banks will not need the luck of the Irish to land on their feet.

Given how accommodative Powell was yesterday I was surprised at the gold trade Thursday. Gold opened firm but quickly sold off to a stronger dollar and rising treasury yields – bounced higher at $1720.00 and remained firm the rest of the trading day. So gold continues to struggle with an underlying lack of confidence and continued ETF outflows. At the same time traders bought the dip perhaps suggesting  underlying strength despite deteriorating sentiment. The very short-term gold picture remains mildly promising. We have pushed from $1690.00 through $1750.00. Survived a profit taking round and stabilization. Today’s failure to follow through above $1750.00 with nice momentum is disappointing. And the danger of higher treasury yields will remain a threat to gold unless the Fed addresses the problem.

Still, I am not suggesting this latest price rise was merely a “relief” rally. Powell’s comments are substantial for the bullish scenario. But our shiny friend is facing a lot of pricing work before the bulls can develop that needed positive buzz. Gold not only needs confirmation above $1750.00 it must continue this fight above $1800.00 to turn the bearish tide. So, it remains obvious to the technical guys that gold’s overhead resistance is a major obstacle to higher prices.

On the positive side, despite ETF numbers there remains a strong physical gold market in place. The volume numbers for gold bullion sales across our counter rise substantially as gold dips below $1700.00 and fade equally well as gold pushes towards $1750.00. Silver bullion sales continue steady with surprising interest above $25.00 and a consistent shortage of normally available bars and coins. The PGM metals group also presents conflicting trends. The public remain eager buyers of platinum and now neutral on palladium bullion and consistent sellers of rhodium. On the day gold closed up $5.40 at $1732.20 and silver closed up $0.29 at $26.32.

Gold pricing Friday opened choppy but supportive with new (or old) inflation talk in the air. I find the negative Biden comments about Putin curious. What purpose do they serve? Politicians are rarely straightforward when using a word like “killer”. That kind of rhetoric is great showmanship, but it will not move the zero safe-have needle. The problem gold faces this morning is the same dilemma it has faced all week – higher interest rates. Theoretically, if they continue higher a few things will happen. Higher gold prices will have to wait. I am surprised gold has done so well considering interest rates are now at 14-month highs. Higher interest rates may eventually stall Wall Street which could support renewed safe-haven demand in gold. But traders have the cart before the horse on this one – the Fed will not let interest rates continue to drift higher and put their “full employment” plan in danger. So why is gold firming up even through its bigger technical picture remains bearish. Jim Wyckoff (Kitco) points out that things may be looking up for gold – “a nine-week-old price downtrend line on the daily chart has been negated”. A short-trend reversal does not signal the end of bad weather for gold but when this reversal is considered within the larger context of higher inflation the bullish camp welcomes needed encouragement. But this is a baby step and gold ran into the usual overhead resistance ($1745.00) in Hong Kong and London last night. For the shorter-term picture, I would be happy to see gold hold recent gains and continue to consolidate. On the day gold closed up $14.60 at $1741.40 and silver closed up $0.26 at $26.29.   

Silver closed up $0.26 at $26.29. Steady public interest all week.                        

Platinum closed down $17.30 at $1198.90 and palladium closed down $32.70 at $2626.60.             

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This from John Miles (Zaner / Chicago) – “Global equity markets overnight declined by 0.5% to as much as 2.6% in the CSI 300 index. Overnight economic news of importance included softer than expected Japanese national CPI readings for February which on a year-over-year basis contracted by a very significant 0.4%. From the UK a GfK consumer confidence reading for March was not as weak as expected but was still deep in contractionary territory. From Australia retail sales for the month of February declined by 1.1% versus the prior month catching the market leaning the wrong way with expectations of a slight improvement. Lastly, Germany producer prices for February increase by 1.2% on a year-over-year basis and that was slightly softer than expected. The North American session will have no major US economic numbers and will feature a January reading on Canadian retail sales that are forecast to have modest uptick from December’s -3.4% reading.

In retrospect, the action in gold and silver prices this week was impressive with prices seemingly “sneaking” higher and managing the gains in the face of outside market adversity. However, the net take-away from the latest Fed meeting left the low rates environment in place and reiterated the Fed’s intention to work to “raise” the inflation rate. It should also be noted that gold prices have clawed higher this week despite gold ETF holdings extending the pattern of daily outflows to 24 straight days! This morning the dollar sits just under very critical resistance of 92.04 and a trade above that level could thicken resistance over gold and silver early on and possibly prompt long profit-taking selling later in the trading session. On the other hand, gold looks to start out on a positive footing, with prices diverging positively with the rest of the metals complex in the early trade! Influences providing the bull camp in gold with added confidence include a noted recovery bounce in energy prices and a moderate setback in US treasury yields early today. In conclusion, we remain skeptical of the “stealth rally” this week, but it is difficult to argue against the bull’s success. It should be noted that the most recent positioning report in gold was at the lowest level since June 2019, and that combined with a building consolidation pattern above $1,700, should decrease the magnitude risk of those picking a bottom. Uptrend channel support today is seen at $1721.55 with a pair of resistance points pegged at $1750.60 and $1754.20. We continue to look for signs that the silver trade is beginning to embrace the potential of a long-awaited improvement in physical silver demand, but the market remains out of favor with several days of ETF outflows this week (Thursday -2.4 million ounces). We see critical support in May silver at $25.85, with thick resistance today at $26.61.

Clearly the palladium market is extensively overbought from a short-term technical perspective, but overnight news flow continues to project higher prices from tightening supply and demand conditions. Unfortunately for the bull camp, yesterday palladium ETF’s saw a noted outflow of 5,279-ounces, but holdings remain 5% higher on the year. Earlier this week the largest palladium producer Nornickel reduced its 2021 production guidance for combined palladium and platinum output by 710,000 ounces because of flooding of their Arctic mines. While not a fresh storyline the trade continues to anticipate the end of the pandemic will bring about a surge in global auto production later this year. It-would-appear that June Palladium has a measure of support at $2600, but the massive run-up in prices this week and given the noted setback from yesterday’s highs, that leaves little in the way of close-in support until the top of a gap left by the Thursday opening at $2575. Certainly, the market is dramatically overbought from a short-term perspective, but the net spec and fund long as of last week was nearly nonexistent at 981 contracts which has allowed significant buying fuel to flow in from the sidelines. We would also note that the PGM markets have seen notable daily inflows to ETF instruments over the last several weeks and that might be signaling a broadening of investment interest in PGM’s. One could make an even bigger leap of faith by suggesting that the relatively small and tight PGM markets are a better inflation/opening-up play than gold or silver. Platinum on the other hand has not shown significant upside action this week and instead has remained caught in a sideways consolidation zone. We see today’s trading range in platinum defined as $1,188.60 and $1,245.

While we cannot rule out additional gains today, gold and silver are short-term technically overbought and there is a measure of negative divergence between gold and silver prices to start today. While bullish buzz has been lacking in the precious metals markets this week, there is no denying the Fed stance continues to help underpin prices, but bulls should monitor Dollar action closely in the afternoon trade as an upside breakout in the Index could prompt gold and silver longs with profits to bank those gains ahead of the weekend. In the end, we continue to “wait” for emerging signs of recovering physical demand from India and China, as that could make this month’s consolidation lows very solid lows.”

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