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Gold – Adjusting. Providing options.

Gold – Adjusting. Providing options.

Commentary for Friday, July 1, 2022 ( – Gold closed down $5.20 at $1798.90 and silver closed down $0.68 $19.60. Gold moved lower on technical selling in the early domestic trade. But it is interesting that New York spot gold bounced off lows ($1785.00), suggesting mild bargain hunting or perhaps short covering into the long 4th of July weekend. Obviously, this market remains defensive and reactionary over promised interest rates hikes by the FOMC. And the mighty dollar remains the safe haven choice in these troubling times. Reuters also points out this morning that India, the world’s second biggest bullion consumer has raised its basic import duty on gold to 12.5% from 7.5% in attempt to lower their trade deficit. And Euro zone inflation hit another record high in June, firming the case for rapid ECB rate hikes starting this month. Still, today’s bounce from session lows towards $1800.00 provides some encouragement in this cloudy weather. Many US traders have left early for the holiday weekend, so I expect the trade will remain quiet through Tuesday. Last Friday gold closed at $1826.50 / silver at $21.12 – on the week gold lost $27.60 and silver lost $1.52.

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On Monday gold was mildly weaker supported by a Dollar Index decline of a full point since last Thursday. The DOW jumped more than 800 points, yields on the 10-year treasury note (3.187) are mildly higher, and pending home sales posted a surprise 0.7% increase in May from April. This is looking like a risk-on day as Wall Street settles down after Powell’s FOMC input last week. I expect “more of the same”, tight trading ranges and defensive gold and silver prices. Worth noting is that next Monday is the 4th of July. A three-day weekend which means US traders will want to square up the books – leave early and enjoy a cold beer. The speculation that gold would gather strength if the G7 banned Russian imports was a bust, which is surprising. Still, LBMA notes that Russia’s gold production is primarily domestic. There is always something to relearn when it comes to sanctions. They usually turn out to be a political gimmick which gives politicians ridiculous short-term leverage. And when the Rube Goldberg effort blows up the working class picks up the bill, in the form of higher taxes or hidden inflation.

On the day gold closed down $5.60 at $1820.90 and silver closed up $0.04 at $21.16.

Zaner (Chicago) – “While a G7 decision over the weekend to ban Russian gold imports should provide support to gold prices, the trade is hesitant to factor tightening supply in the wake of the abject failure of the oil embargo. In other words, seeing G7 countries prohibit Russian gold imports likely means Russia will increase exports to other non-G7 countries with some of that supply ultimately flowing into G7 countries. However, Russia produces 9% of the world’s gold and saw exports last year of 12.6 billion pounds, and therefore we see the potential for supply disruption. Gold and silver are higher this morning complements of a softer dollar, a Russian sovereign default, and reports of improved industrial activity in key Chinese manufacturing areas. Unfortunately for the bull camp, the gold market damaged its charts at the end of last week with a 5-day low which was forged in the face of a weak dollar and risk on buying of many physical commodities. In retrospect, the gold market came away from the Fed testimony concerned about the chairman’s unconditional commitment to curb inflation! On the other hand, renewed bombing of the Ukrainian capital and signs of slowing of the US economy provides some flight to quality support for prices this morning. With the August gold contract into the low Friday sitting $17 an ounce below the level where the last positioning report was measured, the net spec and fund long might now be at the lowest level since May 2019! The Commitments of Traders report for the week ending June 21st showed Gold Managed Money traders added 12,255 contracts to their already long position and are now net long 61,816. Non-Commercial & Non-Reportable traders net bought 10,096 contracts and are now net long 199,195 contracts. Without a major headline surprise, we see the path of least resistance pointing down with unreliable support seen at $1816.30 followed by more significant support down at $1808.40. About the most positive issue for silver is the market’s ability to rebound from a very significant washout last week. On the other hand, adjusting the latest COT positioning report into the spike low Friday (a decline of $1.25) should put the net spec and fund long in silver at the lowest level since May 2019. The June 21st Commitments of Traders report showed Silver Managed Money traders were net long 7,809 contracts after increasing their already long position by 6,007 contracts. Non-Commercial & Non-Reportable traders were net long 27,240 contracts after increasing their already long position by 5,961 contracts. We see unreliable support in September silver at $20.935.”

Ashitha Shivaprasad (Reuters) – Gold steadies on weaker dollar, recession risks – “Gold prices steadied on Monday, helped by a weaker dollar as recession fears persisted, while investors watched for any cues on policy moves at the European Central Bank’s forum in Portugal. The dollar fell, making bullion more appealing for overseas buyers. In the short term, gold’s outlook is mixed as there is “great uncertainty this summer”, with chances of a more aggressive Federal Reserve on one side and recession risks on the other, said Edward Moya, senior analyst with OANDA. “However, gold still does look attractive in the long term due to recession risks for the end of next year,” Moya added. Capping gold’s advance was a rise in U.S. 10-Year Treasury yields. Gold is considered a hedge against inflation spikes and economic risks, but higher interest rates raise the opportunity cost of holding the non-yielding asset. Investors are watching for any signs of future policy moves as central bank heads, including ECB President Christine Lagarde and Fed Chair Jerome Powell, attend the annual forum in Sintra. Meanwhile, analysts said a plan by Britain, the United States, Japan and Canada to ban imports of Russian gold to tighten sanctions on Moscow may only have a limited fundamental impact. “Not much gold is being exported to the G-7 nations, primarily because of the lack of flights from Russia since the war started. The impact on the gold price has thus far been negligible,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. Russia, the world’s third-largest gold producer, accounts for about 10% of global production.”

On Tuesday gold was again range bound, as rising yields and safe-haven demand continue to balance this trade resulting in narrow price ranges. The New York domestic market was typically choppy between $1819.00 and $1826.00 suggesting that neither the bullish nor bearish scenario can prevail as long as the Fed does not take decisive action on interest rates. You have to give the bulls credit for at least holding the line as the Dollar Index this past week has been, for the most part north of 104.00 which encourages the FOMC bearish gold scenario of higher interest rates. On the other hand, the Ukraine war is becoming more confusing and dangerous, as both sides raise the ante. Putin is murderous in clearing a pro-Russian swatch to the Baltic as the Ukraine asks the West for more money and fire power. At the same time the Kremlin warns all concerned about the dangers escalating this already pathetic situation. Gold closed on lows for the day, but I don’t see our shiny friend breaking down significantly on the short term. This is the third time in several months that gold has tested support around $1820.00. And the fallback position looks like $1800.00 support which has been in place for 6 months. So, you might see a bit of lower drifting, but it is also possible that gold is not far from being already oversold.

On the day gold closed down $3.40 at $1817.50 and silver closed down $0.36 at $20.80.

On Wednesday gold continued steady, with prices moving between $1815.00 and $1830.00 closing virtually unchanged on the day. Upward movement was stopped by a stronger dollar. The Dollar Index today surging (105.00). Traders are also stuck in the typical summer doldrums, waiting for fresh news which might develop into an advantage for the bulls or bears. Powell’s live speech today at the ECB forum in Portugal was typical. The Chief believes that the FOMC can slow the US economy down, fight inflation and avoid recession. The good thing about this proposition is that if correct the process will take a great deal of time. Which allows Wall Street to settle down (like today) and move toward more risk on days. And better investor sentiment.

The bad news is that if the plan misses the mark, the Goldman Sachs bullish gold scenario will have time to become entrenched. Chief Powell is not exactly rolling the dice here, but the nervousness factor is gowning. Reuters – “Britain’s economy is struggling under the strain of two major risks in the form of double-digit inflation and a possible recession, leaving the Bank of England in a dilemma about how much further it should raise interest rates.”

The professional trade will watch carefully the bearish technical picture. But keep in mind technical analysis does not equal certainty – it merely suggests an outcome based on chart patterns. Today’s gold trade may be more interested in following the yield curve. If treasury yields continue to rise it will encourage the bearish picture. If yields begin to move lower because the Fed has turned dovish over a slowing economy gold’s technical picture will improve. And the bulls will get needed encouragement.

If treasury yields remain range bound, it is likely the price of gold will consolidate. Waiting for other outside influence to move the gold needle. My bet is that gold will consolidate – waiting for fresh news. Here the physical bulls are helped by supply side uncertainties. Crude oil has been moving higher since last December. And its recent top ($120.00) has been challenged on two occasions. Some suggest higher crude prices are in the works because of distribution problems and sanctions. And this will support the inflation scenario. In the meantime, gold is not flagging, it has just lost its buzz. You may see prices drift lower, but you could just as easily see a typical rebound common to an oversold condition.

On the day gold closed down $3.80 at $1813.70 and silver closed down $0.13 at $20.67.

On Thursday gold looked weaker although it pushed to $1825.00 on news that May’s CPE (Personal Consumption Expenditures) showed an annualized 6.3% inflation rate. But traders sold the rally and gold made new weekly lows. The theory here is that monthly inflation numbers are looking “steady” which might cause FOMC alarm considering the latest ECB commentary. Reuters – “Bringing down high inflation will be painful and could even crash growth, but it must be done quickly to prevent rapid price growth from becoming entrenched, the world’s top central bank chiefs said at the European Central Bank’s annual conference in Portugal.”

So, you again see here the typical push/pull confusion when hawkish interest rate concerns meet real physical demand created by fear of recession and the escalation of the Ukrainian war. Of course, this story line is not new and comes in many variations, but I would expect the same outcome. Defensive trading ranges for gold with a negative bias depending on how much more aggressive the Fed becomes between now and the middle of next year. They have already raised interest rates 3 times this year, the largest hike being 0.75 of a percentage point in June. As they try to slow the fastest rise in inflation, we have seen in 40 years. So, they have been aggressive, but the jury is still out as to whether these hawkish moves will be enough to at least slow the process and give the Fed some breathing room while international tensions continue to mount.

On the day gold closed down $9.60 at $1804.10 and silver closed down $0.39 at $20.28.

On Friday gold was typically divided – short sellers pushed the market lower on the open testing support, but traders bought the dip. I would not place too much faith in the $1785.00 bounce, it could simply be a short coving rally as paper traders square up accounts for a long weekend. The news that India has raised import duties on gold should also be taken with a grain of salt. Their precious metal demand usually spikes towards the end of the year (weddings and festivals). I expect a continued lethargic trade in the metals as recession fear grows both here and in Europe.

On the day gold closed down $5.20 at $1798.90 and silver closed down $0.68 at $1960.00.

Platinum closed down $23.00 at $875.40 and palladium closed up $22.10 at $1930.80.

Zaner (Chicago) – “Not surprisingly August gold has failed at the $1800 level and reached the lowest level since January 22nd. In retrospect, gold and silver were fortunate to have avoided the breakdown earlier this week. Even investors have turned negative toward gold and silver with both gold and silver ETF’s declining yesterday. As if the market needed more bearish news, India announced they would increase gold import taxes! About the most positive argument for gold and silver is that they are approaching a mostly liquidated spec and fund positioning. So far, surging economic uncertainty has seemingly resulted in physical selling instead of flight to quality buying. However, overall action in the US dollar continues to prompt partial long liquidation of a recent net spec and fund long position in gold of 199,195 contracts! While the net spec and fund long adjusted into the lows this week likely puts the net spec and fund long at the lowest level since June 2019, there does not appear to be a definitive bullish theme to shut off selling. The gold trade is so tone deaf to potential bullish issues a significant problem supplying electricity to South African consumers (including mining operations) has not surfaced in the gold trade news flow. Perhaps the trade has assumed South African gold production is no longer a key supply source, or perhaps the trade does not think electricity shortages will be of sustained duration. Going forward, a massive monthly and quarterly beating in gold and silver prices will likely discourage investment in the beginning of the 3rd quarter. In fact, with fear of large US interest rate hikes becoming a daily topic, markets like precious metals think the US Fed will ultimately get a grip on inflation even if the penalty is recession. The path of least resistance is down in gold and silver, but the risk and reward of fresh shorts at current levels and at current timing is unattractive.”

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