Gold – Another Tough Week
Commentary for Friday, May 26, 2023 (www.golddealer.com) – Today gold closed up $1.00 at $1944.10, and silver closed up $0.45 at $23.24. To say this was another tough week for metals might be an understatement as bearish trading sentiment continues to rise. Reuters used the term “wobbles” relative to gold to make the point that sticky inflation has created this recent downdraft in prices because it assures traders that the Fed will continue to raise interest rates. This is an old headache because the solution to rising inflation is to slow the economy. But our economy is speeding up, so this is one of those conundrums we all face as the Fed produces more and more fiat currency. How all this will end remains to be seen but for now the bears are gaining ground. Last Friday gold closed at $1978.70 / silver at $23.92 – on the week gold was down $34.60 and silver was down $0.68.
Just a reminder that we will be closed this Monday (May 29th) for Memorial Day.
Please note that FedEx is no longer asking for delivery signatures. They are scanning IDs. We have complained to FedEx, but they remain resolute. Scanned identification is safer, but if you have a problem with this decision, please make your feelings known to FedEx. Unfortunately, the present delivery time for the USPS alternative is 2-3 weeks.
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 understanding.
On Monday the price of gold traded between $1969.00 and $1978.00 today and finished the day midrange – this typical “indecisive” pattern has become the new normal in a market pretty much evenly divided between the bulls and bears, but with a downward “drift” supporting the notion that higher interest rates will continue to limit higher prices in gold. And depending on how aggressive the Fed becomes; these higher interest rates will continue to push gold prices lower.
It is worth remembering however that gold is not trading at what would have been considered a bargain price not long ago, so expect bargain hunting to increase if prices continue to weaken.
MarketWatch – Gold ends lower, extending losses after worst week since February – The ICE U.S. Dollar Index, a key gauge of the U.S. dollar’s value compared with its rivals, rose to its highest level since March late last week, although it was marginally lower on Monday. It stood at 103.18 in Monday dealings DXY, +0.04%, off less than 0.1% on the day. Still, the dollar’s revival in recent weeks has coincided with a pullback in gold prices as a stronger greenback makes gold — which is priced in dollars — more expensive for buyers using rival currencies. The dollar index trades around 1.5% higher month to date.
“Although gold has fallen back from the near record high it surged to earlier in the month, it remains at a level that the precious metal has only traded at a smattering of times in its long history as market confidence remains fragile and investors are seeking gold to manage their risk,” said Rupert Rowling, market analyst at Kinesis Money, in daily commentary.
Debt-ceiling talks continue, with traders waiting to see whether a deal might be reached by the end of the week and if Monday’s talks yield any progress. Gold had benefited from debt-ceiling and recession fears, and prospects for the U.S. to default on debt is “naturally bullish for [the metal] over the long term,” but “potential nervous updates before the June 1 deadline will not necessarily lead to gold aiming higher if the [U.S. dollar] moves higher as a result of concerning headlines from Washington,” said Jameel Ahmad, chief analyst at CompareBroker.io, in daily commentary. “We must remember that even though both gold and the U.S. dollar are very much assets of safety, previous flashes of sudden rallies for the greenback … have unexpectedly been bad news for gold,” he said.
The markets will also be closely monitoring remarks from Federal officials this week as well as Wednesday’s release of minutes from the central bank’s policy meeting earlier this month. On Monday, St. Louis Fed President James Bullard said he would like to see two more quarter-percentage-point interest-rate hikes this year. Minneapolis Fed President Neel Kashkari, however, told The Wall Street Journal in an interview published Sunday that he’s open to pausing rate hikes at the Fed’s next meeting in order to buy time to assess the inflation outlook and the effects of more than a year of rate increases. With the biggest headwind of the last year, the Fed’s consistent hiking of interest rates, “seemingly drawing to a close and a trading environment that is still risk averse, gold has found significant support a little below the psychologically important threshold of $2,000 an ounce,” said Rowling. “While a fresh push above $2,000 looks unlikely, assuming the U.S. debt ceiling talks do reach agreement, gold looks well supported and looks set to continue trading comfortably above $1,950 in the medium-term”.
On the day gold closed down $3.90 at $1974.80, and silver closed down $0.20 at $23.72.
Zaner (Chicago) – “The charts favor the bear camp in gold and silver to start the new trading week. While a portion of the bull camp is hopeful of flight to quality buying interest following debt ceiling negotiations at the White House today, we think the markets are at risk of faltering from fears of recession if talks break down. Last week gold ETF holdings declined by 154,592 ounces while silver ETF holdings saw a decline of 2.02 million ounces. With the dollar early today drifting below last Friday’s low, the bull camp in gold is hopeful the May rally is losing momentum. With the trade generally remaining positive about US debt ceiling negotiations, it is possible that optimism will spill over into this week thereby allowing gold and silver to consolidate above last week’s low. Unfortunately for the bull camp, Indian buyers remain extremely price-sensitive especially with the Indian currency vulnerable to further US dollar strength. Unfortunately for the bull camp, the latest COT positioning report (which is probably overstated) showed a net spec and fund long reading near 12-month highs leaving the market vulnerable to stop loss selling from signs of an impending US debt ceiling deal. The May 16th Commitments of Traders report showed Gold Managed Money traders reduced their net long position by 14,837 contracts to a net long 131,789 contracts. Non-Commercial & Non-Reportable traders net sold 14,423 contracts and are now net long 237,557 contracts. On the other hand, with recent financial market relationships out of sync it is possible gold could shift its focus from the dollar to the direction of US interest rates. Obvious support is $1,960.30 and then again down at $1,954.30 with the bear camp holding modest fundamental and technical control. Fortunately for the bull camp in silver the market saw a correction last week and the beginning of a possible consolidation low support level building around the $23.56 level. However, the latest COT positioning report remains near the upper level of the range of its long positioning of the last 12 months. The Commitments of Traders report for the week ending May 16th showed Silver Managed Money traders are net long 13,443 contracts after net selling 13,726 contracts. Non-Commercial & Non-Reportable traders had 36,749 contracts after decreasing their long position by 11,556 contracts.”
On Tuesday gold repeated yesterday’s “back and forth” pattern of indecisive pricing. The price range was also similar, coming in around $20.00, which further indicates a kind of “ho-hum” attitude among traders who are waiting for accurate information relative to higher interest rates.
Reuters (Deep Kaushik Vakil) – Gold recovers as debt-ceiling talks make little progress – “Gold prices rebounded from their earlier losses on Tuesday, as yields fell and the dollar retreated from its highs, while another round of U.S. debt ceiling talks ended without much progress. Gold rose from session lows on reports of further negotiations over raising the debt ceiling, said Daniel Pavilonis, senior market strategist at RJO Futures. Representatives of President Joe Biden and congressional Republicans ended another round of debt-ceiling talks with no signs of progress as the deadline to raise the government’s borrowing limit or risk default ticked closer. Wall Street’s main indexes fell and the dollar index backed off from its session high, while benchmark 10-year yields fell from a two-month peak. “The inverse correlation between yields and gold is still there,” Pavilonis said. Bullion has lost nearly $100 an ounce from its near-record peak hit earlier this month, mainly pressured by growing bets on interest rates staying higher for longer. “For now the market has not entirely ruled out another rate hike, and that’s clearly not what (it) was looking (like) just a month ago and that’s leading to this realignment of prices,” said Ole Hansen, head of commodity strategy at Saxo Bank. Minneapolis Fed President Neel Kashkari said on Tuesday U.S. rates may have to go “north of 6%”. Gold tends to lose appeal when rates rise and push up bond yields, increasing the opportunity cost of holding zero-yield bullion. Investors now await the minutes from the Federal Open Market Committee’s May 2-3 meeting on Wednesday.”
On Wednesday gold pricing was a carbon copy of that seen on Monday and Tuesday. On the open prices moved higher, traders sold the rally and gold drifted to the lows on the day. The pricing spread was about $25.00 so this market remains sleepy in a sense, but traders continue to test the downside while fear of rising interest rates cap the upside. With due respect Reuters’ talk of a “catastrophic default” is nonsense, but it is plain to see that one of the great catastrophes of this age is government unfunded liability which continues to grow at an alarming rate.
Reuters (Deep Kaushik Vakil) – Gold dips on dollar strength as US debt talks drag on – “Gold eased on Wednesday as the dollar firmed, cutting some safe- haven flows into bullion from the looming risk of a U.S. debt default as talks entered a critical stretch, while investors awaited minutes of the Federal Reserve’s recent policy meeting. The dollar index rose to a fresh two-month high, weighing on demand for greenback-priced bullion. Negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy were set to reconvene on Wednesday morning, seeking a deal to raise the debt ceiling and avoid a catastrophic default. “Overwhelmingly, the debt ceiling headlines are at play…. But there’s some signal in the noise,” said Daniel Ghali, commodity strategist at TD Securities. Gold gained in the previous session “despite headwinds from a rising broad dollar, which reveals notable demand behind the scenes.” Wall Street’s main indexes opened lower as the debt ceiling impasse kept investors on edge. If regional U.S. banking troubles were to subside and agreement reached over the debt ceiling, gold could fall further, said Edward Gardner, commodities economist at Capital Economics. Bullion was hovering just above 1-1/2-month lows touched last week as several Fed officials suggested the central bank would stick to its rate-hiking plan. Higher interest rates tend to increase the opportunity cost of holding non-interest-bearing gold. Minutes of the Fed’s May 2-3 meeting are due at 2 p.m. EDT, after the central bank raised its benchmark overnight interest rate by a quarter of a percentage point to the 5%-5.25% range.”
On the day gold closed down $9.60 at $1962.80, and silver closed down $0.35 at $23.12.
On Thursday the price of gold, not surprisingly continued lower, touching $1940.00 before we saw a small bounce higher on what looks more like short covering than bargain hunting.
This bearish refocus has been created by a stronger dollar. The Dollar Index peaked at 104.00 today in the early morning trade. As traders remain defensive, expecting higher interest rates, the so-called “pivot” becomes less likely as our economy continues to improve.
A step-down pricing pattern has been in place since early May and has done a nice job of discouraging bullish sentiment as the Fed continues to tap the economic brakes with their interest rate hammer. It is surprising that these much lower prices have not created that much buzz in the physical market. Which might suggest that fresh buyers are waiting until this market stabilizes and a reliable new floor becomes apparent.
Some physical gold traders are considering a “new floor” of between $1800.00 and $1900.00 is realistic as the Fed continues to battle inflation.
A guaranteed interest rate of 5% has attracted folks who might have invested in gold when interest rates were lower. This rocky road to lower gold prices is not for everyone, but our shiny friend may be oversold, so anticipate a short covering rally.
Most dealers I know are grousing (petty complaining or grumbling). Get over it, we had a great run, and it will take a while to get the physical trade to refocus. But not as long as you might think. As soon as everyone realizes there is no substitute for gold and silver bullion the clouds will clear. And we will be back to “normal” if there is such a thing these days. If you are so disposed, take advantage of lower prices. If you believe the market will remain weak – stand aside. But remember that just like prices do not rise forever, they also do not fall forever. Picking up a few bargains at these lower levels makes good sense if you keep the longer term in mind.
Reuters (Deep Kaushik Vakil) – Gold hits 2-month low on debt talks progress, rate hike bets – “Gold slid to its lowest in two months on Thursday as optimism around the U.S. debt ceiling talks lowered safe-haven demand for bullion and robust economic data fueled bets of another rate hike by the Federal Reserve. White House and Republican negotiators made some progress in late-night talks over raising the debt ceiling, top congressional Republican Kevin McCarthy said. “It’s a one-two punch for gold … if a deal is done over the weekend, then that will remove the biggest risk off the table,” said Edward Moya, senior market analyst at OANDA. Gold extended losses after revised estimates showed the U.S. gross domestic product increased at a 1.3% annualized rate last quarter, up from the 1.1% pace estimated last month. “A rather impressive round of economic data suggests this economy is still showing so much resilience … the argument for possibly delivering another rate hike is gaining steam here,” Moya added. Traders looked to the Fed-favored inflation gauge, core personal consumption expenditures (PCE) index, due Friday. Markets now priced in a 41% chance of a 25-basis points hike in June, seeing cuts no sooner than September, according to the CME FedWatch tool. Gold, a non-yielding asset, tends to lose appeal in a high-interest rate environment. The dollar climbed to its highest since mid-March, making gold less attractive for overseas buyers, while benchmark Treasury yields were near highs seen on March 13. Gold was “really viewing things through the lens of the dollar,” said independent analyst Ross Norman.”
On the day gold closed down $19.70 at $1943.10, and silver closed down $0.33 at $22.79.
On Friday gold’s pricing pattern continued to worry the bulls, as it pushed to $1955.00 and again sold off reaching a daily low of $1940.00 in the early trade. We should see some squaring up of the trading books and a relatively flat finish today as most traders have left for the long Memorial Day weekend. The domestic market is closed on Monday.
Reuters (Deep Kaushik Vakil) – Gold wobbles as sticky inflation drives up US rate hike bets – “Gold prices came off session highs on Friday after an uptick in a key U.S. inflation gauge raised bets that interest rates will be higher for longer-than-expected, with bullion on course for a third weekly loss as debt ceiling talks enter the 11th hour. Bullion pared gains after the personal consumption expenditures (PCE) price index, which the Federal Reserve tracks for its 2% inflation target, increased 4.4% in the 12 months through April after advancing 4.2% in March. “The PCE number just kicked one of the legs out on the stool of the gold market, a softer number would have provided the tailwind behind gold,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago. Traders boosted bets that the Fed is not done raising rates, which would erode the attraction of non-yielding gold. Benchmark 10-year Treasury yields, and the dollar index hovered near their highest levels since mid-March, both on track for their third straight weekly gains. But the dollar eased 0.1% for the session, which “has carved out some breathing space for bullion”, said Han Tan, chief market analyst at Exinity. Gold briefly slipped to its lowest since March 22 and is still headed to end the week 1.4% lower as the White House and congressional Republicans aim to put the final touches on a deal to raise the debt ceiling. While some of the bullish sentiment in gold has faded, it could return with supportive data, said Craig Erlam, senior market analyst at OANDA.”
On the day gold closed up $1.00 at $1944.10, and silver closed up $0.45 at $23.24.
Platinum closed up $1.80 at $1031.20, and palladium closed up $7.90 at $1431.50.
Zaner (Chicago) – “Even though August gold has recovered from a fresh low for the move overnight, the charts generally favor the bear camp. According to some press outlets, gold is higher this morning because of a retrenchment in the dollar, but that retrenchment is insignificant early on with dollar charts retaining a bullish set up. However, the parties to the debt ceiling negotiations appear to be so confident in their ability to strike a deal next week, that the President and Congress are leaving Washington for the holidays! In the end, if the dollar has rallied several weeks off the fear of a default and a deal is forming, the dollar bulls and gold bears will have a significant test of their capacity early next week. Therefore, the $1950 level in August gold might be some form of temporary/key bottom with $23.00 potentially a strong value zone in July silver. On the other hand, the pendulum regarding the Fed’s next rate decision (next week) has moved slightly in favor of a hike following a stubborn US PCE reading and somewhat positive US jobs news. In other words, another major negative for gold and silver prices will face a key junction next week setting the stage for a key pivot for price trends in June. Regardless of the Fed’s stance next week, gold and silver this week faced the highest US treasury yields since March 9th and we suspect Treasury markets are also poised to shift trend action next week. We suspect precious metal and many other physical commodity markets are experiencing selling in the wake of credible evidence of a minimal flare in Chinese Covid infections. In other words, the trade is concerned that the latest flare could result in a return to lock down which would surely dampen gold demand by the world’s largest consumer (China). Yesterday gold ETF holdings fell 4,998 ounces while silver ETF holdings increased by 100,343 ounces.”
Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special favor – talk to Harry or Eric. We are now back to our traditional business model. Thank you for your patience. Have a blessed day. Richard Schwary
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