Gold – Dovish September Pause?
Commentary for Friday, August 11, 2023 (www.golddealer.com) – Today gold closed down $1.50 at $1912.90, and silver closed down $0.08 at $22.67. This looks like another week of tight pricing spreads and a small amount of underlying tension as paper traders prepare for the upcoming FOMC meeting this coming September. The public is yawning, and the fear of higher interest rates has not created fresh buyers or sellers of bullion products. It appears that the price of gold and silver has turned lethargic in a mild downward arc, typical of the summer season. Gold did, however, manage to finish almost unchanged today despite weekly highs in the Dollar Index – a small plus for the bulls. Last Friday gold closed at $1939.60 / silver at $23.62 – on the week gold was down $26.70 and silver was down $0.95.
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On Monday the price of gold touched $1940.00 in the early trade, in typical fashion however traders sold this mild rally and gold moved lower ($1932.00). This is indicative of a trading pattern we have seen for some time now as higher gold prices are stymied over the threat of rising interest rates.
At the same time there is a definite “drift” to the downside which has been in place since gold’s recent high in mid-July ($1980.00). I would not say our parking lot is crowded these typically slower summer months. I think the public has become ambivalent, waiting to see if the government will indeed create the much talked about “soft” landing.
Reuters (Brijesh Patel) – “Gold slips as comments from U.S. Fed governor dent sentiment – “Gold prices were on the backfoot on Monday after Federal Reserve Governor Michelle Bowman indicated that additional interest rate hikes will likely be needed to rein in inflation. Bowman, in remarks prepared for delivery to a “Fed Listens” event in Atlanta that largely repeated comments she made to a banking group on Saturday, said she backed the latest interest rate increase because inflation remains too elevated. “The dollar index and Treasury yields drafted a bit higher on that and gold futures having a muted to lower reaction,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “If we get lower-than-expected CPI data, we could get some of these Fed officials to stop with their hawkish outlook on rate hikes and we have a much better shot at getting some stabilization in prices.” John C. Williams, president of the Federal Reserve Bank of New York, expects that interest rates could begin to come down next year, the New York Times reported. Although gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding nonyielding bullion. Focus this week will be on U.S. consumer price index (CPI) data due on Thursday that could offer more clarity on the Fed’s policy stance. “Our expectation is still that the trend points to low inflation and therefore the Fed doesn’t have to hike rates,” UBS analyst Giovanni Staunovo said. “Palladium prices could be near a temporary bottom as supply risks could resurface driven by geopolitical tensions,” Intesa Sanpaolo economist Daniela Corsini said in a note.”
On the day gold closed down $6.10 at $1933.50, and silver closed down $0.48 at $23.14.
On Tuesday the price of gold dipped on the open, likely reacting to a stronger dollar. The Dollar Index moved from102.00 through 102.75 in the early hours of today’s trade. Which suggests that investors still highly value the dollar as the “other” safe haven during times of trouble.
The case in point being world anxiety created over the fear that China’s most recent economic numbers were disappointing enough to raise the issue of a government stimulus package.
The downward trend in the price of gold, which began in early July ($1980.00) remains a prominent trading feature, but this market is a difficult call because traders are unsure about what the Fed has in mind relative to interest rates.
There is good short-term support for gold in the $1920.00 range, but if that gives way traders will be looking at $1850.00. At that point, however, I suspect gold will be oversold, bargain hunters will steady the trade and the Fed intention will be better understood.
The smart money will expect choppy waters looking for a “value” number relative to interest rates. Once that number becomes clear this market should settle and present less drama. Giving the gold investor a break from this daily speculative chatter about “higher” or “lower” prices.
Reuters (Brijesh Patel) – Gold drops to near one-month low as dollar rallies – “Gold prices fell to a near one-month low on Tuesday as investors took refuge in the dollar after weak Chinese trade data, while caution prevailed ahead of U.S. inflation figures later this week. “A lot of nervousness about global growth outlook and it is probably going to be a lot weaker than people anticipated and that’s triggered a move into the dollar,” said Edward Moya, senior market analyst of the Americas at OANDA. The dollar rose 0.6% against its rivals, making gold less attractive for other currency holders. All eyes will be on U.S. consumer price index data due on Thursday. U.S. inflation likely accelerated slightly in July to an annual 3.3%, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists. “U.S. inflation report matters, but the one that’s more important is the one we’ll get next month and that will probably suggest that we’re going to see some choppiness in gold in the near-term,” Moya said. Fed Governor Michelle Bowman on Monday outlined the likely need for additional rate hikes to lower inflation to the Federal Reserve’s 2% target, while New York Fed chief John C. Williams expected rates could begin to come down next year. All eyes will be on U.S. consumer price index data due on Thursday. U.S. inflation likely accelerated slightly in July to an annual 3.3%, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists. “U.S. inflation report matters, but the one that’s more important is the one we’ll get next month and that will probably suggest that we’re going to see some choppiness in gold in the near-term,” Moya said. Fed Governor Michelle Bowman on Monday outlined the likely need for additional rate hikes to lower inflation to the Federal Reserve’s 2% target, while New York Fed chief John C. Williams expected rates could begin to come down next year. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. Reflecting downbeat sentiment in gold, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell to a five-month low on Monday. “While central banks recorded a record first half in terms of gold demand, traders and investors in futures and ETFs remain skeptical about the current upside potential,” said Saxo Bank’s head of commodity strategy Ole Hansen.”
On the day gold closed down $9.40 at $1924.10, and silver closed down $0.42 at $22.72.
On Wednesday the price of gold favored the downside, closing on lows for the day ($1915.00) in the typically quiet summer trade. Most of the interest rate bad news about gold and silver is already in yesterday’s newspaper. And the technical picture for both metals has turned bearish.
What our shiny friend needs is some reason not to continue this drift towards the psychologically important $1900.00 support line. Most of the time the contrarian would find the silver lining in today’s fresh news that China’s economic machine is moving towards recession.
Yet, even the threat of higher FOMC interest rates, perhaps sooner than later, may be more than offset by safe-haven demand for the metals in a world full of trouble, inequity and injustice.
The US public does not seem particularly worried, and Wall Street has turned stoic under these changing circumstances. I’m never very hopeful the politicians will provide solutions but cannot believe the Democrats and Republicans have not already brought in fresh leadership.
Reuters (Brijesh Patel) – Gold struggles for traction as traders await US inflation report – “Gold prices fought for traction on Wednesday as investors stayed on the sidelines ahead of key U.S. inflation data that could offer more cues on the Federal Reserve’s stance on monetary policy. “Tomorrow’s CPI will be a pivot point for Fed policy… It’s kind of wait and see mode now,” said Daniel Pavilonis, senior market strategist at RJO Futures. “Gold has been this inflationary kind of hedge also, but it is fighting an uphill battle with a 10-year yield. Gold will likely struggle if inflation is still there and the Fed is looking to raise rates too fast,” Pavilonis added. U.S. consumer price index (CPI) data, due on Thursday, is expected to show inflation slightly accelerated in July to an annual 3.3%. Most traders expect no change from the Fed at its policy meeting in September. There is just a 13.5% chance of a quarter-point rise, according to the CME’s FedWatch Tool. “For a sustained recovery (in gold), we believe the market will need to see increased certainty on 2024 U.S. rate cuts,” said Baden Moore, head of carbon and commodity strategy at National Australia Bank. Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar. Offering some respite to gold, the dollar fell 0.1% against its rivals after data showing the Chinese economy slipped into deflation last month lifted hopes for more stimulus.”
On the day gold closed down $8.70 at $1915.40, and silver closed down $0.07 at $22.65.
On Thursday the price of gold rose on the open approaching $1930.00 but in typical fashion could not hold early gains. Traders sold the rally and gold drifted to lows on the day around $1913.00 but managed to claw its way back to almost unchanged on the day.
The fact that gold is slowly moving lower is indicative of the higher interest rate threat. The bulls manage to keep the bears slightly left footed in this fight to soften the downward trend approaching $1900.00 support. It is worth noting that the chance of a September rate hike has dropped from 20% last week to 10% this week. Traders are again pondering a dovish shift.
MarketWatch – “Gold prices firmed after the release of the U.S. inflation data, but those gains withered away as major stock indexes opened higher with the Dow Jones Industrial Average up over 400 points in the morning trading. “A peak in the dollar might be in place, but gold won’t be surging if Wall Street continues to buy up stocks,” said Edward Moya, senior market analyst at OANDA. The U.S. consumer-price index rose 3.2% in July from a year earlier, up from 3% in the year through June, the first increase in the headline rate in 13 months, but the core annual rate, excluding food and energy prices, slipped to 4.7% from 4.8%, the Labor Department said Thursday. “Crucially for the Fed, these figures are consistent with inflation moving lower towards its 2% target,” said Jamie Dutta, market analyst at Vantage. “Shelter costs remain a key wildcard but rent inflation should cool from an elevated pace in the months ahead, due to the typical lag associated with softer rents seen last year.” However, Dutta said the importance of Thursday’s CPI report is “slightly diluted” as investors will get one final set of inflation data before the next Federal Reserve policy meeting in September. “Focus will also turn to Jackson Hole at the end of this month which could see Chair Powell confirm the Fed’s rate hike intentions,” he wrote in emailed commentary on Thursday morning. Fed-funds futures traders currently price in a 9.5% chance of a September interest rate rise by the central bank, down from more than 20% a week ago, according to the CME’s FedWatch tool.
On the day gold closed down $1.00 at $1914.40, and silver closed up $0.10 at $22.75.
On Friday gold closed with zero fanfare or buzz, a still defensive market confused over interest rate direction. Paper traders are scratching their heads, trying to decide whether the FOMC will leave interest rates unchanged in September. A month ago, the idea of a “pause” in the Fed’s interest rate agenda was not a consideration. Most analysts believed the “best” outcome was a smaller rate hike. Today the odds surprisingly favor a “dovish pause”. This is not a new idea but a dovish shift at this point would be a big help to the flagging bullish scenario.
Reuters (Deep Kaushik Vakil) – Gold set for worst week in seven on dollar, yields strength – “Gold prices on Friday were on track for their worst week in seven, hurt by an overall stronger dollar and elevated bond yields as investors digested the latest U.S. inflation numbers and awaited for more economic data later in the day. Bullion has slid about 1.2% so far in the week as the U.S. dollar index and benchmark 10-year Treasury bond yields were on track for their fourth consecutive weekly gain. “Investors have been coming in at these low-1900s levels and they’ve been buyers, but equally, when gold has strengthened, they’ve been sellers. That’s helped to cap that range,” said Philip Newman, managing director of Metals Focus. Data on Thursday showed U.S. consumer prices increased moderately in July, with the smallest annual increase in core inflation in nearly two years, lifting hopes that the Federal Reserve is at the end of its rate hike cycle. However, San Francisco Fed Bank President and CEO Mary Daly said that more progress is needed before she would feel comfortable the Fed has done enough to rein in inflation. Focus now shifts to U.S. producer prices and consumer sentiment data due later in the day. “Investors are very focused on the expectation element of interest rates, as opposed to where they are actually, because of the Fed’s consistent messaging that it’s not about to lower rates and any rate drop has been pushed out into 2024,” Newman added. Interest rate increases tend to lift bond yields and also raise the opportunity cost of holding non-yielding bullion.”
Jim Wycoff (Kitco) – “Technically, the gold futures bears have the overall near-term technical advantage. Prices are in a three-week-old downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $2,000.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the June low of $1,939.20. First resistance is seen at Thursday’s high of $1,963.50 and then at Tuesday’s high of $1,972.80. First support is seen at the overnight low of $1,942.70 and then at $1,939.20. The silver bears have the overall near-term technical advantage. Prices are trending lower on the daily bar chart. Silver bulls’ next upside price objective is closing September futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at the June low of $22.34. First resistance is seen at Thursday’s high of $23.06 and then at $23.255. Next support is seen at $22.50 and then at the June low of $22.34.”
On the day gold closed down $1.50 at $1912.90, and silver closed down $0.08 at $22.67.
Platinum closed down $0.30 at $907.90, and palladium closed up $3.60 at $1298.20.
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