Gold – Fighting for $1700.00
Commentary for Friday, Sept 2, 2022 (www.golddealer.com) – Today gold closed up $13.20 at $1709.80 and silver closed up $0.23 at $17.78. Gold was firm going into the weekend, using the reasoning that the jobs report was slightly off, and the dollar was weaker. The Dollar Index trended ¾ of a point lower, reflecting weaker treasury yields. The key here is that traders see these latest numbers as good enough but not too good. Which gives the Fed more latitude relative to its near-term interest rate goals. This idea is not new but carries some trading weight in an uncertain environment. I believe that the bounce was strong enough to suggest gold below $1700.00 becomes an increasingly oversold trade in short order. There is some hint that the Fed is considering its old decreasing inflation scenario on the short term. But this may be permanently branded a “fantasy” if the FOMC raises the interest rate an expected ¾ of a point later this month. We likely have the same old scenario in which traders will buy the dip and sell the rally until a more complete short term interest rate becomes clear as gold settled off highs on the day. Last Friday gold closed at $1736.10 / silver at $18.74 – on the week gold was down $26.30 and silver was down $0.96. We will be closed Monday for Labor Day.
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On Monday gold traded relatively flat in the overnight Hong Kong and London markets. But woke up in the domestic New York trade as the dollar weakened. The Dollar Index topped out in the morning trade (109.50) and began to slide, reaching 108.50 before settling somewhat lower on the day (108.70), once the latest “panic” wave subsided.
At one point the cash market pushed to $1750.00. But gold finally settled unchanged on the day turning into a mild combination of light bargain hunting and short covering.
This is not a big deal; the dollar is massive and will tend to correct in either direction depending on perceived Fed interest rate direction. Which seems to be split between the interest rate hawks and doves. This story is getting old, but it holds up until it does not – as they say.
No one completely understands how the Fed will handle the inflation problem. They have the most insight but will play this hand with a combination of bravado and stealth. Powell will watch the Europeans as closely as the Europeans are watching us – this is not rhetoric it is serious business. Central bank rates vary but they are more closely related than each side is willing to admit because a unified front is the best protection for the US and Europe.
Keep in mind that gold is at a one month low because interest rates are at monthly highs. Some analysts believe this trend will continue as the FOMC pushes the interest rate envelope battling inflation. Should this conviction falter (the so-called pivot) the process would likely reverse itself and gold would move proportionally higher. At the same time the yield curve remains inverted which hints at the feared recession, which would stop the Fed from raising interest rates.
Notice I use the word “should” because many traders believe the Fed will not budge until they have something tangible pointing to lower inflation rates. The problem with this whole mess is that this process could last a year or two. Which would present the investor with the unique “military solution” to their questions. Hurry up and wait for those who have not served.
On the day gold closed up $0.50 at $1736.60 and silver closed down $0.18 at $18.56.
Zaner (Chicago) – “With a fresh new contract high in the dollar in the early going today, the reverberations of hawkish global central bank dialogue have extended into the new trading week. Therefore, it is not surprising to see both gold and silver off sharply, with gold posting a new low for the month and seemingly poised for a slide to $1700. While gold ETF holdings on Friday increased by 23,447 ounces, last week investors pulled 187,681 ounces from holdings. Certainly, the strength in the dollar is the primary bearish focus of the gold trade, but most physical commodity markets have also seen buyers rush to the sidelines from Fed commentary indicating tightening policy will remain in place for some time. Sentiment toward gold and silver is so negative that sharp declines in global equity markets are not resulting in flight to quality buying interest. In fact, the gold and silver markets failed to embrace flight to quality buying in the wake of a 1,000-point Dow slide Friday and in the face of a downside follow-through this morning. Furthermore, the Fed made it very clear that they are willing to take the risk of recession to rid the economy of a spiraling inflation scenario. However, the net spec and fund long positioning in gold has moderated recently, but the net spec and fund short is large enough to mitigate stop loss selling and perhaps help October gold show some respect for the late July lows at $1,717.40. Gold positioning in the Commitments of Traders for the week ending August 23rd showed Managed Money traders were net long 30,326 contracts after decreasing their long position by 15,910 contracts. Non-Commercial & Non-Reportable traders were net long 140,153 contracts after decreasing their long position by 17,185 contracts. While the silver market in the latest COT report did not hold a “net short” as in the gold market, the net spec and fund long is near the “lowest levels” since June 2019! Like the gold market, the silver market has extended sharply lower today and appears on track to retest $18.00. Unfortunately for the bull camp, silver ETF holdings saw a large withdrawal last Friday of 2 million ounces resulting in a net outflow on the week of 10.3 million ounces! The Commitments of Traders report for the week ending August 23rd showed Silver Managed Money traders were net short 15,634 contracts after increasing their already short position by 9,868 contracts. Non-Commercial & Non-Reportable traders were net long 4,319 contracts after decreasing their long position by 8,589 contracts.”
On Tuesday gold remains defensive testing recent lows ($1720.00) as traders fear an aggressive Fed interest rate policy remains on the front burner. Gold’s 30-day pricing picture illustrates this continuing negative shift in sentiment which began in early August. This most recent $1720.00 low sets up another test of support.
I’m not a big options guy but the professionals note a large increase in “put” options, meaning traders are betting on lower prices in stocks. CNBC notes the “comeback” is off, meaning the latest Powell hawkishness has convinced traders that things will get worse before they improve. This does not mean we are talking about catastrophe right around the corner, but the continued threat of higher interest rates is making everyone nervous. Even today’s drop was not a big deal in the relative sense, but it would have been nice to see some bargain hunting or buzz created as gold drifted lower – today’s aftermarket was snoring.
Jim Wycoff (Kitco) – “Technically, October gold futures were poised to close at a four-week low close today. The gold futures bears have the firm overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at today’s high of $1,743.10 and then at $1,750.00. First support is at this week’s low of $1,722.50 and then at $1,715.00.”
“December silver futures prices hit a six-week low today. The silver bears have the solid overall near-term technical advantage. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at $17.50. First resistance is seen at this week’s high of $18.70 and then at $19.00. Next support is seen at the July low of $18.175 and then at $18.00.”
On the day gold closed down $13.40 at $1723.20 and silver closed down $0.40 at $18.16.
Grant on Gold (Zaner) – “(1) Gold ended last week down 0.5%. It was the second consecutive lower weekly close as dollar strength continues to inhibit the upside for the yellow metal. (2) Silver is certainly being weighed by the soaring dollar, but mounting recession risks are hitting the white metal as well. (3) Platinum closed down 4% last week as the PGMs continue to succumb to growing recession risks and promises of higher interest rates. (4) Palladium remains consolidative in the lower half of the COVID-era range.”
On Wednesday gold continued to struggle in that region between $1710.00 and $1725.00 looking for fresh news, either bullish or bearish. And the official threat of higher interest rates was again reinforced today by Loretta Mester. Reuters – Fed’s Mester: interest rates need to rise ‘somewhat above’ 4% – “The U.S. Federal Reserve will need to raise interest rates somewhat above 4% by early next year and then hold them there in order to bring too high inflation back down to the central bank’s goal, Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday. “My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year,” Mester said in prepared remarks to a local chamber of commerce in Dayton, Ohio.
The Fed currently targets its policy rate in the 2.25%-2.5% range. Mester also repeated previous comments that she will be basing her decision on whether to back a third straight 75-basis point interest rate hike next month primarily on the inflation outlook, rather than the closely watched monthly jobs report. The Cleveland Fed chief said that the Fed has to guard against “wishful thinking” and it was far too soon to conclude inflation has peaked. Bringing inflation back down to the Fed’s 2% target would take a lot of fortitude, Mester added. “This will be painful in the near term but so is high inflation.”
There may be a silver lining however in this higher interest rate mess. It is hard to imagine negative sentiment getting worse. With all the bad news, up front and personal it may be time to consider the weak hands have already sold.
The remaining core are long term believers both in the US and the rest of the world. Gold and silver bullion are holding up considering this powerful interest rate assault. In other words, the bulls are weak but have not capitulated.
This offers encouragement and bargain hunting. It is not what gold does when it’s popular that matters. It is what it does when it is not popular that will be a more reliable guide to value.
On the day gold closed down $10.40 at $1712.80 and silver closed down $0.40 at $17.76.
Zaner (Chicago) – “With the dollar poised for new contract highs, noted crude oil weakness and fresh definitive damage on the gold and silver charts, the trade extends recent bearishness into another trading session. At the risk of sounding redundant, the fear of higher rates from many global central banks remains a significant weight on the back of the gold and silver markets. In fact, as was seen yesterday, gold and silver fell precipitously despite a lower trade in the dollar and that suggests no single theme is predominant in the precious metal trade. However, with interest rate chatter focused on “jumbo rate hikes”, it is not surprising to see longs race to the sidelines. In addition to recent outflows from gold, silver, platinum, and palladium ETF holdings, investors yesterday also vacated investments in major gold mining companies. Unfortunately for the bull camp, gold ETF holdings yesterday declined 141,323 ounces with holdings on the year reduced to only +2.2%. In a more damaging development, silver ETF holdings continue to fall aggressively with a decline yesterday of 1.4 million ounces raising the year-to-date outflow to 13%. In the current condition, soft scheduled data from around the world is likely to be discounted with economists and traders instead focused on price/inflation measures. In other words, the Fed and other central banks have acknowledged their intention to accept slowing (pain) until inflation is definitively brought under control. In our opinion, significant slowing or economic uncertainty is likely to prompt selling of gold and silver from demand fears with flight to quality buying interest likely to remain off radar. With additional declines in global equities and broad risk off psychology again today we project October gold down to $1,700 and September silver to the next price pivot of $17.70.”
On Thursday the bad news was that gold broke down at $1700.00, which figures as the Dollar Index surged higher, at one point touching 110.00, before settling around 109.50. The good news was that traders bought the dip at $1688.00, and gold settled off lows on the day.
Obviously gold’s technical picture remains a wet blanket to the bulls. And professionals are wondering if this latest dip is the beginning of capitulation. And much lower prices as the Fed’s aggressive interest rate agenda creates a headache for Wall Street and the metals.
But this is typical thinking, at least in the metals business. When things look bad, and interest rates are moving higher the default position is to question an investment strategy that holds non-interest-bearing gold bullion. The fact that gold bullion does not pay interest is not a liability, it is an asset to the holder. It provides quiet protection with no third-party obligation.
Like I said the bearish sentiment can’t get much worse and so I would suggest that today’s small bargain hunting below $1700.00 is the dim light at the end of the tunnel. And that light will grow stronger as gold adjusts to that defensible price support between $1650.00 and $1700.00. Even in the face of rising interest rates, as investors consider limited options.
Am I worried about higher interest rates for the gold market? You bet, but I’m not concerned enough to consider capitulation. The cheaper gold becomes the better it looks for investors who keep in mind that reducing government debt is a fantasy.
The Democrats can never get enough of a free ride, and when the Republicans had the opportunity to make a meaningful spending statement, they fumbled the ball within their own party. I feel that without old fashioned fiscal restraint in Washington owning gold and silver bullion is not an option, it is a generational responsibility. Take advantage of lower prices and keep your eye on the big picture over the longer term.
On the day gold closed down $1696.60 and silver closed up $0.36 at $17.85.
On Friday a lot was made of the jobs report and weaker dollar. But the notion that the jury is still out as to the real short-term value of gold and silver bullion continues to support gold prices as traders wait for the reality of the next Fed interest rate hike. There is a subtle silver lining here as the public, generally, is not a gold bullion seller at these current levels. This longer-term attitude may not change if there is capitulation because there is a large number of interested buyers, even in the country still waiting on the sidelines. And the cheaper silver bullion becomes the faster the public buys new products. The “wait” for particularly prized fresh one-ounce rounds is still months from the manufacturers. But curiously the demand for “old” 100 oz bars is much shorter, which makes them a better deal in my mind.
On the day gold closed up $13.20 at $1709.80 and silver closed up $0.23 at $17.78.
Platinum closed up $13.20 at $1709.80 and palladium closed up $29.50 at $2012.30.
Zaner (Chicago) – “While the dollar continues to consolidate, it remains near contract highs and a headwind for gold and silver prices. However, with an upside breakout in US treasury yields again this morning rates are creeping higher and should add to the bearish tilt in precious metal prices. The bearish tilt in gold and silver is further manifest in the markets inability to benefit from flight to quality from another emerging Chinese lockdown threat at two major Chinese cities. Yet another negative for the markets is an extension of the capital exodus from gold and silver ETF holdings. Yesterday gold ETF holdings declined by 118,994 ounces and are now only 2.1% higher year-to-date. Furthermore, silver ETF holdings declined by 300,228 ounces and remain 13% lower year-to-date. In retrospect, recent price weakness was facilitated by extremely hawkish US Federal Reserve dialogue and therefore today’s wave of US jobs related data could have a fleeting but large impact on prices. In other words, if today’s jobs readings depict softening of the US economy that could be seen by some as a possible tempering of the Fed’s need/desire to hike interest rates aggressively this month. Unfortunately for the bull camp, the Fed is focused on price/inflation instead of growth/jobs. In our opinion, the gold market has a very narrow bull case, with the bull case almost exclusively tied to weakness in the dollar. However, it appears the dollar is in fundamental and technical rally mode, and the bull camp is fortunate the dollar has waffled this week or gold and silver prices would probably be trading significantly lower. With October gold down nearly 3% in the month of August and the most recent net spec and fund long in gold at 140,153 contracts, the potential for additional stop loss selling remains high. Given current conditions, the best hope for the bull camp is a significant washout in prices followed by improved economic sentiment which in turn fosters improved physical demand prospects. In the meantime, the path of least resistance remains down with October gold targeting seen at $1,698 and then again down at $1,677. Obviously, the silver market charts are much more bearish than the gold charts with key support in the September contract not seen until $17.25.”
My Brothers and Sisters, thank you for your business and friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry. All our in-house staff have been vaccinated and have the booster! We continue to enforce ridged safety standards between people and product. Be careful, the contagious Omicron variants remain dangerous. At the same time trust that God will soon get us back to normal and our traditional business model. As always, thank you for your patience. Richard Schwary
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