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Gold – Firm and Cautious 

Gold – Firm and Cautious  

Commentary for Friday, Jan 21, 2022 (www.golddealer.com) – Gold closed down $10.70 at $1831.80 and silver closed down $0.40 at $24.31. The uptrend in gold is struggling with overhead resistance at $1840.00 but still gets the green light from technical traders. The bullish inflationary case will be put to the test next week as the FOMC addresses interest rates and bond reduction. The CME FedWatch Tool expects interest rates to rise between 1% and 1.25% by December but Forbes notes that such drastic action may not be needed. My bet is that while rising interest rates carry psychological weight, even the hawkish end of the range equals cheap money. This supports the metals and helps the FOMC in its pandemic fight which now includes the omicron mess. I’m not worried about Wall Street, but if a significant downtrend developed or inflation does not settle we could see new highs in gold this year. Last Friday gold closed at $1816.50 / silver at $22.91 – on the week gold closed up $15.30 and silver closed up $1.40   

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Last Monday our domestic market and CNI were closed for Martin Luther King, Jr Day.

On Tuesday gold dipped in early trading as the Dollar Index moved back to weekly highs and traders pondered the upcoming FOMC meeting January 25th and 26th. Bond yields have also been strong and the possibility of early interest rate hikes has undermined bullish gold sentiment. Traders bought this early morning dip, pushing gold pricing back to unchanged but the market eventually drifted mildly into the red unable to shake off the specter of rising interest rates.

It remains to be seen how hawkish the Fed might become in curtailing inflation – but my guess is inflation numbers will not be dire, and even if threatening the Fed will settle for continued reduction of its balance sheet and a modest attempt at adjusting interest rates.

This “makes everyone happy”, avoids possible recession, and supports the relatively new notion that gold may continue firm as the Fed raises rates. This argument is shaped around an old Wall Street adage – “buy the rumor, sell the news”. Which recognizes that rumors can have one effect and news can have the opposite effect. This old trader talk helps support waning bullish sentiment but is dependent on the continued flow of cheap money from Uncle Sam.

Zaner (Chicago) – “Unfortunately for the bull camp, the tensions in the Middle East have been completely countervailed by a recovery in the dollar and by higher US rates. However, the potential for a disruption of oil supply chains has sent crude oil above $85.00 overnight in a fashion that foments inflationary expectations. Clearly, the gold market was uninterested in the latest South African gold mining output figures as prices remained weak despite news that gold output in South Africa in November fell by 0.7% and output for October was revised to a bigger decline of -3.7% from -3.5%. However, the trade is concerned about slumping demand with US treasury yields breaking out to the upside and in turn reaching the highest levels since March of 2021. In fact, German Bund yields are close to shifting into positive ground for the first time in 3-years. In short, gold and silver remain insensitive to classic inflation signals and instead are watching the mechanisms capable of squelching inflation (like treasuries). Fortunately for the bull camp the latest positioning report showed a very modest net spec and fund long compared to the last 18 months. The January 11th Commitments of Traders report showed Gold Managed Money traders net sold 7,083 contracts and are now net long 87,859 contracts. Non-Commercial & Non-Reportable traders are net long 241,214 contracts after net selling 12,248 contracts. Given the breakout below last week’s consolidation low, the February gold contract has little in the way of support until the $1,800 level. Not surprisingly, the silver market has seen the same damage chart position as gold with little in the way of support seen until $22.68. Like the gold market, the net spec and fund long in silver was modest and could become mostly liquidated in the event silver prices slide back toward the early January lows down at $22.00. The Commitments of Traders report for the week ending January 11th showed Silver Managed Money traders were net long 17,890 contracts after decreasing their long position by 4,019 contracts. Non-Commercial & Non-Reportable traders are net long 37,419 contracts after net selling 7,135 contracts.”

On the day gold closed down $4.20 at $1812.30 and silver closed was up $0.58 at $23.49.

Grant on Gold (Zaner) – “(1) Gold has struggled on gains above the $1800 level as U.S. yields remain well bid amid expectations that tighter Fed policy is in the offing. (2) Silver ended last week with a 2.6% gain and has pushed to an 8-week high in the new trading week. (3) Platinum notched a 1.2% gain last week but remains narrowly range-bound below $1000. (4) Palladium remains in a tight range as well, having stabilized somewhat after setting nearly a 2-year low of $1538 in December.”

On Wednesday gold pushed surprisingly higher, threatening $1840.00. Which may or may not be the beginning of a wake-up call. At the same time the Dollar Index is trending lower, off weekly highs which helps this latest gold surge but is counterintuitive. Especially if you believe the Fed will soon raise interest rates. Just the threat of rising Treasury yields should have capped this latest surge but now traders are distracted and scratching their heads.

I’m not suggesting the FOMC will delay the first rate hike next week. And I don’t believe tension between Russia and the Ukraine or Reuters latest headline “Wall Street sell-off deepens, Nasdaq confirms correction” has created safe haven buying, but the latter has potential.

I’m obviously pointing out that as the number of cross currents grow – the rising confusion factor supports what was not too long ago a fledgling bullish gold scenario.

Nagging trader questions this morning? Why is gold stronger as interest hikes get closer? Perhaps the rise in interest rates is overrated? Does the current gold price already reflect interest rate changes? Nothing new here, this contrarian scenario is popular and makes some sense.

But most will say this morning’s higher gold prices reflect the worldwide fear of rising inflation. Especially with UK numbers at 30-year highs according to Reuters. Technicians will applaud gold’s aggressive close today and its rising bottoms pattern – a plus for the bullish scenario.

I would however drag out my old polemic – until gold moves above its most recent high ($1860.00), we will be dealing with a paper trade used to “buying the dips” and “selling the rallies”. Don’t be surprised to see profit taking in gold, especially next week.

Expect further price volatility as the Fed irons out shorter-term interest rates. But keep in mind that what is really needed in the gold trade is the dispelling of investor apathy. Not so easy to do in a world with many new financial gimmicks, but historically it happens given enough time.

Zaner (Chicago) – “It has been rare for silver to dramatically outperform gold, but that is what is happening this week in a sign that silver could be waking from its multi-year slumber. Even the technical picture has shifted upward in silver with yesterday’s sharp rally forged on a jump in trading volume to the highest level since November 26th and the market adding to those gains this morning! While we need more evidence, it is possible that silver has become a responsive physical commodity capable of drafting lift from surging oil prices. With the higher high overnight and the highest price since November 23rd, March silver looks to be on track to regain $24.00 in the sessions ahead.”

On the day gold closed up $30.80 at $1843.10 and silver was up $0.74 at $24.23.

The gold market Thursday opened firm but choppy amid continued inflation worry and a bit of Russian aggression in the Ukraine. This market remains an interesting and still developing story of four primary forces. A consistently strong dollar supported by promised interest rate hikes opposes higher gold prices. The 2-month highs in all the precious metals supported by rising inflation fear worldwide supports still higher prices.

Gold turning choppy after yesterday’s big upside move will give the momentum players pause. But gold’s technical picture suggests a green light and even higher prices may be in the making. At the same time silver continues to impress at the higher end of its current trading range and is developing enough buzz to suggest we could see more spec money here, even on the short term.

All these recent gains are underscored as we move into an uncertain weekend. President Joe claims the Russians will invade the Ukraine. You will have to bring Niccolò Machiavelli back from the dead to sort out truth from fiction on all three sides. Good Lord, please save us all from another political mess with sorry human consequences.

Reuters – “The primary factor driving gold is inflation, which is boosting the metal’s appeal as a hedge against rising prices, said Daniel Pavilonis, a senior market strategist at RJO Futures.  “The market looks like it wants to continue to move higher, and it’s just this self-fulfilling loop with more and more data coming out and showing that inflation is not transitory.” Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose to 286,000 last week. Reflecting investor sentiment, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, jumped to the highest level since mid-December. Growing geopolitical instability, notably Russia-Ukraine tensions, is also supporting gold, said Ricardo Evangelista, senior analyst at ActivTrades. Russia has massed tens of thousands of troops on its borders with Ukraine, and Western states fear Moscow is planning a new assault on a country it invaded in 2014.”

Zaner (Chicago) – “While there is a bit of divergence between gold and silver in the early going today, net changes are not significant and indicative of a strong bias in the marketplace. After all, the chatter regarding a shift into a rising central bank rate environment is offset by the cut in interest rates by China overnight. However, the Chinese rate cut was 0.1% and was not widely impactful beyond the Chinese equity markets. On the other hand, the gold market did forge a higher high overnight and remains within proximity to the January high. In a very minor supply-side supportive development South African Sibanye’s 2021 output came in at the lower in of its projected range. Certainly, gold and silver markets have disappointed those looking for inflation gains for nearly 3 years (some would say for 30-years), the action on Wednesday could be the first true inflationary reaction in what we think will be a sustained inflationary cycle. Obviously, the overt strength in crude oil prices has been the primary inflation catalyst so far, but a 30 year high in UK consumer prices yesterday and a concerted broad based physical commodity market rally certainly looks and smells like inflation has begun to impact the commodities trade. In fact, seeing platinum and palladium surge sharply higher in sync with gold and silver this week suggest something broad-based was operating yesterday. Looking ahead it is possible that gold and silver, platinum and palladium were anticipating the easing move by the People’s Bank of China. With futures trading volume jumping significantly around this week’s low and the February gold contract aggressively rejecting $1,804.70, we think the market has signaled strong value above $1,800 and is tracking toward $1,850. Similarly, the silver market saw increased volume on the Tuesday upside reversal and then again on the Wednesday sharp range up move and with increased market interest silver could project the March contract quickly to the next pivot point up at $25.00.”

On the day gold closed down $0.60 at $1842.50 and silver was higher by $0.48 at $24.71.

The gold market Friday opened choppy with a downward tilt as gold once again struggles with overhead resistance at the higher end of its current range. The Dollar Index has been steady this week (95.50) which is surprising given next week’s FOMC meeting. But higher crude oil prices support inflation fears and growing trouble in the Ukraine helps safe haven demand. Still, the lack of buzz going into a troubled weekend might suggest an overbought market. But I suspect little downside in gold however given rising inflation numbers and world uncertainty.

Zaner (Chicago) – “While the precious metal markets are likely overbought from significant gains earlier in the week, and due some corrective action, we blame big picture risk off psychology. Not only has the tensions between Russia and the rest of the world undermined sentiment, but US corporate earnings seem to have lost their ability to lift equities and highflying crude oil prices have corrected sharply. In retrospect, a 3-month high in US initial claims following several other disappointing US economic reports confirms a slowdown in the US economy thereby prompting widespread profit-taking from those who benefited from several days of broad-based physical commodity market euphoria. Adding into the risk off environment are reports that Russia has continued to “build” its troops along the Ukrainian border, incendiary comments from both sides of the US/Russian negotiating table and residual omicron anxiety. In short, the gold and silver markets are behaving like classic physical commodities fearful of a tempering of physical demand and are certainly experiencing back and fill action. Obviously, the gold market settled into a pattern of underperforming relative to silver and other precious metal markets and therefore it might show less corrective action. Perhaps the gold trade sees the pattern of slackening US economic data as a sign that inflation could also moderate in the coming reports. On the other hand, some analysts think that the Fed is “locked and loaded” on a March interest rate hike and without extremely soft data or a very bad turn in the omicron situation, they will follow through with the first hike! From a longer-term perspective, the gold/silver ratio has gold at a large premium to silver and seeing silver gain on gold at the same rate as seen this week into next week could signal a breakout in the ratio which in turn signals silver beginning a bigger move against gold. Uptrend channel support in February gold today is $1816.90 with first support in March silver is seen at $24.15.

Unlike gold and silver, the palladium market has a distinct bullish fundamental theme in the form of the Russian threat of aggression and a potential obstruction of PGM supply. By some measures, Russia produces more than 40% of the world’s palladium with a net output north of 91 metric tonnes. While Russian President Putin has rarely considered global sentiment, an act of aggression now would be blatant and potentially dealt with harshly in the form of sanctions. On the other hand, Russia is clearly tightening natural gas/LNG supply into Eastern Europe and could use that as a political tool to modify existing sanctions. In the end, it seems faulty reasoning to exhibit additional bad behavior to remove sanctions from previous bad behavior. With the Wednesday upside breakout above a 7-month-old downtrend channel resistance line at $1,931.10, the market has a classic stop price for fresh longs at that level. Near term upside targeting is seen at $2,210. Not to be left out, the platinum market has joined palladium in its march higher off the importance of Russia in the world’s supply of platinum. However, with Russian platinum production at 20 metric tonnes, it is not one of the primary supply sources for the world, but it is important. Nonetheless, the path of least resistance generally remains up in April platinum with the next targeting seen up at $1,100.”

On the day gold closed down $10.70 at $1831.80 and silver closed down $0.40 at $24.31.

Platinum closed down $15.90 at $1034.70 and palladium closed up $30.60 at $2100.30.

My Brothers and Sisters, thank you once again 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 many now have the booster! We continue to enforce ridged safety standards between people and product. Be careful, the highly contagious Omicron variant is dangerous and accounts for most US infections. At the same time trust that God will soon get us back to normal living and the traditional business model. Richard Schwary

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