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Gold – Firm but Cautious

Gold – Firm but Cautious

Commentary for Friday, Aug 12, 2022 ( – Today gold closed up $8.90 at $1798.60 and silver closed up $0.35 at $20.68. It is a positive that gold managed mildly higher prices today even though a large jump in the Dollar Index capped gains. Current gold prices are also supported by continued short covering and light bargain hunting into the weekend. It is however too soon to claim traders bought the recent dip in prices. This is the fourth straight weekly gain in gold as Treasury yields dip and investors took stock of the recent inflation data out of the United States (Reuters). It is also interesting that Fed’s Barkin says it is too soon to gauge the size of FOMC September rate increase. Traders might assume by this comment that the Fed is looking for wiggle room on the interest rate front because recent inflation data appears to be cooling. Last Friday gold closed at $1772.90 / silver at $19.84 – on the week gold was higher by $25.70 and silver was up $0.84.

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On Monday you would have to call gold’s pricing pattern “interesting” because traders likely figured that last Friday’s job number was a “game changer”. Encouraging bearish gold sentiment. The theory being that the large number of jobs created last month would encourage FOMC’s aggressive rate hikes in their effort to slow inflation.

This morning gold should have moved lower, perhaps considerably lower and the dollar should have moved higher. Instead, the Dollar Index lost ¾ of a point in three hours and gold moved higher by almost $20.00, again threatening the psychologically important $1800.00 price level.

The bearish threat is still there – “gold will have a tough time if Fed hawkishness is emboldened”.  But treasury yields are moving lower which suggests the public is expecting a “balanced” or “nuanced” FOMC reaction as the latest inflation numbers are made public.

The July consumer price index is due out this Wednesday. A hot inflation reading will encourage hawkish FOMC action, a cool reading will give the bulls more breathing room. At any rate the CPI will be used by traders to judge future FOMC rate hikes.

But this is all still a moving target. There are professional sources which claim that inflation has peaked. Traders might infer that this slowdown will be used in a new way. The Fed may choose to extend this process into next year, avoiding recession and allowing for continued job growth.

If inflation has peaked, why is gold moving higher? It is possible that safe haven demand is being reinvented as the world reconsiders traditional inflation hedges in light of perhaps dramatic changes created in Europe over the Ukraine catastrophe. And China’s hostile actions in the South China Sea designed to remind Taiwan who is running the show. Which has created tension in the Philippines. President Joe claims he is “not worried” about China’s military exercises around Taiwan which reflects a deliberate American strategy of not responding to Chinese bellicosity with equally hot saber rattling (CNBC).

On the day gold closed up $13.90 at $1786.80 and silver closed up $0.75 at $20.59.

On Tuesday gold was firm as the Dollar Index flattened out (106.00) and the New York domestic trade has turned choppy between $1790.00 and $1800.00. Traders will be looking for the latest on inflation news this coming Wednesday (CPI) and Thursday (PPI). But the fact that gold settled off highs might suggest a still defensive market.

It is interesting that a New York Federal Reserve survey showed on Monday that U.S. consumers’ expectations for where inflation will be in a year and three years dropped sharply in July (Reuters). Crude oil these past 3 months has dropped from $120.00 through $90.00 which also does not support higher inflation and the bullish gold scenario.

Typically, geopolitical tension is transitory, so traders are faced with an anomaly. Gold at two-month highs, so perhaps there are fundamental changes at work. Gold’s technical picture is improving. Bearish sentiment is moving lower and there are some which claim that positive momentum will reinvent the bullish scenario for both gold and silver bullion.

I am less optimistic, but improvement is welcomed. The plus for the bulls and the technical guys looking for a shift is that gold has put in a solid short-term bottom at $1700.00. And the latest push to higher ground seems to have rallied the base. Caution, however may win the day for even the bullish crowd fears the long-established overhead resistance at $1850.00.

On the day gold closed up $7.20 at $1794.00 and silver closed down $0.13 at $20.46.

Zaner (Chicago) – “With October gold approaching 30-day highs without support from a weaker dollar suggests the focus of gold has rotated again. Obviously, ongoing tensions between Taiwan and China are likely responsible for some of the minimally positive early track today especially with Taiwan claiming Chinese live fire military exercises are part of an invasion plan. While October gold spent most of the Monday trade within the prior 2 days ranges, the charts this morning favor the bull camp again and project a rally back above $1,800 today. Unfortunately for the bull camp in gold and silver, both gold and silver ETF holdings declined for the 5th straight session with a decline in gold of 12,004 ounces and an outflow of 709,190 ounces in silver. According to the World Gold Council global gold ETF instruments saw a record net outflow of $4.5 billion last month! It is possible that some strength in gold this week is the result of hope that the rate of US interest rate hikes will slow if the Wednesday US CPI report comes in at a very low estimate of +0.2%. On the other hand, the ultra-strong US July payroll reading probably allows the US Fed to remain aggressive without as much threat to the US economy. In addition to residual US/Chinese geopolitical anxiety, the markets were presented with economic uncertainty following reports that a Ukrainian nuclear facility had been bombed. With October gold from the last COT positioning report gaining nearly $34, the net spec and fund long is likely approaching the 200,000-contract level. Given the constant shift in fundamental focus by the gold market, predicting direction off this week’s global inflation reports is more problematic than usual. In today’s action, gold and silver might be hesitant to track in a single direction given the beginning of a sweep of global inflation readings starting on Wednesday morning Asian time. Expectations for those inflation readings call for a gain in Japanese producer prices for July of 0.4%, a gain of 0.5% in Chinese consumer prices, a gain of 0.9% in German consumer prices and a gain of 0.4% in Italian consumer prices. As for the 0.2% gain projection in US CPI, that estimate is probably a “low bar reading” which could produce a surprise reaction from an above estimate reading.”

On Wednesday gold pushed to $1808.00 in early New York trading but again sold off touching $1790.00 before closing almost unchanged. Defensive but encouraging. This lighter trade was encouraged by a significant drop in the Dollar Index. Which opened around 106.5 and dived to 104.75, a loss of almost 2 full points in the early trade.

This somewhat crazy action was created by traders reacting to the latest inflation numbers (CPI). Inflation did not rise in July, suggesting the FOMC might be less aggressive pushing treasury yields substantially lower. The problem with these dynamics is that the inflation was modest because the price of gas is moving lower. Reflecting the large drop of $30.00 in crude oil prices these past two months. I would be suspicious because crude oil prices are notoriously volatile, subject to supply and recession fears, so caution is warranted.

A cheaper dollar makes gold more attractive to world buyers in dollar terms. And its improving technical picture attracts safe haven and momentum players so some optimism is warranted.

World politics remain a mess supporting physical gold ownership. Reuters – “Russian shelling killed 11 people in Ukraine’s central Dnipropetrovsk region overnight, governor Valentyn Reznychenko said, as Britain said Russia had “almost certainly” established a major new ground force to support its war.” “China’s military has “completed various tasks” around Taiwan but will conduct regular patrols, it said, potentially signaling an end to days of war games but also that Beijing will keep up the pressure against the island. China has withdrawn a promise not to send troops or administrators to Taiwan if it takes control of the island, an official document showed.”

But the pricing channel between $1850.00 and $1900.00 looks dauting if the expected interest rate questions remain unresolved. Pricing chop could become aggressive, in either direction.      

Reuters – Goldman Sachs, meanwhile cut its three, six and 12-month gold price forecasts to $1,850, $1,950 and $1,950 an ounce from $2,100, $2,300 and $2,500, respectively, and said “structurally, gold is likely to remain range-bound as growth and tightening factors continue to offset each other.”

On the day gold closed up $1.60 at $1795.60 and silver closed up $0.26 at $40.72.

Grant on Gold (Zaner) – “(1) Gold has traded above $1800 for the first time since July 5th , after posting a third consecutive higher weekly close last week. (2) Silver set a 5-week high at $20.74 on Monday. (3) Platinum rose 4.6% last week, notching a third consecutive higher weekly close and returning to the upper half of the COVID-era range. (4) Palladium closed down a scant 0.08% last week, ending (barely) the run of higher weekly close at two.”

On Thursday weakness in the dollar continues to support gold prices and professional paper traders see a bit of optimism in both gold and silver prices. But the continued background talk from the Fed suggesting more rate hikes are on the way continues to tame the metals.

Whether you are optimistic or pessimistic about the price of gold or silver on the shorter term will depend on whether you believe the bulk of rate hikes are already priced into both metals.

The plus here is that minor optimism will develop if gold holds up between $1760.00 and $1800.00 and silver continues to trade on both sides of $20.00.

Professional paper traders hold that these ranges are defined enough that divergent trends between gold and silver might be turned into profitable trade. I’m not a big fan of paper trading because of the large leverage involved but this kind of dialogue might suggest that extreme negative bias in both metals is easing. And more spec money may enter the paper market.

The Producer Price Index (PPI) declined 0.5 percent in June, another sign of slowing inflation (CNBC). This decline was the first month-over-month decrease since April 2020 which was the first month after Covid 19 was declared a pandemic. The PPI is watched carefully because it highlights wholesale prices reported by the Bureau of Labor Statistics. The Wall Street rallied on this information especially in the aftermarket and create a nice “risk on” day for stock investors.

The modest price drop in gold and silver prices, should not be seen as a negative. Obviously, an increase in downward momentum early next week would reinvent the not so old bearish argument. But I think insiders will be looking for traders to buy this dip and confirm that world geopolitical problems and woes on the Russian front will provide safe haven interest.

Reuters – “Satellite pictures showed devastation at a Russian air base in Crimea, hit earlier this week in an attack that suggested Kyiv may have obtained new long-range strike capability with potential to change the course of the war.”

On the day gold closed down $5.90 at $1789.00 and silver closed down $0.39 at $20.33.

Zaner (Chicago) – “With the gold market only temporarily extending the July and August rallies in the wake of yesterday’s softer than expected US CPI reading, (all CPI component readings registered softer inflation) and the October contract settling back below $1,800, the bounce has stalled. While the dollar is slightly supportive with the index sitting just above yesterday’s low this morning, but hawkish dialogue from the Fed’s Kashkari overnight has put gold and silver on a back foot to start today. Apparently, the Minneapolis Federal Reserve bank president reiterated the likelihood of a long inflation battle ahead and indicated the US economy could be in recession soon. Kashkari also indicated that significant slowing concerns would not deter the Fed from finishing its objective of bringing inflation back to targeted levels. On the other hand, inflation at the producer level is expected to come in relatively benign today at +0.2% and that could provide temporary support for both gold and silver prices. Fortunately for the bull camp, the latest South African gold output reading posted a decline of 28.6% in June versus year ago levels. Furthermore, gold ETF holdings continue to decline (down 129,219 ounces yesterday for the 7th straight daily decline), Goldman Sachs has recommended exiting previous long gold-related positions, they also suggested to implement a short long-term straddle and they also reduced gold and silver price forecasts. Fortunately for the bull camp, Goldman Sachs still expects gold to rally over the long term but targeting levels were reduced by nearly $300 per ounce. Goldman Sachs also cut silver price forecasts by $9.00, $7.00, and $5.00 in near term, intermediate, and long-term forecasts. From a technical perspective, the net spec and fund long in gold adjusted into the high yesterday (a $50 per ounce rally from the last COT mark off) has likely put spec positioning back into the bottom of overbought positioning levels. Silver on the other hand remains near liquidated net spec and fund positioning with the last two COT reports registering net longs of only 2,001 and 9,409 contracts. Therefore, the net spec and fund long in silver (excluding last week’s reading) is likely at the lowest level since May 2019. In conclusion, the bull camp in gold will need to hold October gold above $1,784 today or a top is likely in place already. In silver, the trade is presented with bearish news of a 1.2% year-over-year gain in Pan American silver production with the top end of annual production estimates sitting at 20.5 million ounces. Silver ETF holdings also declined yesterday by 968,171 ounces bringing this year’s net sales to 96.7 million ounces However, given the very low net spec and fund long positioning in silver the silver market will lag gold in the event gold works lower.”

On Friday gold’s pricing pattern looked like traders were settling accounts going into the weekend. Few want to be short even though the technical picture belongs to the bears.

Our across the counter business remains firm – typical for the quiet summer months. I believe there has already been a shift in Fed sentiment which makes Wall Street happy. The Dow Jones Industrial Average has gained almost a 1000 points these past three days, so folks are encouraged enough to again consider stocks. But will decreased inflation expectation push gold prices lower? The next official FOMC policy meeting is a few weeks away (Sept 20-21). Not long ago a full point increase was a sure thing. Today insiders are looking for something modest (¾ point or less). If the Fed punts with a half point rise in interest rates the bullish scenario will continue to grow. Some traders believe a ¾ point hike is already reflected in the current price of gold. If they decide a more inflation hawkish hike is necessary, and the price of gold does not fade it will also encourage the bullish gold scenario. This speculation is my opinion, but this reasoning might help explain why premiums on physical gold and silver bullion remain high.

On the day gold closed up $8.90 at $1798.60 and silver closed up $0.35 at $20.68.

Platinum closed unchanged at $958.30 and palladium closed down $69.00 at $2216.80.

Zaner (Chicago) – “Despite a $128 rally in July and August the gold market so far has not suffered a severely damaging reversal from this week’s high. On the other hand, the charts have shifted bearish, the dollar did not extend downward off the PPI report as it did after the CPI report and recession fears have not been altered markedly. However, seeing June South African gold production come in 28% below year ago levels should help underpin gold prices against the recently established corrective tilt. Fortunately for the bull camp, gold ETF holdings ended a 7-day string of outflows yesterday with an inflow of 52,771 ounces. Certainly, the gold and silver markets are relieved with the potential the US Fed is now expected to slow (not halt) rate hikes. Even though treasury market action since the middle of June has been supportive of gold and silver, that support has turned into pressure with treasury yields overnight reaching up to the highest level since July 21st. From a technical perspective, October gold has a key pivot point today from a 3-week-old uptrend channel support line at $1,792.30. In our opinion, to return control of the trend in favor of the bull camp requires a close today in October gold above $1,804. Critical support in September silver today is $20.02 with a trade back above $20.61 needed to turn the charts back to the upside.”

Jim Wycoff (Kitco) – “Technically, the October gold futures bears have the overall near-term technical advantage. However, a price uptrend is in place on the daily bar chart to suggest a market bottom is in place. Bulls’ next upside price objective is to produce a close above solid resistance at $1,850.00. 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 $1,800.00 and then at this week’s high of $1,814.40. First support is seen at Thursday’s low of $1,788.50 and then at this week’s low of $1,776.20.

September silver futures bears have the near-term technical advantage. However, bulls are working on a price uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $22.00. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at Thursday’s high of $20.60 and then at this week’s high of $20.83. Support at $20.19 and then at $20.00.”

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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