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Gold – Fresh Inflation News?

Gold – Fresh Inflation News?

Commentary for Friday, May 28, 2021 ( – Gold closed up $6.80 at $1902.50 and silver closed up $0.07 at $27.99. The gold trade finished the week choppy, but firm as fresh inflation news supports the still in place bullish trend. I suspect volatile price swings as the summer progresses but for now there is a new enthusiasm in both the paper and physical trade. Based on the reality that the Fed will be patient to action – inflation or not.

This is a position they espoused months ago but few took them seriously because at that time inflation was not as issue. As long as the FOMC keeps interest rates low and continues to buy bonds gold should hold its footing waiting for these dynamics to shift. Turbulence, one way or the other, will likely be initiated by the dollar.

The Dollar Index lost 10% of its value this past year but could bounce back given strong economic numbers coming out of the pandemic. Still there are many who believe the inflation genie is out of the bottle so the bullish scenario gains momentum. Last Friday gold closed at $1876.70 / silver at $27.47 – on the week gold was higher by $25.80 and silver up by $0.52.

A friendly reminder that we will be closed Monday for Memorial Day. As we salute and honor those who have died in the performance of their military duties.  

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 4 to 8 weeks coming from the manufacturer. My guess, however, is that delays will soon shorten. 

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 your understanding.

Gold on Monday opened choppy but firm as the Dollar Index dipped below 90.00 as traders once again consider another run at last week’s 4 ½ week highs. Technically these numbers are encouraging as gold moves above its 200-day moving average and bond yields remain tame. I think traders are off to the races this week with a lighter step and expectation.

Continued inflation worries, economic uncertainty and India’s COVID-19 tragedy underpin this market – so traders expect another shot at $1900.00+ gold – perhaps even this week. People selling cryptocurrencies and buying gold continues with support from recent CNBC coverage and the news that Hong Kong will restrict crypto exchanges to professional investors.

I would however argue for some caution here for four reasons. First, the Chinese are worried about rising industrial material prices. If they intervene it could dampen this growing metal’s enthusiasm. Second, the dollar is famous for comebacks. Three, the possibility of a dramatic economic recovery as the pandemic wanes weighs on the price of gold on the shorter term. And four, Bitcoin is up 15% this morning so its relationship to gold remains questionable.

Watch the dollar/inflation news for gold’s short-term direction. The Dollar Index has lost 10% of its value this past year. This past month gold is up $100.00 but the index will likely have to make new lows to continue the run. Still, our growing debt makes the best case for gold appreciation. On the day gold closed up $7.90 at $1884.60 and silver closed up $0.42 at $27.89.  

Gold opening flat on Tuesday but jumped higher in later trading as the Dollar Index made fresh daily lows (89.55) as Treasury yields slid to 11-day lows. There are other distractions – new homes sales fell 6% and there appears to be conflicting news about consumer confidence. Most remain optimistic on the state of the economy at the present but are beginning to worry about the future. Perhaps this is the result of the growing inflation concern even though the Fed assures everyone that current jumps in specific commodity prices are the result of transitory forces within the economy and are not growing inflationary trends.

This from Reuters – “Gold should benefit directly from suggestions that the Fed will stick with its ultra-expansionary monetary policy, and indirectly via the weak dollar, said Commerzbank analyst Daniel Briesemann in a note. Fed Board Governor Lael Brainard and other officials in separate remarks all backed the U.S. central bank’s current easy monetary policy view. The dollar hit 4 ½ month lows, making gold less expensive for holders of other currencies. Gold could receive support from higher Chinese physical demand if China has been importing more gold from Switzerland and Hong Kong due to commercial banks there being granted higher import quotas for April and May, Briesemann added.”

Gold’s technical picture continues positive, both gold and silver Exchange Traded Funds are moving higher and there is an expectation that inflation will steady or underpin current trading ranges. But gold must still move above $1900.00 with conviction – this is no small order.

I expect this fight for higher ground will turn into an old-fashioned slugfest as they used to say when I was a kid. Especially if the Fed is right about inflation trends or the dollar does not cooperate. Keep your powder dry and let us see how this 4 ½ month peak resolves growing cross currents. On the day gold up $13.50 at $1898.10 and silver closed up $0.15 at $28.04.        

The gold pricing for Wednesday was firm despite a rising Dollar Index. The bull trade should also be encouraged that gold has held up after the Chinese overnight took the first steps to quell speculative trading in commodities according to Zaner. Today’s action above $1900.00 is not spectacular but few expected fireworks at these 5-month highs.

Not many would dare short this market because the psychological picture now favors the stronger bullish scenario. And the technical picture continues to improve – a big plus.

But traders are by nature cautious and always suspect a Greek gift so it’s likely the paper trade will tiptoe around these encouraging numbers. But keep a sharp eye out for any change in the wind. Like I have been saying – moving higher in both gold and silver will bring perhaps dramatic price changes – one way or the other.

But for now, the metals continue to breath fresh air – and real enthusiasm.

This from Reuters – “Gold prices firmed above the key $1,900 level on Wednesday, boosted by weaker U.S. Treasury yields and expectations that the U.S. Federal Reserve will maintain a dovish monetary policy stance. “Some of the economic data has been slowing down, and that’s likely to keep Treasury yields grounded, which has been the primary driver in sending gold prices higher,” said Edward Moya, senior market analyst at OANDA. “The market is probably going to have to deal with a slight rebound in the dollar here…but we are still going to see gold prices continue to rise and $1,950 level seems like a very short-term goal.” Gold on the day closed up a modest $3.20 at $1901.30 but moved down $7.00 in the aftermarket which might suggest a rather pensive mood. Silver closed down $0.19 at $27.85.

Gold on Thursday drifted lower in a mild round of profit taking, prompted by upbeat US economic data, rising Treasury yields and a Dollar Index which has moved from 89.60 through 90.00 since yesterday. Price weakness in other commodities many also be a contributing factor in that this diminishes the rising inflation argument. And finally, some believe the gold market may now be overbought because this higher pricing run is two months old.

I am not convinced bullish sentiment will fade easily. Everyone and their brother will be lined up to see if traders buy this dip and push prices even higher based on the inflation argument. Gold ETF inflows continue higher, and China is buying with both hands.

Still there is talk that the Chinese – now cracking down on commodity speculation – may add gold to their list – but I don’t believe the rumor.

At this point there is no reason to believe government debt worldwide will not continue to grow. If this dynamic remains in place gold’s primary bullish argument (inflation) will tag along. On the day gold closed down $5.60 at $1895.70 and silver closed up $0.07 at $27.92.  

Gold pushed lower on the Friday open approaching $1880.00. But quickly reversed itself likely because the personal consumption expenditure, another key inflation index rose 3.1% year over year. So higher than expected and a confirmation of the also rising Consumer Price Index (CPI).

Keep in mind these combined figures are significantly higher than the 2% Federal Reserve  target, yet the Fed refuses to reduce the pace of their bond buying program or move rates higher. This still evolving picture supports firm, perhaps even higher gold prices.

Reuters points out that investors are now eyeing the release of President Biden’s first full budget since taking office. And he will seek $6 trillion in federal spending for the 2022 fiscal year.

This from Zaner (Chicago) – “While gold and silver prices showed divergence yesterday, it appears as if inflation prospects have brightened again, with a significant surge in grain prices yesterday, an upside breakout in crude oil this morning, and analysts suggesting that China might not be able to squelch surging commodity prices. In fact, some traders are suggesting that the Chinese attempt to talk down commodities prices has backfired, with corn prices at times yesterday locking limit up! However, gold and silver are likely to remain off balance today because of the blip up in US interest rates on Thursday and from periodic strength in the Dollar.”

Still, today’s price action in gold was muted by the rising Dollar Index (90.13). So, it’s easy to see that the bullish inflation scenario is not sufficiently developed to blow through overhead resistance at the higher end of this most recent climb from $1780.00 through $1900.00. On the day gold closed up $6.80 at $1902.50 and silver closed up $0.07 at $27.99.   

Silver closed today up $0.07 at $27.99. The silver trade seemed sleepy today.                                  

Platinum closed up $3.40 at $1180.80 and palladium closed up $21.90 at $2824.20.                   

My Brothers and Sisters, we always thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary

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