Gold – Friday’s Surprise!
Commentary for Friday, November 4th, 2022 (www.golddealer.com) – Today gold closed up $45.20 at $1672.50 and silver closed up $1.35 at $20.79. This was another week of dramatic price swings in both silver and gold as the paper traders “ponder the reality” of the Fed’s next interest rate move. Early in the week it appeared that the Fed might modify its intentions over recession fears the metals remained on a steady footing. But after Fed Chief’s Powell comments on the facts of inflation life both metals tanked, testing $1600.00 support. Then, out of the blue gold surged into the weekend. Reuters – “Gold prices jumped more than 2% on Friday as the dollar fell after data showing an uptick in the U.S. unemployment rate in October raised optimism that the Federal Reserve would be less aggressive on rate hikes going forward.” While this jump in price is noteworthy gold’s overhead resistance between $1670.00 and $1680.00 is significant. If our shiny friend cannot build on this momentum above $1680.00 the technical picture will remain bearish, and traders will sell this rally in typical fashion. If the Fed equivocates in December with a less than expected rate hike it would be a very Merry Christmas for the bulls. Last Friday gold closed at $1639.50 / silver at $19.15 – on the week gold was higher by $33.00 and silver was higher by $1.64.
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On Monday gold again opened choppy, trading between $1634.00 and $1642.00 while traders brace for the upcoming FOMC meeting this week. The group will begin Tuesday and release information likely Wednesday after the markets close. A 0.75 of a point interest rate hike is expected yet some analysts believe that this market has put in a solid bottom, supported by rising inflation and geopolitical problems worldwide.
Reuters – “Euro zone inflation surged past expectations yet again this month to hit a record high, pointing to further interest rate hikes from the European Central Bank as price pressures appear to be broadening. U.S. central bankers are expected to keep their inflation fight in high gear this week, even as they intensify a debate over when to downshift to smaller interest rate hikes to avoid sending the world’s biggest economy into a tailspin.”
While this does not change the bearish technical picture it does at least suggest that further downside in gold pricing may be limited. I would not say this is a majority opinion but for now let’s call it a positive “stirring” that has potential.
On the other hand, bearish sentiment is encouraged by the stronger dollar. The Dollar Index this past 5 trading days has been all over the place, which increases trading tension. It topped out at 112.00 last Tuesday, bottomed out at 109.50 that following Thursday and today is pushing back towards 112.00. This is because traders still cannot pin down exactly what the FOMC has in mind, even though their forward guidance has been extremely hawkish.
On the day gold closed down $3.70 at $1635.90 and silver closed down $0.02 at $19.13.
On Tuesday gold pushed higher in the overnight Hong Kong market on a weaker dollar but the New York domestic market sold this rally as the dollar suddenly reversed direction. The Dollar Index in early trading topped out above 111.00, dropped to daily lows 110.74 and reversed direction pushing back to daily highs. Still, gold managed to hold on to that “Goldilocks” range around $1650.00 while finishing mildly higher which is a plus for the flagging bulls.
According to FX Empire the silver market is rallying because of fresh interest from China. And even higher prices may be in the cards if Covid restrictions are relaxed.
Still both gold and silver reflect a jittery paper trade trying to anticipate sentiment not guidance. This “false flag” is also reflected in the stock market which rallied today on the notion that the Fed would moderate its interest rate policy.
Perhaps they will but on the short term I look for a bumpy ride. The confirmation of the promised 0.75 of a point interest rate hike will likely be made public after the markets close on Thursday. I don’t expect much fanfare because this outcome is expected. It is what the Fed might do at their next opportunity that has traders worried. If the Fed follows through with its hawkish promise gold, silver and stock market may become highly defensive and move lower.
This “back and forth” tide of positive and negative sentiment highlights uncertainty on the short term. Because even if the US can dodge the recession bullet on the short term the “informed” computer model predicts eventual trouble in River City.
The computer expects a recession one year or two years out – based on relative timing. We have not had a recession for a long time, and one is due assuming a typical cyclical rotation. Ironically the traditional factors like oversupply and unnecessary speculation may not even come into play.
Economists are also worried about England – a primary target for recession. Because of its EU relationship it may be the first of falling dominos. Reuters – “Everyone in Briton will need to pay more in tax in the coming years to fix a hole in public finances, a source in the finance ministry said, following a meeting between Prime Minister Rishi Sunak and finance minister Jeremy Hunt. British manufacturing last month suffered its biggest contraction since the depths of the first COVID-19 lockdown in May 2020, with optimism draining fast, a survey showed.”
On the day gold closed up $9.10 at $1645.00 and silver closed up $0.54 at $19.67.
Zaner (Chicago) – “While outside market conditions are conducive to the gold and silver rallies this morning, the gold market should draft additional lift from World Gold Council indications that central banks purchased a record amount of gold (399 tons) in the 3rd quarter 2022. However, in a strange development the World Gold Council has yet to announce the source of a substantial amount of “unreported buying”. It is important to note that despite a decline of 8% in gold ETF holdings in the 3rd quarter year-to-date gold demand overall has returned to “pre-pandemic levels”. According to the WGC world gold demand reached 1,181 tons in the 3rd quarter and posted a 28% gain versus the 2021 quarter. While mining production in the 3rd quarter increased, recycled gold fell by 6% and hedging dropped off by nearly 20%. Yesterday gold ETF holdings declined by 60,953 ounces pushing the year-to-date decline in holdings to 2.8%. In another minor negative overnight Indian gold jewelry retailers are reporting lackluster interest and in significant longer-term development Indian consumers are reportedly shifting their gold holdings into ETF instruments over physical holdings. However, increased investment in Indian ETF holdings is a positive demand factor for the world gold market if younger generations embrace the cultural shift. Fortunately for the bull camp, the net spec and fund long in gold remains near 3-year lows and the jump in central bank purchases could help establish strong fundamental value on the charts around $1,625. With the silver market yesterday rejecting a sub $19.00 trade and ranging sharply higher this morning, a run above $20.00 is possible. Critical support in December silver today is $19.41 with a pivot point seen down at $19.08.”
On Wednesday gold drifted higher in the overnight Hong Kong and London market but sold off in the domestic New York trade, settling initially around $1650.00. The early overseas rise may have been the result of a rumor that China has formed a committee to study the removal of Covid restrictions. Or perhaps a bit of optimism that Fed officials are reconsidering aggressive interest rate hikes. Gold yawned over this morning’s ADP release. Private payrolls rose 239,000 in October beating expectations (195,000). Under “normal” circumstances this “beat” might suggest the Fed has room to be less aggressive. Which would support the flagging bullish sentiment. And suggest at least some caution in the short bearish camp.
The FOMC did raise rates the expected 0.75 of a point after the market close today. This makes the fourth consecutive 0.75 point rate hike. And brings the target range to 3.75% – 4% which is the highest level seen since January of 2008 (CNBC). I don’t think Chief Powell has come off his hawkish stance, but he did open a window for consideration. The new statement hinted at that policy change, saying when determining future hikes, the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Economists are hoping this is the much talked about “step-down” in policy that could see a rate increase of half a point at the December meeting and then a few smaller hikes in 2023.”
Still the gold market turned volatile. Moving optimistically higher ($1670.00) in the live New York market. Then tanking ($1635.00) in the aftermarket (NY Globex) before settling on the day. Traders simply did not like the reality of today’s candid comments by Chief Powell. His perceived hawkishness again created a heavy gold trade moving forward.
What happens today is important. But what the FOMC will have to say about future rate hikes through the first quarter of 2023 is now the focus. It is possible that today’s aftermarket is an overreaction, but we will have to see if traders buy this dip through next week. Powell did after all offer the possibility of some relief.
And the smart money is betting that the December rate hike will be a half point hike. This would be good news if you are looking for something to be optimistic about in the middle of this unwinding mess. In the meantime, expect further volatility as gold and the dollar move in opposite directions. And monitor deteriorating economic conditions in Europe.
On the day gold closed up $0.70 at $1645.70 and silver closed down 0.07 at $19.60.
On Thursday the Hong Kong and London markets reflected significant weakness over Chief Powell’s comments on Wednesday. The New York market hovered between $1624.00 and $1618.00. On the positive side we are seeing mild short covering and bargain hunting as prices bounced off daily lows ($1618.00) and moved as high as $1632.00 in the aftermarket.
This does not have me dancing around our parking lot, but it does suggest interest especially because the Dollar Index this morning pushed towards monthly highs (113.00). This market needs time to stabilize but we may be going into the weekend on a small upbeat. Considering the Fed “pivot” scenario is losing steam and the employment picture improves.
(Reuters) – “The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong despite slowing domestic demand amid stiff interest rate hikes from the Federal Reserve to tame inflation.”
Sill gold’s technical picture remains bearish and the trade defensive. “The reality is that people were expecting some dovish tilt (from the Fed), there was no dovish tilt. Inflation remains high globally … and the Fed is sticking to its mandate,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “I don’t see the tide turning for gold and its gathering bullish momentum again until after the Fed is done raising rates, probably not till March of 2023.”
There are some, me included who still believe the Fed will “pivot”. In other words, they do not take the FOMC at their word. But latest theory based on an optimistic economic model is “higher interest rates for a longer time”. Regardless of which side of the aisle you are on the best strategy is flexibility. Avoid being naïve. Each side of this argument is trying to sell you something.
Bloomberg – “A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms. The latest recession probability models by Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all timeframes, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update. The forecast will be unwelcome news for Biden, who has repeatedly said the US will avoid a recession and that any downturn would be “very slight,” as he seeks to reassure Americans the economy is on solid footing under his administration.”
On the day gold closed down $18.40 at $1627.30 and silver closed down $0.16 at $19.44.
Zaner (Chicago) – “Clearly, the net Takeaway from the FOMC meeting has resulted in a rekindling of recession fears from the potential of over tightening. In addition to currency related selling in gold and silver this morning the markets are seeing spillover pressure from a jump in US treasury yields. In fact, yesterday the Fed chairman indicated that their upside targeting for Fed funds will likely result in a higher rate than previously forecasted by the central bank. While not a major negative, gold ETF holdings yesterday declined by large 100,783 ounces and those holdings are nearly 3% lower year-to-date. At least in the near term, the recent boost in global gold demand from the World Gold Council quarterly report is tossed aside. Even though the markets earlier in the week saw rumors suggesting China might be preparing to exit their Zero Covid policy, daily infections have caused expanding activity restrictions. Not surprisingly, news of a significant jump in Perth mint October gold sales is brushed aside because of patently bearish “overall” outside market conditions. Given the hawkish tone of the Fed yesterday and the impressive sharp range up move in the dollar this morning currency related pressure is likely to become a fixture in the days ahead. Critical and highly suspect support in December gold today is close to the market at $1,621.10, but the market is likely to knife straight through that contract low! Not surprisingly, the silver market has once again held up impressively in the face of very negative gold price spillover as the speculative trade in silver seems to view the $19.00 level as some form of value. Overnight silver ETF holdings saw a minimal inflow of 25,261 ounces but remain 14% lower year-to-date.”
On Friday gold pushed dramatically higher, surprising physical and paper traders. The reasoning for higher prices is not as clear as analysts suggest. The key here is understanding how resolute the Fed is about its policy of raising interest rates to control inflation. And the truth may be that they are not sure themselves which introduces more confusion. What we have this morning is a sentiment rerun which has been in place for months.
Traders, fully bearish this week because of a hawkish Fed are again looking for reasons to believe the FOMC will moderate. It may be time to consider better reasons for higher gold and silver prices. The dollar index cannot go up forever, a massively strong dollar is ruinous to the US economy and our trading partners. In my mind the index could easily shed 10% of its value, pushing gold back towards $2000.00 or even higher once the dollar begins to fade.
I also don’t get dealer comments which claim that investor demand is flagging. We can’t keep live bullion products on the shelf and our delayed delivery program remains popular even with higher premiums from the manufacturers! Most of this physical action is from seasoned, big players who have returned for some early bargain hunting.
Also consider an alternate case for today’s higher gold and silver prices. It could be that hawkish Fed sentiment was exaggerated. And this pushed gold and silver into an oversold condition.
And safe haven buying continues to grow in Europe and Russia. Reuters – “The downturn in the euro zone economy has deepened as high inflation and fears of an intensifying energy crisis hit demand, adding to evidence the bloc is heading for a winter recession. A closely-watched survey showed euro zone October business activity contracted at the fastest pace since late 2020.”
On the day gold closed up $45.20 at $1672.50 and silver closed up $1.35 at $20.79.
Platinum closed up $36.40 at $969.80 and palladium closed up $41.40 at $1836.90.
Zaner (Chicago) – “While part of the significant gains this morning is partially the result of a 2-day high to low slide of $58 in gold, and $1.30 in silver, the markets are also benefiting from a slight setback in the dollar, reports of a possible relaxing of Chinese incoming air travel restrictions, and reports of strong Chinese demand for Australian gold. Apparently, the largest Australian precious metal refiner indicated that China purchases of gold bars has remained strong, and Bloomberg overnight posted a story from the Perth Mint indicating institutional buying of gold has “surged”. Even the silver market saw positive demand news last night following a forecast that Indian silver consumption might jump by 80% this year and post a record. However, Indian silver purchases in the prior 2 years has been near record lows and therefore part of the recovery is from pent-up demand. Evidence of the recovery in Indian silver demand came from a jump in January through August silver imports to 6,370 tons (from 203 million tons) which dwarfs the prior year’s same period import tally of only 153 tons. Furthermore, silver holdings in London fell to only 27,101 tons at the end of September reaching the lowest levels since 2016 when the LBMA began keeping records. From a technical perspective, the sharp rejection of the downside breakout in December gold from yesterday was posted on a relatively high trading volume which could serve to discourage fresh selling today especially given the strong early upside follow-through rally. Clearly, the Fed’s open-mindedness toward the magnitude of upcoming hikes was more than offset by the Fed’s view that the ultimate peak in interest rates will be higher than previously forecasts but the fear of the Fed should moderate now that the meeting is past. While the rejection of the spike down move in gold yesterday was impressive, the spike down reversal in silver was even more impressive. In fact, the December silver contract has now violated and rejected the $19.00 level on 5 of the last 8 trading sessions and looks to see both inside and outside market buying influences today!”
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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