Gold – Ignore the Noise for Now
Commentary for Friday, Aug 5, 2022 (www.golddealer.com) – Today gold closed down $15.60 at $1772.90 and silver closed down $0.28 at $19.84. The possibility of no recession was reflected in lower gold prices Friday. The Bureau of Labor Statistics noted that the July numbers beat expectations with 528,000 jobs created. Robust jobs creation gives the Fed more options in controlling rising US inflation, so traders sold Thursday’s significant rally and gold moved lower reaching $1765.00 before catching a solid bid. Gold’s developing positive buzz went out the window, but it is still too soon to figure longer term gold pricing. I’m not so concerned with today’s action if pricing stays above the most recent rising trend line because it would seem our shiny friend is still climbing that wall of worry. But today is a great reminder that being “all-in” on either the bullish or bearish scenario is probably not a good idea. Across our trading desk the action slowed so the public is watching the current pricing, but it is a good idea to remember that this past month, with all the drama gold is higher by less than $30.00. A good indicator that this market still reflects a slow summer trade so ignore all the background noise.
Last Friday gold closed at $1762.90 / silver at $20.16 – on the week gold was higher by $10.00 and silver was off by $0.32. Another week featuring a lot of noise and not much action.
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On Monday gold moved higher ($1775.00) in the overnight Hong Kong and London markets but in typical fashion the New York trade sold the rally. Higher gold this morning reflects a weaker dollar, the Dollar Index today has moved from over 106.00 through 105.25 in early trading. This weakness is the result of a perceived pivot in the Fed’s interest rate agenda.
But a lighter interest rate hand by Chief Powell remains speculation as the next FOMC get together will not happen until November. So, for now “out of sight” / “out of mind” at least hinders the bearish gold scenario. But does not eliminate the threat. Still, recent gains in gold and silver are encouraging – but their modest size suggests trading caution.
A weakening in US economic data, renewed Covid concerns worldwide, and more problems in the Ukraine help safe-haven demand. Continued short covering and perhaps light bargain hunting is also helping to encourage the beginning of a new gold trading week.
Gold’s technical picture is bearish but improving, there is a hint of optimism in the bullish gold scenario for a change. I would not say our shiny friend is out of the woods, but a few weeks ago insiders feared that the metals were circling the drain in reaction to a fierce Fed interest rate environment. This Monday morning the short paper is at least worried over an interest rate pivot. There is also anecdotal evidence that the Fed may be turning less aggressive as stock prices rally.
On the day gold closed up $6.10 at $1769.00 and silver closed up $0.16 at $20.32.
Jim Wyckoff (Kitco) – “Technically, October gold futures prices hit a three-week high early on today. Short covering and bargain hunting were featured. The gold futures bears still have the overall near-term technical advantage. However, recent gains have negated a price downtrend on the daily bar chart and last Friday’s bullish weekly high close is another clue that a market bottom is in place. 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 $1,700.00. First resistance is seen at today’s high of $1,781.80 and then at $1,790.00. First support is seen at today’s low of $1,764.10 and then at $1,750.00.”
“September silver futures prices hit a four-week high today. September silver futures bears have the overall near-term technical advantage. However, a price downtrend has been negated and last Friday’s bullish weekly high close are clues that a market bottom is in place. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $21.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at today’s high of $20.51 and then at $20.75. Next support is seen at $20.00 and then at last Friday’s low of $19.825.”
On Tuesday gold began rising in the overnight London market and threatened $1790.00 in the New York cash market before traders sold the rally and gold settled. Increasing world tension has pushed the other safe-haven asset (the dollar) higher. The Dollar Index gained almost a full point from daily lows as Biden claimed responsibility for killing Al-Qaeda leader al-Zawahiri in a Kabul drone attack. The search for this Osama bin Laden’s replacement has been going on for 20 years and President Joe presents a warning “Justice has been delivered”.
Some believe gold has gathered support from the tension created by Nancy Pelosi’s visit to Taiwan. I’m perplexed as to what she might be considering. The talk of military response from China is nonsense, but the so-called relationship between us and China remains a merry-go-round. The reality is that both China and the US have common goals in a complicated world.
Is gold climbing the wall of worry or just biding its time hoping for that much touted dollar weakness? You will probably see a bit of both scenarios work on the short term. Still, higher gold prices encourage the bullish base and there must be some world safe haven demand.
A perhaps important development for gold would be the latest release from the Dallas Fed – US Likely Didn’t Slip into Recession Despite Negative GDP Growth. What exactly this means is still not clear. Actually, calling an official recession is complex, and sometimes it’s not official until after the fact. But if the FOMC decides that recession is less likely it would give them more latitude and a more powerful hand at controlling inflation with higher interest rates. Don’t jump out the window on any of these changes. You might find that the Fed will take their good old time to settle this mess. My guess, well into 2023, but we will dodge the bullet.
The short-term trade and the possibility of higher prices in gold is turning into a numbers game. The paper traders will ride the roller coaster between $1750.00 and $1800.00, happy to buy the dips and sell the rallies. Look for sell-offs, out of nowhere. The more astute technical guys will not sit up and take notice until gold pushes above $1800.00 with momentum. So, expect the continued rocky ride at the consumer’s expense.
On the day gold closed up $2.10 at $1771.10 and silver closed down $0.21 at $20.11.
Zaner (Chicago) – “While gold and silver prices continue to climb without broad fundamental support, fresh lower lows in the dollar again overnight have provided gold and silver with consistent buying interest especially since the dollar reversal on July 14th. With pattern breaking inflows to gold and silver ETFs yesterday it is possible that the three-week rally in gold futures has inspired some investment interest. Yesterday gold ETF holdings saw an inflow of 89,042 ounces raising the year-to-date gain to 3.7%. Silver ETF holdings yesterday saw an inflow of 281,822 ounces but holdings remain 11% lower year-to-date. While gold and silver prices delinked with inflation psychology into the March highs, widespread acceptance of a track toward global recession could introduce a measure of long profit-taking. The gold market is probably drafting support from a Reuters article suggesting that investors, traders, fund managers and others are attempting to remove Russian gold bars from their holdings. While some traders suggest the Pelosi visit to Taiwan has fostered some flight to quality buying, we discount that prospect. A limiting force in today’s action is the 50-basis point rate hike overnight from the Royal Bank of Australia. With the rise back above $1,775 in October gold, the next target begins at the bottom of a gap from December 2021 at $1,787. The silver market has yet to regain a past consolidation low support point up at $20.60, but the market could claw its way back to $21.00.”
On Wednesday gold pushed higher on the New York open ($1773.00) but again moved lower as traders sold the rally and the Dollar Index strengthened (107.00). The markets are yawning over Pelosi’s world tour. China does not like the attention. Their military drills are threatening but really just a show of strength. Whether the market will react remains to be seen.
The rise in dollar strength is the result of the latest comments by Fed officials Mary Daly and Charles Evans. “The Fed is “nowhere near” being done in its fight against inflation, said Mary Daly, the San Francisco Federal Reserve Bank president, in a CNBC interview. (MarketWatch)
There is really no news here. US inflation is looking at 41-year highs, but there is a reasonable division between the Washington deep thinkers. Some are plainly inflation hawks with no equivocation. When you hear from these folks you get down drafts in the price of gold.
Others realize the better path resides with the middle ground. Fight inflation but draw out the process to create as little damage as possible. These folks support current gold pricing, and they may eventually create a bullish windfall.
The professional paper trade favors the bearish gold scenario during this interest rate transition. Their default position will follow the technical indicators. But their conviction is thin because they are not sure the Fed can pull this “adjustment” off without creating damage. They are content to trade this “push” and “pull” market until a definable, longer-term trend appears.
With this many variables it makes sense to consider the larger picture. The first question centers around understanding longer term dollar strength or weakness. This is not a tough call; the Fed remains hawkish so higher interest rates will continue to cap gold gains. The second concern centers around world inflation and public demand. This is also a moving target, but the longer term favors higher inflation and the bullish gold scenario. But patience is necessary.
The outcome will not be known until the Fed puts to bed the question of recession. Falling crude oil is a minus for the inflation scenario but may be a nagging early recession warning.
Good advice – ignore the political noise. The problem is that not all Fed members are voting members. Which allows for nuance in what is presented by “officials”. This type of monetary system was created for a reason. It allows Chief Powell the ability to create a desired short-term result without changing any of the switches on this Rube Goldberg machine.
On the day gold closed down $13.10 at $1758.00 and silver closed down $0.24 at $19.87.
Zaner (Chicago) – “The bias today in gold and silver has shifted down in the wake of a 3-day high in the US dollar. The bear camp is also emboldened by a significant bounce in US treasury yields and from another large daily outflow from gold ETF holdings of 207,596 ounces. Fortunately for the bull camp in silver, silver ETF holdings saw an inflow yesterday of 2.8 million ounces. While early gains yesterday in gold were attributed to the range down move in the dollar index, the upside extension into the highs forged ahead of mid-session were thought to be the result of an escalation in tensions between US and Chinese military assets around Taiwan. Obviously, the tensions between the US and China were fostered because of the US Speaker of the House traveling to Taiwan and thereby recognizing Taiwan as a sovereign country. In retrospect, the silver bull camp should be disappointed by silver’s lack of strength in the wake of yesterday’s flight to quality rally in gold. In other words, silver remains focused on slowing physical demand in the event of a global recession. Gold might also have benefited from the lowest US treasury yields since April 5th in the Tuesday morning trade. Unfortunately for the bull camp, Treasury yields rose sharply after the markets interpreted the skirmish between the US and China as a negative to US and Chinese financial instruments. A large Mexican silver and gold producer (Fresnillo) saw its gold production decline by 28% in the first half while the company reaffirmed its silver production would remain within a previously forecasted range of 50.5 million ounces and 56.5 million ounces annually. While yesterday’s initial decline in treasury bond yields to the lowest level since April 5th propelled gold higher, comments from the Fed’s Evans yesterday should thicken resistance in gold with the Fed member indicating a 50-basis point rate hike in September was appropriate and that a 75-basis point rate hike in September could still be a consideration. Going forward, we remain very skeptical of the gold market uptrend particularly with volume and open interest falling off precipitously on the late July and early August rally!”
On Thursday the gold trade moved back to typically bigger than life. The overnight London and Hong Kong markets pushed higher ($1790.00), the domestic New York cash trade sold the rally and gold moved lower ($1774.00). Just as suddenly the market bounced higher threatening $1800.00. I’m sure that most traders had a headache before market close and the short paper are again considering options. I don’t think China’s use of rocket fire to underline their dislike of the Pelosi visit has much to do with higher gold. But rising tensions in that area does support higher prices in the metals. The basic reason gold surged was the continued weakness in the dollar and treasury yields. The Dollar Index moved almost a full point lower in two hours of trading! Still, reasons for this drop remain speculative. The most likely answer is that traders believe the Fed will be less hawkish. But this disregards reason and ignores the still fresh FOMC dialogue which claims their intention is to lower interest rates. Even if you equivocate and use the new dialogue – replace the word “inflation” with “price stability”. It is difficult to see how they can have their cake and eat it too. My secret bet, Powell may sense something in the numbers which suggests inflation has peaked. This would give everyone some wiggle room.
Let’s at lease have some fun with this latest up leg in the price of gold. Which might just be another anomaly in a confused market. I’m not that excited over today’s performance and I’m always suspicious when super-analyst Jim Cramer opines. But he enjoys a massive following.
This from Anna Golubova (Kitco) Is this ‘bizarre’ time for gold finally over? Gold price is about to rally and now is ‘the perfect time’ to buy, says Jim Cramer – CNBC’s Jim Cramer just updated his gold outlook, saying that now is the perfect time to get into the gold trade after what he described as a “bizarre period” for precious metals. Cramer shared the disappointment experienced by many gold bugs after gold failed to bring much-anticipated returns this year after peaking at new record highs back in March.
“It has been a bizarre period for precious metals. I am a big fan of holding some gold as an insurance policy against inflation or economic chaos. Historically, that has been very effective. But in recent years, it has blown up in our faces,” Cramer said Wednesday. At first, Cramer blamed competition from the crypto space as holding gold back. But when crypto markets collapsed this year, the situation has not changed.
“Last year, we had rampant inflation, and gold didn’t do much for you. I thought the culprit was crypto. That people who normally hide their money in gold were instead buying cryptocurrencies,” he said. “This year, the whole crypto ecosystem has collapsed. Meaning that gold doesn’t have much competition. And we’ve gotten insanely high inflation readings, the worst in decades. Yet gold is basically flat for the year.”
But as the public is giving up on gold, it might be the perfect time to get into the trade, Cramer said, citing chart analysis done by legendary market technician Larry Williams, famous for calling tops and bottoms in trading patterns.
“Williams finds that when small speculators get too bullish, it is almost always a sign that we are near a top. But when they get too bearish, it is almost always a sign that we got a bottom on our hands,” Cramer explained. “According to the latest Commitment of Traders report, small speculators are net long 92,690 contracts for gold, which is their smallest long position since May of 2019, right before we got a major boost in gold. In the last nine years, whenever their net long position has been this low, the actual metal has rallied, and the best selling points all came when they had large long positions.”
Back in March, when gold peaked above $2,000 an ounce, these small speculators were long 200,790 contracts, which was their largest net long portions in four years, Cramer pointed out. Cramer added that the price of oil is another great indicator of future gold price moves, noting that the precious metal tends to respond to changes in oil prices much more than any other inflation indicator.
“Price of oil pushed forward by eight weeks has been very powerful for predicting the price of gold in the past. Williams says that based on the price of oil in the next eight weeks, now is the time to buy gold. His forecast says it should be ready to rally here,” Cramer said. “I know it has been tough to bet on gold this year. But right now, the charts might finally be on your side.”
Cramer’s own view is not to bet against Williams when it comes to spotting a bottom on gold. “Charts suggest that gold could be ready to rally, and it might be the perfect time to do some buying,” he reiterated.
On the day gold closed up $30.50 at $1788.50 and silver closed up $0.23 at $20.10.
On Friday the bull’s anticipation of continued higher prices turned into a wet blanket as the jobs report suggests that recession may not be in the cards. The Dollar Index moved higher by almost a full point in less than two hours during the morning trade.
This remains a brutal paper market to trade and price oscillations may get worse if this latest employment information again emboldens the short paper momentum players. Traders will be carefully watching the US Consumer Price Index late next week for the latest read on inflation. But professional opinion as to outcome is all over the place. Ranging from mild and likely decreasing to hot and this inflation cycle will be with us for an extended period.
While gold’s latest run to the upside helped the bulls psychologically there are still powerful forces at work which favor the bears. And we may be well into 2023 before the smoke settles.
A conservative approach makes sense. Use the metals as a quiet savings account with no third-party obligation. This has been the main bullish argument in favor of physical gold and silver ownership since the government began messing with the financial system in the early 1970’s.
On the day gold closed down $15.60 at $1772.90 and silver closed down $0.28 at $19.84.
Platinum closed down $0.20 at $924.70 and palladium closed up $51.20 at $2128.70.
Zaner (Chicago) – “While the October gold contract failed to technically take out yesterday’s high in the early going today and in retrospect stalled right on psychological even numbers of $1800, the bias remains up. Clearly, the primary impetus behind yesterday’s sharp rally was increased geopolitical tensions between the US and China, which resulted in Chinese ballistic missiles overflying the Taiwan capital city! While some traders suggest economic uncertainty from today’s payroll report is adding to buying interest, we suspect that interest is very modest. With a holdout Democratic Senator agreeing to a $430 billion drug and energy bill, that is probably contributing some lift this morning. Not only were gold and silver futures in vogue yesterday, but investors moved money into gold and silver mining shares. Unfortunately for the bull camp both gold and silver ETF holdings saw outflows yesterday of 81,050 ounces in gold (year-to-date gold holdings are now up only 3.3%) with silver seeing an outflow of 352,347 ounces. Obviously, weakness in the dollar, reports that China may carry out sustained military exercises around Taiwan and a ratcheting up of global recession fears provides the gold, silver, palladium, and platinum markets with ongoing flight to quality buying interest again today. Furthermore, it goes without saying that the slide in US treasury yields added to the upward impetus in gold and silver this week. However, given the strength in gold and silver prices this week, the impact from the US monthly nonfarm payroll report could prompt significant price volatility. On the other hand, if the US jobs report adds to anxiety surfacing from global recession fears flowing earlier this week, the metals trade will be forced to decide if there is a realistic potential for inflation instead of deflation. It is possible that a disappointing US nonfarm payroll report will result in a pummeling of the dollar which in turn could shift the focus of the gold and silver trade toward bullish currency influences. Unfortunately for the bull camp, the late July and early August rally in gold of $114 has yet to inspire injections into gold ETF holdings. While many analysts expect the US interest rates to remain at low levels, a disappointing US nonfarm payroll report could send yields tumbling further and in turn ignite further speculative buying of gold and silver. In conclusion, the technical and fundamental bias in gold is pointing upward, but the risk and reward ratio of buying October gold near $1,800 (after a rally of $114) is unattractive.”
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