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Gold – Inflation – Cooling or Intransigent?

Gold – Inflation – Cooling or Intransigent?

Commentary for Friday, March 31, 2023 ( – Today gold closed down $11.30 at $1969.00, and silver closed up $0.18 at $24.08. The gold trade early Friday was interesting in that the price of gold challenged the familiar $2000.00 level as the release of the Personal Consumption Expenditures (PCE) came in a bit cooler than expected – a plus for the bullish gold scenario. But traders sold the rally at $1988.00, pushing prices as low as $1976.00 before some mild bargain hunting steadied the day’s trading. Still, gold closed on lows for the day and mildly in the red. What happened to the conviction that the Fed may be turning dovish? First the PCE was only mildly cool, the inflation beast is still alive and well. Second, and probably more importantly – over the past month gold is higher by $150.00. Traders decided to take profits today. And will continue to sift through fresh talk by the Governors as to what they make of the current inflation picture. Is inflation cooling or intransigent? Everyone has an opinion. Next week is a short week with Easter on Sunday. The markets will be closed on Good Friday so my bet is that trading will be thin and quiet. We will also be closed on Good Friday. Last Friday gold closed at $1982.10 / silver at $23.25 – on the week gold was down $13.10 and silver was higher by $0.83. There is still plenty of turmoil and not many large sellers.

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On Monday gold market swooned in the overnight Hong Kong market ($1944.00) but the dramatically lower prices were bought both in the London and domestic New York market. Still gold finished the day solidly in the red on what looks like another round of profit taking.

There are at least two factors to consider. First, this weakness in gold, despite a soft dollar, detracts from the bullish “inflationary” scenario. And second, it suggests the domestic trade still believes the Fed will not abandon its aggressive interest rate policy against rising inflation.

The Fed’s overall plan, however, offers them many options. And timing should not be overlooked. The next FOMC meeting will take place May 2nd and 3rd – far enough away for the financial markets to settle down. Yet close enough for the Fed to release customized statements if our own Powell cohorts disagree with the latest economic or political input.

Look for another round of “ups and downs”, likely based on day-to-day conjecture. The current interest rate threat did not go away but it has stopped being an uncertain present threat.

This remains a tough work in progress. And unfortunately, we are not guaranteed the hoped for and now famous soft handing. But interest rates are higher, and all markets are adjusting accordingly. The sun is still shining and most everyone will enjoy less drama.

Reuters (Bharat Gautam) – Gold loses over 1% as investors seek riskier assets – “Gold prices fell more than 1% on Monday as worries over a crisis in the banking sector subsided, prompting investors to scale back safe-haven trades in favor of riskier assets like equities and crude oil. There is a sense of calm in the markets and a flight back into some of the risk-on assets, and all the safety trades like gold are starting to sell off, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. A buyer for Silicon Valley Bank’s deposits and loans helped Wall Street’s main indexes open higher, sending gold further below the $2,000 mark breached last week. “Much of the rally on the gold market was really short-covering,” Streible said, adding that prices were likely going to continue to come under pressure. Recent banking sector stress and the possibility of a follow-on credit crunch bring the U.S. closer to recession, Minneapolis Fed president Neel Kashkari said. However, U.S. Federal Reserve officials said there was no indication financial stress was worsening. “After kissing the psychological $2,000 level last week, bears exploited this resistance to attack. Appetite for the precious metal has also been dampened by a stabilizing dollar and mixed signals on monetary policy from the Fed,” said Lukman Otunuga, analyst at FXTM. Last week, the Fed indicated it was on the verge of pausing further increases in borrowing costs, boosting non-yielding gold’s appeal. On the physical front, China’s February net gold imports via Hong Kong nearly tripled from the previous month.”

On the day gold closed down $29.70 at $1952.40, and silver closed down $0.20 at $23.05.

Zaner (Chicago) – “With reports of buyers stepping forward for some assets of the Silicon Valley Bank and a regional Fed Pres. suggesting the US economy is drawing closer to recession because of the bank sector turbulence, a measure of corrective action in gold and silver is justified. However, a demand underpin for prices was seen overnight following reports that Chinese February imports of gold via Hong Kong rose to 64.8 tons versus only 22.2 tons in January. In a suspect but supportive development at the end of last week, the Russian central bank also indicated it has added 1 million ounces of gold to its reserves since the beginning of the Ukraine war. While the Russian bank indicated their gold holdings were 74.9 million ounces (worth $135 billion), sanctions reportedly froze $300 billion worth of Russian reserves outside of Russia. Furthermore, according to several different global entities, total Russian energy receipts continue to be robust, and financing of the war will continue. However, some analysts suggest the Russians may have switched a large portion of their dollar and euro holdings into the Chinese currency and that may justify some of the dollar weakness over the last several months. Fortunately for the bull camp, investors continue to push money toward gold ETF instruments, with Friday posting a net inflow of 48,594 ounces and in turn fostering potential early signs of a trend of investment. Silver ETF instruments also saw an inflow of 836,096 ounces on Friday, but those holdings remain 1% lower year-to-date. Clearly, a moderation of global angst over bank sector issues has moderated and without a fresh bank victim or a rumor of a fresh victim we expect some flight to quality premium to drain from both gold and silver prices. At least to start this week the markets do not appear to be overly interested in news of Russia potentially moving tactical nuclear weapons into Belarus nor is the trade sensitive to the intense fighting between Ukraine and Russia in the East. It should be noted that gold in certain currency prices has already reached record levels which could be a disincentive for some would-be buyers. While June gold failed to hold a minimal upside breakout on Friday, the market was obviously overbought from a 2-day surge of $70, and the new high for the move was forged on strong trading volume and an uptick in open interest and that makes the downside reversal this morning significant and likely to extend. Critical support in June gold is $1,964.40 with similar key support in silver pegged at $22.825. The Commitments of Traders report for the week ending March 21st showed Gold Managed Money traders added 21,593 contracts to their already long position and are now net long 106,955. Non-Commercial & Non-Reportable traders are net long 198,863 contracts after net buying 30,180 contracts. Silver positioning in the Commitments of Traders for the week ending March 21st showed Managed Money traders went from a net short to a net long position of 886 contracts after net buying 4,648 contracts. Non-Commercial & Non-Reportable traders net bought 3,659 contracts and are now net long 14,553 contracts.”

On Tuesday gold market seemed to have caught a short-term bottom bounce in Hong Kong last night ($1950.00). And this firmer price structure was reflected in the New York cash trade in a rather choppy but upward trend before turning flat between $1970.00 and $1980.00. But is rather remarkable that gold finished nicely into the green for the day.

Some physical traders believe this market remains shaky and safe haven buying is no longer in the “emergency” stage. I will leave that decision up to the new buyers. But there is still plenty of residual banking angst around the corners of this trade and more than mild bargain hunting considering the rather strong finish to the upside today.

The reason can be seen in the wide range of accusations coming from the congressional investigation into why “warning signs” were ignored in the collapse of Silicon Valley Bank and Signature Bank. This is the typical politicized spectacle when “after the fact” information is used to connect the dots and make accusations. I guarantee Congress will take no responsibility in their role of providing crazy amounts of fiat cash to all the banks. And in fact, will not modify the crazy fractional banking system which rolls over and covers up bank problems.

We are seeing some increased public selling of gold bullion across our trading desk. At the same time the general public remain ready buyers of quality bullion products. Especially those which are ready for immediate delivery. Delayed delivery for large orders remains popular but, as usual, requires patience. Premiums are moving lower, a plus for the physical market. The number of new accounts continues to grow. And there is a small amount of new buzz in today’s trade.

On the day gold closed up $20.00 at $1972.40, and silver closed up $0.27 at $23.32.

On Wednesday gold was quietly moving between $1961.00 and $1971.00 as the “banking crisis” continues to dissipate. And the bulls must be somewhat disappointed that yesterday’s move into the green did not create any stir with the momentum players. The equities market this morning looks pretty good, which might suggest higher interest rates are not the end of the world for stocks but are still doing their job at keeping gold prices under pressure.

FXEmpire (Christopher Lewis) – Gold Price Forecast – “Gold markets have fallen a bit during the trading session on Wednesday as we continue to see a lot of noisy behavior, just underneath the crucial $2000 level. The $2000 level of course makes for good headlines, and it’s also an area that we have seen action at previously. If we do pull back from here, I think there are plenty of support levels underneath worth paying close attention to. Looking at this chart, the $1950 level underneath would be an area of interest, as the futures market gapped from that level, and it is of course a psychologically important figure. If we were to reach that area, I would be looking for some signs of support that we can jump on, but if we do break down below that level, then we need to start looking toward the 50-Day EMA, presently just below the $1900 level. On the upside, if we can break out to a fresh, new high, it opens up the possibility of moving to the $2050 level. The $2050 level then opens up the possibility of a move to $2100. Keep in mind that gold seems to be used at the moment for wealth preservation more than anything else, so it does make quite a bit of sense that we have seen gold rally, even in the face of a strengthening US dollar at times. That being said, the interest rate situation is all over the place, so that will more likely than not continue to cause havoc. Ultimately, as rates rise, that often can work against the value of gold, but as of late, we have seen so much havoc in the banking system that the correlation may be breaking down of it. Ultimately, we are in an uptrend, so it is worth keeping that in mind, but it’s also worth keeping in mind that we are in an area that has been massive resistance previously, so therefore you need to keep in mind that it is going to be very difficult to get above. We are going to need to see some type of fundamental reason for the market to take off, but with all of the concern that we are presently seeing, one thinks that it would only be a matter of time.”

On the day gold closed down $6.30 at $1966.10, and silver closed up $0.06 at $23.38.

On Thursday the gold market opened on the quiet side as analysts pondered the uncertain next move in the FOMC interest rate model. But the pricing woke up as the Dollar Index lost a half point in the early morning trade. Which might suggest their working model may be flexible.

Today’s fresh upward movement and bullish technical picture encourages momentum players who believe sentiment will shift toward a more dovish FOMC. This kind of optimism is not misplaced but it is a bit premature in my mind. Nonetheless gold finished solidly in the green, once again challenging tough overhead resistance at $2000.00.

This Friday traders will look at Personal Consumption Expenditures (PCE), which measures how consumers spend their money and includes their saving and buying habits. This measure is held in high regard by the FOMC, and a hot reading suggests further hawkish Fed interest rate planning. Judging sustained inflation in the short term leads to problems but has become a national pastime. If tomorrow’s PCE reading is optimistic it would indicate that inflation is slowing, and the economy is resilient. Still, I remain cautious, looking for a “middle ground” reading and another quarter point interest rate hike which will keep a lid on gold prices.

Reuters (Deep Kaushik Vakil) – Gold pares gains as higher yields limit dollar support – “Gold prices pared earlier gains on Thursday as higher bond yields dulled bullion’s shine, limiting the upside from a weaker dollar as investors waited for U.S. inflation data to gauge the Federal Reserve’s next move. The key driver is the downward move in the U.S. dollar index, combined with “markets expecting a somewhat early Federal Reserve pivot to a more dovish stance,” said Bart Melek, head of commodity strategies at TD Securities. Data showed U.S. gross domestic product rose by 2.6% in the fourth quarter. The Fed’s favored inflation gauge, core personal consumption expenditures (PCE), is due on Friday. Investors will be looking for clues about the path of the U.S. central bank’s monetary policy. According to the CME FedWatch tool, markets are pricing in about a 50-50 chance of the Fed maintaining rates at current levels at its May meeting. “Anything below expectations on the core (PCE) would imply that there is less need or requirement for tight monetary policy from the Federal Reserve,” Melek added. Wall Street’s main equity indexes opened higher while benchmark 10-year Treasury yields edged up, as fears of a banking crisis eased but investors remained cautious about the impact bank failures would have on the economy. “We expect the gold price to fall to around $1,900 per troy ounce – previously $1,800 per troy ounce – in the coming months,” Commerzbank wrote in a note.”

On the day gold closed up $14.20 at $1980.30, and silver closed up $0.52 at $23.90.

On Friday gold pricing disappointed the bulls but the losses were mild into the weekend. The hopes for a less aggressive Fed interest rate policy support what looks like the second quarterly gain in gold prices, amid banking problems and safe haven demand.

Reuters believes that the banking issues will not dissipate quickly. This also will help support physical safe haven demand for the metals. “The mini-banking crisis has seen yields fall considerably and interest rate expectations pared significantly back, which has propelled gold higher,” said Craig Erlam, senior market analyst at OANDA. “There’s likely to be significant scarring on the back of the issues in the banking sector which will slow the economy and enable central banks to do less, even cut rates this year.”

Opinions among dealers in physical metals vary widely but generally fall into two groups. Those that remain bullish and believe higher prices in gold and silver are only a matter of time. This year Goldman Sachs is looking for $2500.00 gold. And those that remain bearish because they belief the Fed will continue to raise interest rates. Both groups agree however that they have not seen this much public interest in gold and silver bullion since the 2008 real estate collapse.

On the day gold closed down $11.30 at $1969.00, and silver closed up $0.18 at $24.08.

Platinum closed up $8.90 at $994.10, and palladium closed up $1.40 at $1466.00. This week we saw a jump in buying interest in platinum and palladium. Both are too cheap in my mind.

Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry or Eric. Most employees have been vaccinated – if this is a concern ask for more information. 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 get us back to normal and our traditional business model. Thank you for your patience. Richard Schwary

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