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Gold – Is Inflation Cooling?

Gold – Is Inflation Cooling?

Commentary for Friday, July 28, 2023 ( – Today gold closed up $15.00 at $1960.40, and silver closed up $0.13 at $24.37. Can’t say this was a great week for gold, even though the reaction to Powell’s interest rate hike was muted. And this rate hike was not even a watershed moment if you consider the larger timing picture. Jerome’s aggressiveness might suggest his political patience is thin. The firm rise in the price of gold today suggests that investors bought yesterday’s dip. Whether they will remain interested depends on how aggressive the Fed becomes over the longer term. Gold holding in the $1900.00 range is a nice plus for the bulls going into the weekend. It should be clear that the FOMC is rolling the dice and hoping for a good outcome. As usual the price of gold and stocks will adjust along the way. But my feeling is that we are back to a Goldilocks market for both – not too hot and not too cold. Last Friday gold closed at $1964.30 / silver at $24.70 – on the week gold was down $3.90 and silver was down $0.33. Another quiet summer week in the metals despite the ruckus.

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On Monday the price of gold remained stuck in neutral waiting for the fresh Fed interest rate news. The FOMC is meeting Tuesday and Wednesday of this week, and Fed Chair Jerome Powell will have comments at the ready at the press meeting after the markets close on Thursday. The notion that the Fed will “pause” this time around is getting attention. But the result of such a change in pace does not mean gold will push substantially higher.

Powell will likely suggest that interest rate hikes are right around the corner. This will at least support our shiny friend in the established channel between $1940.00 and $1960.00.

I’m worried about higher interest rates. It is worth noting, however, that the prices of both gold and silver look stable. Gold at $1950.00 and silver at $24.00 suggests a bit of optimism.

Inflation is slowing, which figures with interest rates at 5% but a continued downtrend may not be in the cards. A 3% inflation rate makes Wall Street happy and really is still cheap money when viewed from the longer term.

It is interesting that this is the definition of a “soft landing”. And has been Powell’s favored outcome since the beginning of this unwinding mess. But there are plenty of doubters in the peanut gallery, and the process will continue in some form through next year.

Reuters (Deep Kaushik Vakil) – Gold trades narrow range as Fed verdict draws near – “Gold prices traded a tight range on Monday as traders braced for a widely anticipated interest rate hike along with clues on future monetary policy from the Federal Reserve this week. “Gold is slow and steady, with traders betting that the Fed is getting close to their point where they stop hikes,” said Bob Haberkorn, senior market strategist at RJO Futures. Bullion may have found some safe-haven demand after Russia destroyed Ukrainian grain warehouses on an export route for Kyiv after pulling out of the Black Sea grain deal last week, Haberkorn added. But the focus was still on the Fed’s decision on interest rates on Wednesday, followed by the European Central Bank on Thursday, with both seen hiking rates. Gold is highly sensitive to rising interest rates as they increase the opportunity cost of holding non-yielding bullion. “Any dovish surprise, particularly from the Fed, could be positive for gold, with good chances of seeing a new attack to the $2,000 mark,” said Carlo Alberto De Casa, market analyst at Kinesis Money, in a note. The dollar index inched 0.2% higher, limiting gold’s upside by making it more expensive for holders of other currencies. Gold priced in euros hit its highest since July 5 earlier in the day after data showed euro zone business activity shrank much more than expected in July. UBS analysts in a note predicted platinum would be under-supplied for the rest of 2023 due to substitution in auto catalysts and lower South African production.”

On the day gold closed down $4.00 at $1960.30, and silver closed down $0.26 at $24.44.

On Tuesday gold weakened in early trading touching daily lows ($1952.00). But managed to claw its way back to almost unchanged on the close. A plus for the short-term gold scenario.

On the minus side of the gold ledger – consumer confidence is now at two-year highs and the DOW is on a record 12-day winning streak, suggesting less safe haven demand.

This week will give traders something more than speculation as the Fed unwraps their latest interest rate intention. To raise or not to raise is the question? The public is feeling better about the economy, but the analytics fear recession. I believe the US economic picture is a mixed bag which may or may not influence the metals in the short term.

Today business has been quiet across our trading desk, but volume numbers are increasing because the public bought this latest dip. Which is surprising considering that gold is coming off recent highs ($1980.00). The CFTC claims that hedge funds are reconsidering gold. Perhaps because these higher interest rates do not have investors hiding under the bed.

Reuters (Brijesh Patel) – Gold firms as spotlight shifts to U.S. Fed meeting – “Gold prices edged higher on Tuesday on expectations that the U.S. Federal Reserve will likely end its monetary tightening cycle after a widely expected rate hike this week. “Gold is expected to be in a range-bound trade before the Fed decision. But there is optimism here that the Fed is almost done with rate hikes and that will support the market,” said Edward Moya, senior market analyst at OANDA. The focus is on a series of central bank meetings this week, starting from the Fed policy decision on Wednesday, followed by the European Central Bank (ECB) on Thursday and the Bank of Japan a day later. Markets anticipate 25 basis-point rate hikes from both the Fed and the European Central Bank, but investors will await clues on the outlook from policymakers, especially from Fed Chair Jerome Powell. “The market will be looking out for Powell’s speech tomorrow and if it seems like they’re more likely leaning towards one more rate hike, then that would be bad news for gold,” Moya said. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding it. Meanwhile, the dollar and benchmark 10-year U.S. Treasury yields ticked higher on the day, reducing the appeal of non-yielding bullion. China’s top leaders pledged on Monday to step up policy support for the economy, focusing on boosting domestic demand. “The remarks out of Beijing to work on more stimulus for the economy will be positive for retail demand for gold by Chinese consumers,” said Peter Fertig, analyst at Quantitative Commodity Research.”

On the day gold closed up $1.80 at $1962.10, and silver closed up $0.24 at $24.68.

On Wednesday the gold market closed quietly, waiting for the latest Jerome Powell pronouncement. The decision to raise interest rates a quarter point was unanimous. So much for all the speculation about a “pause”, as Jerome and his cohorts came out swinging. I’m not surprised. The Fed’s top priority has been and will continue to be the fight against inflation.

It is a bit surprising that the aftermarket trade in gold and silver showed little reaction to the quarter point hike in interest rates. This might suggest a certain kind of consistency in gold pricing these days, as the market had already adjusted to the change. But tomorrow will be a better gauge as to how traders paper traders see this latest hike.

The point to keep in mind is that the Chief was characteristically subtle in the scheduled press conference. When asked about improving inflation numbers, his answer was clear, one good month does not make a trend.

When pushed on the subject, he gave the same answer and claimed there is plenty of time between now and the next meeting to assess trends. What sense does it make to speculate at this point? This process could easily turn into a political football, so his caution is smart.

FXEmpire (James Hyerczyk) – Fed Eyes Economic Resilience, Inflation: Powell’s Hawkish Surprise? “The Federal Reserve faces an important decision at its upcoming meeting: whether to raise interest rates by 25 basis points or maintain the status quo. While it is widely accepted that a rate hike is likely, the real debate lies in the Fed’s future actions. Based on the current economic indicators, it is arguable that the Fed can and will raise rates in September while hinting at a subsequent pause after that. Here’s why:

The Economy’s Resilience – The economy has shown remarkable resilience despite cooling inflation. The recent 2.5 percent gain in the S&P 500 and a surge in consumer sentiment about the economy indicate continued confidence. This positive outlook may support the notion of a soft-landing for the economy.

Inflation and Employment – The Fed is closely monitoring inflation and employment levels. While inflation remains above the target, the strong job market is providing consumers the means and confidence to keep spending. However, officials believe that wage inflation needs to cool down further to reach the Fed’s 2 percent target. Striking a balance between tighter labor markets and moderating inflation will be crucial.

Caution and Contingencies – The Fed must exercise caution to avoid overdoing rate hikes, which could lead to new risks such as excessively low inflation. It is important for the central bank to keep its options open and consider the implications of each rate hike carefully.

Optimistic Economic Outlook – Recent data showing a slowdown in inflation and steady job growth have led economists to be more hopeful about the economy’s resilience. Goldman Sachs’ reduced odds of a recession and a decline in downturn expectations in other surveys are positive indicators.

Balancing Trade-offs – The Fed needs to strike a delicate balance between controlling inflation and supporting a robust job market. While rate hikes have effectively brought inflation under control, they have also led to higher borrowing costs and tighter credit flows. The central bank must weigh these trade-offs carefully.

Forward Guidance – Federal Reserve Chair Jerome Powell’s remarks have indicated a potential pause in rate hikes after July, signaling a more moderate pace in future increases. But he has also expressed his desire to bring inflation down to the Fed’s target zone. With the economy strong, I believe Powell will step on the gas pedal one more time before braking. Forward guidance will be crucial for investors to anticipate the Fed’s future actions.

Conclusion:  Don’t Be Surprised by Powell’s Hawkish Tone – The Federal Reserve’s path towards a soft-landing for the economy remains uncertain. However, based on current economic indicators, a rate hike in July is expected, with the possibility of further increases in September. The Fed’s cautious approach and forward guidance will play a critical role in shaping the trajectory of future rate hikes. Striking a balance between inflation control and supporting a strong job market will be the key challenge for the central bank moving forward. As the economic outlook remains dynamic, the Fed will remain vigilant in responding to data and developments, ensuring a prudent and well-calibrated approach to monetary policy. That being said, don’t be surprised if Powell comes across as hawkish.”

On the day gold closed up $6.80 at $1968.90, and silver closed up $0.15 at $24.83.

On Thursday gold was not too happy about the Fed’s quarter point hike. Prices dipped on the opening and eventually touched $1940.00 before flattening out and trading on both sides of $1945.00. It is probably too early to say this is the end of short-term weakness, this market may remain defensive through next week.

The professionals will debate whether this is the end of the higher interest rates. And the best gold enthusiasts can do is wait for the Chief’s next inflation assessment. And while this does not sound overly optimistic – it may lay the foundation of higher gold prices throughout next year.

Reuters (Brijesh Patel) – Gold drops over 1% as upbeat US data lifts dollar, yields – “Gold prices slipped more than 1% on Thursday, weighed down by a stronger dollar and an uptick in bond yields after stronger-than-expected U.S. economic data. “There was a one and two punch on gold with a better-than-expected initial claims numbers showing that the strength of the U.S. labor market is resilient,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “Then also that surprise upside expectation in GDP data as well shows you that if there is any recession, it’s just not no one seeing it right now. So it paves the way for higher for longer on interest rates.” Data showed the U.S. economy grew faster than expected in the second quarter as labor market resilience underpinned consumer spending. A separate report from the Labor Department on Thursday showing initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22. Following the data, the dollar index jumped 0.7% against its rivals, making gold more expensive for other currency holders. The benchmark U.S. 10-year yield climbed to 3.90%. On Wednesday, the U.S. Federal Reserve raised interest rates by 25 basis points as expected. Markets priced in 57% odds of the Fed holding rates for the rest of the year, according to the CME FedWatch tool. Meanwhile, the European Central Bank (ECB) raised interest rates for the ninth consecutive time on Thursday and kept the door open to further tightening.”

On the day gold closed down $23.50 at $1945.40, and silver closed down $0.59 at $24.24.

On Friday the price of gold was firm, supported by a half point dip in the Dollar Index. A short-term plus for the bulls. In my opinion Chief Powell will now work at tapping down Wall Street expectations and interest rate speculation. The next FOMC meeting is September 19th and 20th and is described as a Meeting associated with a Summary of Economic Projection. Gold and silver pricing are a difficult call but by that time a range of “value” might be established.

Reuters (Brijesh Patel) – Gold rebounds as dollar eases after US inflation data – “Gold rose on Friday after a sharp fall in the previous session, helped by a slight retreat in the dollar after signs of cooling U.S. inflation raised bets that the Federal Reserve will likely end its monetary tightening cycle. U.S. annual inflation slowed considerably in June. Inflation as measured by the personal consumption expenditures (PCE) price index increased 0.2% last month, the Commerce Department said on Friday. “The core PCE, which is what the Fed really looks at, came in line with estimates. It really wasn’t much of a surprise. Also, the dollar is weaker today and is giving a bit of a boost for gold,” Edward Meir, a metals analyst at Marex, said. “I think the Fed does not really mind seeing the stronger data as long as the inflation numbers continue to come down. The Fed is probably done raising rates and I would in general be inclined to buy the dips on gold.” Gold slipped nearly 1.4% on Thursday to register its worst day in nearly a month after data showed the U.S. economy grew faster than expected in the second quarter and weekly jobless claims fell, boosting the dollar. However, the dollar was down 0.1% against its rivals on Friday, making gold less expensive for other currency holders. Both the U.S. central bank and the European Central Bank raised interest rates this week and kept the door open to further tightening. Rising interest rates increase the opportunity cost of holding non-yielding bullion.”

On the day gold closed up $15.00 at $1960.40, and silver closed up $0.13 at $24.37.

Platinum closed up $0.60 at $937.60, and palladium closed down $3.00 at $1228.70.

Jim Wycoff (Kitco) – “Technically, the gold futures bulls and bears are on a level overall near-term technical playing field. A four-week-old uptrend on the daily bar chart has been negated. Bulls’ next upside price objective is to produce a close in August futures above solid resistance at the July high of $1,989.80. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at $1,960.00 and then at $1,975.00. First support is seen at this week’s low of $1,941.70 and then at $1,925.00. The silver bulls have the slight overall near-term technical advantage. However, a four-week-old uptrend on the daily bar chart has been negated. Silver bulls’ next upside price objective is closing September futures prices above solid technical resistance at the July high of $25.475. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at $25.00 and then at this week’s high of $25.325. Next support is seen at this week’s low of $24.18 and then at $24.00.”

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