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Gold – Looking for Encouragement

Gold – Looking for Encouragement

Commentary for Friday, July 15, 2022 (www.golddealer.com) – Gold closed down $2.10 at $1702.40 today and silver closed up $0.38 at $18.55. The best you can say about gold going into this weekend is that pricing has turned flat. And our shiny friend is trading slightly above $1700.00. But with gold looking to its fifth weekly loss, the bulls are rightly discouraged that little buying interest has developed. Still, this market offers its usual contradictions. The manufacturer told us this morning that Pamp Swiss 1 oz and 10 oz gold bars are sold out. So, these popular choices now join the ranks of Delayed Delivery. Their best guess – perhaps September! And to add insult to injury the premium on most popular gold bullion coins is moving higher. This would suggest that once the metals settle down. Meaning the Fed has achieved their goals, the physical market may turn into another delayed delivery mess for quality bullion products. Last Friday gold closed at $1740.60 / silver at $19.17 – on the week gold closed down $38.20 and silver was lower by $0.62.

Important Notice – FedEx is no longer having people sign for packages, they are scanning IDs. We have complained to FedEx, but they remain resolute. Scanned identification is safer, but if you have a problem with this decision, please make your feelings known to FedEx. Unfortunately, the present delivery time for the USPS alternative is 2-3 weeks, but that should soon be improving.

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 understanding.

On Monday gold held up surprisingly well considering the Dollar Index saw a 20 year high today (108.00). To put that in perspective the index has moved up 3 full points this past week! Even with gold at 9-month lows, traders expect a left-footed market trying to adjust to new and aggressive Fed interest rate policy. I don’t think there is much chance we will soon see a reversal in the FOMC objective of slowing inflation. Last month’s consumer price index will be out Wednesday and if inflation remains hot, you could see continued downward drift but nothing dramatic. My initial reading of the tea leaves suggests a quiet trading week.

The best bullish guess is that considering the beating our shiny friend has taken this month alone we might see light bargain hunting if traders believe gold or silver are oversold. It is always worth mentioning that from a practical standpoint – eager buyers are keeping their powder dry waiting for this downdraft to settle into something which is actionable.

Hardline bullion players have returned to mild bargain hunting. And the cash market in Los Angeles remains alive and well regardless of relative pricing for specific bullion products. Even with the number of bears in the woods increasing longer term and committed bullion players keep their longer-term perspective. Reuters – “Meanwhile, Fed’s Esther George, a dissenter at the central bank’s 75 bps increase last month, said abrupt changes in rates “could create strains” in economy. But growing pessimism over the state of some economies in Asia, and geopolitical instability to some extent, are limiting gold’s losses, as bullion remains the go-to safe haven during times of trouble, said Ricardo Evangelista, senior analyst at ActivTrades.

Reuters also offers a life raft for the still wobbly safe haven demand. “The bond market is pricing in a sharp deceleration in inflation over the next year, as aggressive tightening by the Federal Reserve to counter the steepest surge in prices in a generation ramps up recession concerns. The deceleration, which economists also call disinflation, is characterized by a slowing of the rise of overall prices and likely would be a welcome respite for financial markets.”

Finally, the fact that Musk bailed on the $44 billion Twitter deal has little to do with the price of gold. But it should suggest a small red flag has been posted on the overleveraged financial horizon. For the present few traders see these storm clouds developing into something dangerous. I am not overly worried unless the Fed cannot control inflation. But giant speculations like the Twitter deal, which come out of nowhere and disappear as quickly should not be considered another day at the Wall Street office. There is an immense mountain of money being drained from a system which has gotten used to a free lunch. The Warren Buffett quote comes to mind. “Only when the tide goes out do you discover who’s been swimming naked.”

On the day gold closed down $10.60 at $1730.00 and silver closed down $0.10 at $19.07.

On Tuesday New York spot gold varied between $1738.00 and $1723.00 in a day of back-and-forth trading which suggests a market waiting for the next confirmation of higher interest rates from FOMC. Today’s trading pattern was a carbon copy of yesterdays in that gold closed on lows for the day. The trading mood remains dark unless you are shorting this market. Which I would not suggest makes any sense with the number of variables changing from day to day.

The CME FedWatch Tool provides a countdown to the next FOMC meeting and includes an approximation and probability of the next rate hike. No one knows for sure what the Fed will do between now and the end of this month. But the smart money suggests it will raise interest rates ¾ of a point, which is a heavy hand considering the growing talk of recession.

Gold and the stock market will then reassess and adjust their pricing to reflect this new interest rate reality. The Europeans are faced with a similar set of higher interest rate “woes” and Russia will likely use gas supplies as a political weapon. Now it is not as though the entire world is going bankrupt but the “worry meter” has moved higher these past few months. And Chief Powell does not sound like he wants to hold anyone’s hand.

S&P Global Ratings: Beth Ann Bovino, the U.S. chief economist, writes that “economic momentum will likely protect the U.S. economy from recession in 2022.” She puts the probability of a recession at 40 percent, adding that “it’s hard to see the economy walking out of 2023 unscathed.”

Crude oil could also become a nightmare. Reuters – “The global price of oil could surge by 40% to $140 per barrel if a proposed price cap on Russian oil is not adopted, along with sanction exemptions that would allow shipments below that price, a senior U.S. Treasury official said.”

On the day gold closed down $6.70 at $1723.39 and silver closed down $0.17 at $18.90.

On Wednesday gold remained off balance as the June consumer price index came in hot (9.1%) beating the Dow Jones estimate of 8.8% according to Jeff Cox (CNBC). “CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel.”

Gold pricing was a bit surprising, in that on the initial news gold fell to early lows on the day ($1710.00) which was expected. But traders bought the dip and pushed the market to $1740.00. The interest rate story is turning into an old-time western shoot out as the Bank of Canada opted for a full point rise, pushing their interest rate to 2.5%! And this hawkish background supports the notion that the US will also be aggressive as our inflation numbers reach 41-year highs. President Joe blames the greedy corporations for this inflation mess, and yet Biden’s approval rating rose three percentage points this week to 39%, rebounding from a week earlier when it matched the lowest level of his presidency (Reuters/Ipsos opinion poll).

Rising interest rates push investors into buying safe-have dollars. But in this case the Dollar Index fell a half point, which supported the price of gold. This late bounce to higher ground also looks like a short covering rally. And some analysts suggest that while gold has taken a bath this past 30 days, falling from $1840.00 through $1720.00, it is being steadily adsorbed. Which will support the bullish scenario as the FOMC arrives at a workable interest rate/economic formula.

On the day gold closed up $10.90 at $1734.20 and silver closed up $0.24 at $19.14.

Zaner (Chicago) – “All eyes are fixed on today’s US CPI report with the trade ultimately attempting to determine if inflation has peaked. Unfortunately for those hoping for a moderation of inflation the overnight newswires showed hotter than expected inflation in Germany, France, and Spain. In fact, annualized consumer price inflation in Spain is running at a 10% clip while a beleaguered German economy still managed to produce an annualized inflation rate of 7.6%. At this point, we are not sure what factors gold and silver would rally off as bullish sensitivity has been minimal to several supportive developments recently. Several weeks ago, gold and silver would have been lifted by the significant drop in US treasury yields and/or would have been lifted by economic uncertainty thrown off by the most inverted US yield curve in 12 years. Gold and silver are also not showing correlation with equity prices, and strangely have not been lifted for months despite evidence of surging inflation from every corner of the globe and nearly every physical commodity market. Therefore, we contend gold and silver are once again classic physical commodity markets with prices determined by the market’s expectations of future physical demand, which in turn means the outlook for the economy rules upcoming price direction. Investment demand for gold and silver remains poor with gold ETF’s posting the 10th straight daily outflow of 140,575 ounces and silver ETF holdings posting a 9th straight outflow with a significant 1.2 million ounces exodus bringing the year-to-date outflow up to 62.3 million ounces! However, going forward, the focus of gold and silver traders could change aggressively with global scheduled inflation readings to shape rate hike estimates, mold recession views and result in significant gyrations in currencies. It should be noted that treasury bond prices are also trading counter intuitively with hot inflation readings serving to lift prices off views that sharply higher rates will increase the odds of recession and increase flight to quality buying of treasuries. In conclusion, we expect the opposite reaction in gold and silver from historical action where a moderation of inflation results in a relief/short covering rally in prices. In our view, all physical commodities need an abatement of inflation just to halt recent liquidation trends.”

On Thursday gold continued its steady drift to lower ground as analysts now believe the expected ¾ point interest rate hike will turn into a full point by the end of this month. The reasoning is simple enough, the Fed is empowered and committed to slowing inflation.

And that means the definition of “aggressive” has changed in just a few days as the latest US inflation numbers hit 40-year highs in June, driven by gas prices (CNN). This morning possibility of an oversized rate hike coming at the end of this month drove the Dollar Index above 109.00! The bulls – already under the bed are now holding their breath.

And the bears are once again anxiously testing lower gold price support. The psychologically important $1700.00 mark was breached ($1698.00) today in the domestic trade. Which created the typical short covering rally. Gold then pushed to $1714.00 but quickly drifted lower as traders reset and hunkered down.

At this point the bear’s own the technical picture. There is some support at $1650.00 but these serious downdrafts surrounded by increased bearish sentiment create the worst of pictures and the talk of capitulation.

Which is typical when the storm clouds are their darkest and trader focus remains on the short term. The fact that the US producer price index for June came in at a staggering annual rate of 11% is lost in transition. Instead of bolstering safe haven demand traders worried more about rising interest rates and the possibility of recession.

This latest round of bad news may ultimately provide the litmus test that the physical market is looking for to create a serious round of safe haven buying. With gold hovering around $1700.00 what is the worst-case scenario? Could this market slide to $1600.00? Sure, but I don’t think the bargain hunters have the moxie to sit on their hands at $1650.00. The 30-day market at that point would present bargain hunters with an enticing 11% savings from gold’s $1850.00 recent high. To put this in better perspective, yesterday our selling volume numbers tripled. If you believe the Fed will eventually move the interest rate into the 3% range by next year you would still be a cautious buyer. But long-time bullion buyers are buying this market and believe the Fed will blink somewhere along the way. Which will provide some cover from this shelling. An interesting comment made by Alex (a Marine) in our usual morning phone conversation.

On the day gold closed down $29.70 at $1704.50 and silver closed down $0.97 at $18.17.

On Friday gold offered little encouragement, which might seem counterintuitive given the current inflation problems. But when you look into the numbers consumer sentiment remains divided as to whether their cup is half full or half empty.

FXEmpire – “The fact that households’ real liquid assets are high but falling fast explains why current spending remains strong, but consumers and voters say inflation is their top concern and the economy is on the wrong track. The resilience of consumer spending in the face of rapidly escalating food, fuel and other bills will depend on whether households focus on the level of their real liquid assets (high) or the rate of change (falling fast). It also depends how long rapid inflation is expected to persist and continue eroding the value of their existing savings and ability to add to them.”

Believe it or not, the US consumer believes the Fed will control inflation. Which means the fear factor which drove gold to recent highs during the pandemic is missing from the price equation. Which makes sense, if folks were really worried you could not get into our parking lot. Which was the case as gold pushed over $2000.00 in 2020 and again in 2022. How long they will remain complacent is the big unknown. But there is an adage in this trade which claims the best time to buy is when the fear factor is at its highest – which may now be the case.

On the day gold closed down $2.10 at $1702.40 and silver closed up $0.38 at $18.55. Whether you like silver bullion or not these prices are getting very friendly.

Platinum closed up $13.60 at $844.20 and palladium closed down $68.70 at $1824.00.

Zaner (Chicago) – “With a fresh contract high in the dollar and fresh market chatter regarding a US interest rate hike of 1%, gold and silver start the session back under significant pressure. Unfortunately for the bull camp, the markets are likely to see fresh selling following the 2nd round of US inflation readings (PPI) this morning. In fact, given the significant recoveries off yesterday’s lows both gold and silver are technically vulnerable to a quick slide back toward this week’s lows. In a minor supportive overnight development Indian gold jewelry export to the UAE are showing signs of improving with the improvement attributable to a recent trade agreement between the two countries. From the negative demand side of the market, the trade saw another very large 2.9-million-ounce single day outflow from silver ETFs yesterday and a large 87,934-ounce outflow from gold ETFs. While net spec and fund long positioning readings in both gold and silver (adjusted into the recent lows yesterday) should begin to reduce the magnitude of downside stop loss washouts, tech conditions are unlikely to stop the carnage. From a longer-term perspective, gold and silver are unlikely to make solid bottoms and are even less likely to recover aggressively until the trade has reason to believe planned Fed rate hikes will not need to be adjusted even higher and following views that a recession can be avoided. Unfortunately for the bull camp, the metal markets will be presented with yet another US inflation reading in the form of PPI this morning. Expectations for US PPI for June call for a gain of 0.8% in the month over month comparison and 10.7% on a year-over-year basis. In conclusion, hot PPI readings should result in gold and silver prices making fresh new lows for the move!”

My Brothers and Sisters, thank you for your business, friendship, and patience. 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 in the world and restrictions are sketchy. At the same time trust that God will get us back to normal and our traditional business model.  Richard Schwary

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