Gold – Mixed Sentiment Continues
Commentary for Friday, April 21, 2023 (www.golddealer.com) – Today gold closed down $28.10 at $1979.50, and silver closed down $0.32 at $25.05. The bullish trade must be disappointed at this week’s gold prices as they continue to see-saw with a negative bias. This trading pattern will likely continue if traders believe interest rates are moving higher in the short term. The physical market is alive and well as our trading volume continues steady at these elevated prices. And higher premiums on popular bullion products suggest lagging mint production and solid investor interest. Still, waiting for some finality on the next Fed interest rate decision creates confusion in the physical market so we are seeing an increase in both buy and sell orders. Last Thursday gold closed at $2002.20 / silver at $25.42 – on the week gold was down $22.70 and silver was down by $0.37.
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On Monday the price of gold dipped below the $2000.00 support, which is not surprising considering Friday’s weakness. The New York cash market pricing spread was $15.00 so not a big deal in my mind. It is however another hint that even bullish traders remain wary of the higher interest rate scenario. The next FOMC meeting will be in 15 days, and this market will remain pensive until that outcome is better understood. Still, there is so much going on both domestically and in the overseas market that it is difficult to see serious downside in the metals especially if the coming interest rate hike is modest. And if the Fed throws in the interest rate towel, which is not likely, the bulls will have the “fresh” information needed for higher prices. On the day gold closed down $8.00 at $1994.20, and silver closed down $0.37 at $25.05.
Zaner (Chicago) – “With a 3-day high in the dollar and signs of noted weakness in Italian consumer prices, outside market influences are negative for gold and silver to start the new trading week. Therefore, we see gold and silver in corrective postures to start the new trading week. In fact, several bullish fundamentals have reversed course and we expect a mini downtrend to unfold. Obviously, a dampening of inflationary expectations removed a primary pillar of the bull case, but seeing a reversal of a downside breakout in the dollar combined with talk that the Fed will “go ahead” with a rate hike in May provides a lot of bearish ammunition. On the other hand, Citigroup raised its gold price forecast by nearly 8% pointing to a “dovish pivot” by the Fed, rising emerging markets gold demand and ongoing economic uncertainty as fuel for an upcoming rally to $2,100 in the next 3 months, with projections of $2,300 pricing in the next 6 to 12 months. Furthermore, the recent surge in gold and silver prices apparently resulted in a significant pullback in Asian demand reportedly because of price sensitivity. Last week gold ETF holdings increased by 164,805 ounces but remain 0.3% lower year-to-date. Even the technical picture is negative for gold and silver with both markets holding burdensome net spec and fund long positions as of early last week. In fact, in the gold market the net spec and fund long position was the highest since May of last year and that reading was likely understated given the post COT report rally of $44.00. Gold positioning in the Commitments of Traders for the week ending April 11th showed Managed Money traders reduced their net long position by 7,423 contracts to a net long 137,563 contracts. Non-Commercial & Non-Reportable traders are net long 240,009 contracts after net selling 2,025 contracts. While silver showed signs of diverging with gold, Friday’s sweeping reversal on significant volume combined with deterioration in classic fundamentals projects silver prices to fall sharply directly ahead. The Commitments of Traders report for the week ending April 11th showed Silver Managed Money traders are net long 19,231 contracts after net selling 262 contracts. Non-Commercial & Non-Reportable traders are net long 38,584 contracts after net buying 4,149 contracts. Last week silver ETF holdings increased by 2.1 million ounces and are now 0.7% higher year-to-date.”
On Tuesday gold traders bought the dip in what looks like mild bargain hunting and a bit of safe haven protection in a world of continued financial confusion. The fact that gold again closed above $2000.00 is a plus for the bullish gold scenario. But many traders I talk to claim the bears are just waiting for the right moment to take advantage of further weakness.
I would not say we are a spinning top hoping for further momentum, which was my opinion not too long ago. Things look like they are improving but I still do not see any improvement in spending – either here or in Europe.
There are enough signs of “slowing” to at least reconsider the “inflation scenario”. But the growing debt balloon is completely ignored these days. And I think this may soon turn into a more compelling argument for the private ownership of gold and silver bullion.
Reuters (Seher Dareen) – Gold climbs back above $2,000 on dollar retreat – “Gold prices climbed back above the $2,000 level on Tuesday, buoyed by a weaker dollar, while investors looked for more clarity on the U.S. Federal Reserve’s rate hike path. “Gold’s near-10% year-to-date climb has been largely predicated on its role as a safe haven as markets kept a wary eye over recession and financial instability risks,” said Han Tan, chief market analyst at Exinity. However, bids for a fresh record high may be curtailed until there is greater certainty to Fed rate cuts later this year. The CME FedWatch tool shows that markets are pricing in an 83.5% chance of a 25-basis-point hike in May, followed by increased expectations of a pause later in the year. Gold is considered a hedge against inflation and economic uncertainties, but higher interest rates dim the non-yielding bullion’s appeal. With the majority of U.S. data over the past few days pointing to an economic slowdown and a weakening dollar, the background influences remain supportive for gold, said StoneX analyst Rhona O’Conell in a note. Focus will now be on comments from Fed officials this week before they enter a blackout period from April 22, ahead of the central bank’s May 2-3 meeting. Gold will remain supported if investors remain of the view that the scarring from the banking crisis will lead to tighter credit conditions, said Craig Erlam, market analyst at OANDA in a note. The dollar edged lower, making bullion cheaper for overseas buyers.”
On the day gold closed up $13.20 at $2007.40, and silver closed up $0.20 at $25.25.
On Wednesday gold saw lows of $1970.00 in the overnight Hong Kong and London markets so the fear of rising interest rates is growing. The domestic New York cash market bought the dip and gold pushed nearly $20.00 higher but still finished the day in the red. While the technical picture still favors the bullish scenario, recent losses have insiders wondering if they are looking at technical pricing damage driven by increased profit taking. It is hard to argue with this bearish assessment because a month ago gold was $100 higher and today, we are looking at less than half that number. The persistent chatter by Fed insiders that higher interest rates are still necessary to quell inflation continues to worry the metals trade. These factors and gold’s inability to show strength above $2000.00 have insiders wondering if, at this point, we are looking at a trend reversal and not technical consolidation in a still bullish trend.
Reuters (Deep Kaushik Vakil) – Gold prices slide as traders assess Fed rate path – “Gold prices retreated below the key $2,000 level on Wednesday as the U.S. yields marched higher, with investors turning more skeptical over potential U.S. rate cuts likely later this year in the face of persistent inflation. “Once gold breached that $2,000 mark, there were a lot of stop losses that were triggered,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “Anytime you get earnings, you get a lot of people chasing individual stocks and that could also cause them to not invest so much in metal.” The dollar strengthened, underpinned by U.S. yields climbing to a near one-month peak, with markets now pricing in an 85% chance of a 25-basis-points rate hike at the Federal Reserve’s May 2-3 meeting, according to CME’s FedWatch tool. St. Louis Fed chief James Bullard said on Tuesday that the Fed should continue raising interest rates as recent data shows inflation remains persistent while the broader economy seems poised to continue growing, even if slowly. A stronger dollar weighs on overseas demand for the greenback-priced gold, while higher rates blunt non-yielding bullion’s appeal. The correction was due to the markets readjusting their expectations of the Fed’s rate-hike path, but gold’s rally has only been delayed, said Ole Hansen, head of commodity strategy at Saxo Bank. Markets will scan more upcoming remarks by Fed officials this week, ahead of a blackout period that starts on April 22 before the central bank’s May 2-3 meeting.”
On the day gold closed down $12.20 at $1995.20, and silver closed up $0.12 at $25.37.
Zaner (Chicago) – “Clearly, a much hotter than expected 10.1% annualized inflation reading from the UK has whipped up rate hike fears again and that in turn has fostered a surprisingly significant risk off reaction throughout the markets. Therefore, the slide in gold and silver prices is not surprising but the magnitude of the decline feels over exaggerated. However, in addition to the bearish fundamental catalysts both gold and silver violated key chart support levels likely adding a cascade of stop loss selling orders. Fortunately for physical commodities markets the catalyst driving prices down overnight is likely to dissipate later this week but is likely to present follow-through selling until solid chart support levels are encountered. However, with China posting favorable economic readings the most important physical commodity market is recovering from the extended Covid lockdowns and Chinese buyers are likely to begin bargain-hunting buying once prices become deflated. Going forward, traders should realize that Chinese gold demand has dominated over Indian demand, but both the Chinese and Indian economies are outperforming the world economy. Citigroup released a bullish gold price forecast earlier this week predicated on improving jewelry and physical demand in emerging economies, with 2023 gold price projections of $2,100 in the next 3 months and $2,300 in the coming 6 to 12 months. In conclusion, we remain bullish for intermediate and longer-term prospects but see both gold and silver remaining vulnerable to even lower action. However, even though the dollar is trading higher this morning fundamental signals and the Dollar charts are not signaling a sustained reversal of the March through April downtrend which should be of some consolation to gold and silver bulls. Yesterday gold ETF holdings increased by 31,028 ounces while silver ETF holdings fell by nearly 3 million ounces in a development that should add selling pressure to the early washout in silver. Near term targeting and support in June gold is $1,981.70 and then at $1,964.90. Similar critical targeting and support in May silver is $24.69.”
On Thursday the gold market was mildly higher, but I would not call this trade “firm” in any sense. Trying to interpret or explain movements in the price of gold on a day-to-day basis is difficult, some would say impossible. There are, however, shadings of sentiment which are based on the reader’s predisposition. If you are a natural bull and interest rates are moving lower, the conclusion will be that interest rate hikes will soon be halted, and gold is undervalued. If you are a predisposed bear and interest rates move higher you are eager to reestablish that short paper position. Throw out predisposition and the public would lose interest. My point here is that short term comments should for the most part be ignored because they come and go like the wind. If you are accumulating physical bullion keep the big picture in mind and avoid this noise.
Reuters – Gold firms above $2,000 on somber US economic data – “Gold prices firmed above the $2,000 level again on Thursday as the dollar and Treasury yields pulled back after soft U.S. data pointed to the economic toll of the Federal Reserve’s interest rate-hike cycle, strengthening the case for an imminent pause. Weekly U.S. jobless claims edged up last week, suggesting the labor market was gradually slowing, while a Philadelphia Fed report showed much lower-than-forecast factory activity in the mid-Atlantic region. “We saw a disastrous Philly Fed and jobless claims continuing to head higher, so the economy is weakening, some parts more than others,” said Edward Moya, senior market analyst at OANDA. The data pushed the dollar index 0.2% lower, while benchmark Treasury yields also fell. “For gold to make that run back to record highs, you need the June rate hike completely off the table,” Moya added. Markets are pricing in an 86% chance of a 25 basis-point hike in May, which a Reuters poll found would be the final one, with the Fed holding rates steady for the rest of 2023. “This week has had some aggressive Fed speak from its speakers and a continuation of that narrative could give the greenback a boost, leaving gold exposed on the downside,” DailyFX analyst Warren Venketas wrote in a note. New York Fed President John Williams said on Wednesday inflation is still at problematic levels and the Fed will act to lower it. Traders will scan further remarks by Fed policymakers this week, before their blackout period on April 22 ahead of the Fed’s May 2-3 meeting.
On the day gold closed up $12.40 at $2007.60, and silver closed unchanged at $25.37.
Zaner (Chicago) – “While gold prices waffled around both sides of unchanged overnight the charts remain bearish and are accentuated by ongoing bearish macro psychology. However, while gold and silver prices came under significant attack yesterday morning, the markets posted a very impressive rebound, which in turn should discourage some sellers today. However, the threat of rising interest rates in the US and UK continues to create headwinds for all the markets especially as that theme has lifted the dollar this week and resulted in treasury bonds reaching the lowest level since March 15th yesterday. Going forward, we see the bears holding a technical edge with the most recent COT positioning report in gold showing a net spec and fund long at the highest levels since April last year and June gold piercing the critical consolidation price level of $2,000 yesterday. On the other hand, the gold contract at times yesterday managed a $28.00 rally off the spike low potentially indicating exhaustion selling. Unfortunately for the bull camp gold ETF holdings saw a moderate outflow yesterday leaving the year-to-date holdings down 0.4%. Like the gold market, the silver market also aggressively rejected its early spike lows yesterday and at times managed to post gains off the lows of $0.74. While the charts in silver marginally favor the bull camp today and the market saw very supportive long-term fundamental information yesterday, a 2nd straight day of large outflows from silver ETF holdings (2.2 million ounces, and 5 million ounces) has resulted in holdings shifting into a minimal net decline year-to-date. Fortunately for the bull camp, the silver Institute yesterday indicated 2022 global silver demand reached a record high at of 1.24 billion ounces with a year-over-year increase of 18%. It should also be noted that the Silver Institute pegged last year’s deficit at 237.7 million ounces and projected annual deficits for several years ahead. While $25.00 could be psychological support today we see a more critical support/pivot point price today down at $24.92. Closer in support in silver is $25.13.”
On Friday the gold pricing “swing” was another $25.00 as gold pushed to $1995.00 on the open, sold off and caught a solid bid at $1970.00. This pattern has been typical of this week, as traders jump back and forth between opposing scenarios. Bearish Fed commentary from those close to Chief Powell creates volatility. Opposing economic commentary which suggests that a recession is not in the cards is usually ignored but is gaining popularity. The problem here is that this theory creates a new set of problems. It may give the Fed more opportunity to raise interest rates, capping higher gold prices. All this extra trading “noise” has not only stopped gold from rising above the $2050.00 April high, but it has also created a defensive trade. And if gold pricing does not show fresh interest below $2000.00 it is possible that $1950.00 support will be tested.
Reuters (Seher Dareen) – Gold dips as higher US rates seen in Fed’s inflation fight – “Gold prices dropped about 1% on Friday and were headed for their biggest weekly decline in around two months with markets expecting the U.S. Federal Reserve to opt for a higher for longer interest rate stance to control inflation. Gold is re-pricing based on the Fed’s rate-hike path ahead and hawkish comments by some board members, said Carlo Alberto De Casa, external analyst at Kinesis Money. The market is now expecting higher rates for a longer time, with another rate hike after May, De Casa said. Rate hikes raise the opportunity cost of holding non-interest-bearing gold. Markets are pricing in an 84% chance of a 25-basis-point interest rate rise in May, leaving the dollar on track for its first weekly gain in over a month and making bullion expensive for overseas buyers. Fed officials said on Thursday inflation remains “far above” the central bank’s 2% target. Fed Governor Michelle Bowman reiterated that more work needs to be done to bring down too-high inflation. Next week’s GDP data and the price deflator for consumer expenditures (PCE), the Fed’s preferred inflation measure, could trigger some price movement, but no clear direction is likely before the central bank’s next meeting, said analysts at Commerzbank in a note. On the physical front, elevated domestic prices muted demand for gold across Asian hubs this week, forcing dealers in India to offer discounts, with the Akshaya Tritiya festival also failing to offer much respite.”
On the day gold closed down $28.10 at $1979.50, and silver closed down $0.32 at $25.05.
Platinum closed up $31.10 at $1129.80, and palladium closed up $18.70 at $1604.10.
Zaner (Chicago) – “While we think the gold market has posted a moderately reliable low with the Wednesday washout, we also expect volatility to increase in both gold and silver ahead and we expect both markets to retest and perhaps temporarily violate recent lows. However, the gold market showed signs yesterday that it was receiving a flight to quality bid from renewed economic uncertainty and perhaps more importantly from escalating concerns of potential trouble in the financial markets from the debt ceiling situation. In fact, a significant jump in credit default swap rates has surfaced and according to Reuters those yields reached the highest levels in more than a decade, with some analysts suggesting the prospects of a technical default are no longer insignificant. Therefore, gold should see residual flight to quality buying interest but support at the $2,000 level is no longer applicable. In slightly supportive news a key Russian gold mining production region posted a 10% decline in production in their 1st quarter, while gold ETF holdings yesterday saw a large inflow of 32,740 ounces. We suspect that a wave of disappointing global PMI data today has added some economic uncertainty, but strong European Services PMI readings muted economic uncertainty from other weak PMI components. While the silver market seemingly delinked from gold yesterday, it appears to have come back into sync today with moderate declines. The weakness in silver is unfolding despite very favorable Silver Institute deficit predictions earlier this week, signaling the silver market is focused on spillover fear from big picture macroeconomic selling of physical commodities. It should also be noted that in the prior 3 days, silver ETF holdings have seen large outflows above 5 million ounces, suggesting investors might have banked profits on the recent rally and or are exiting from fear of slowing physical demand and higher interest rates.”
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