Gold – More Surprises in Store?
Commentary for Friday, Dec 8, 2023 (www.golddealer.com) – Today gold closed down $31.60 at $1998.30, and silver closed down $0.76 at $22.97. The price of gold moved significantly lower today in the domestic trade as a strong US jobs report rewrote the short-term pricing picture. Reuters believes that there is less likelihood interest rates will move lower next year because today’s US job data showed broad based strength. Because gold dipped below $2000.00 the technical sharpies believe further declines are in the cards. This might be an overreaction but price volatility through the typically quiet holiday season is now on the table. Last Friday gold closed at $2071.00 / silver at $25.50 – on the week gold was down $72.70 and silver was down $2.53. We will be closed December 25th (Monday) and December 26th (Tuesday) for Christmas. And January 1st (Monday) for New Years.
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On Monday the price of gold was again unpredictable, and my admonition to keep your seat belts on and tightened is again a warning of turbulence. Last Friday gold began a quiet weekend trade, but something set it off during the overnight Globex trade and prices soared ($2140.00). Before the bulls could count their winnings, the market whipsawed, and by the time the domestic trade was pouring their first cup of coffee the market was down roughly $50.00.
I always expect uncertainty during market extremes, both high and low, but this kind of volatility is surprising. The lesson learned, or perhaps relearned is that it never pays to be wed to any one idea (bullish or bearish) to the extent that you throw caution to the wind.
Gold closed last Friday at $2071.00. During the weekend trade it moved to $2152.00! By the time markets closed today it was roughly $2024.00. That amounts to a $128.00 spread in a short period of time, so let’s be extra careful these days. Technical experts claim that the bulls are exhausted, and they might be right. But we are testing the extremes so keep an open mind.
Reuters (Wayne Cole) – Gold makes the running as oil fails to fire – “Asian stocks have made a hesitant start to the week, while gold hit a new peak and Treasuries ran into profit-taking on their recent stellar gains. Oil failed to sustain an early rally that followed news of attacks on commercial shipping in the Red Sea. Three vessels came under attack in international waters on Sunday, while Yemen’s Houthi group claimed drone and missile attacks on two Israeli vessels in the area. The threat to such a major global shipping route could add to inflationary pressure, although the impact seemed limited so far. Notably, oil prices lost early gains and Brent eased around 57 cents to $78.31 a barrel amid doubts that OPEC+ would be able to maintain planned output cuts, particularly by some African countries. At the same time, U.S. oil output is at record levels above 13 million barrels a day and rig counts are still rising. That means the U.S. is producing more oil than Saudi Arabia right now. A commodity faring better is gold, which surged suddenly this morning to top $2,111 an ounce for the first time before paring the gains to $2,086. There was no obvious catalyst for the move, leaving dealers suspecting the hidden hand of trend-following CTAs and algo funds following the break of a triple-top around $2,107. Central banks have also been gold bugs, buying a net 800 metric tons in the year to September in a record for that period. Bulls are now touting chart targets at $2,240 and $2,400. Market pricing for early and aggressive rate cuts is clearly a positive for non-yielding gold, with Fed fund futures currently implying a 59% chance of a U.S. cut as early as March. A week ago that probability was around 20%. There are also 125 basis points (bps) of easing implied for all of 2024, up from 80 bps a couple of weeks ago. In addition, markets are pricing in an 80% chance of the ECB easing in March, although the hawkish head of Bundesbank pushed back against such prospects in an interview over the weekend. ECB President Christine Lagarde will have her chance to comment in a speech and Q&A later on Monday. Such extreme pricing leaves the market vulnerable to pullbacks, and both Fed funds and Treasuries ran into selling on Monday. Yields on U.S. two-year notes rose almost 4 bps, but that follows a drop of 40 bps last week. German two-year bunds also look susceptible to some profit-taking after yields dived 41 bps last week. Bonds really need U.S. November payrolls on Friday to be solid enough to support the soft-landing scenario, but not so strong as to threaten the chance of easing. Median forecasts are for payrolls to rise 180,000, keeping unemployment steady at 3.9%. Many analysts suspect risks are to the upside, with Goldman Sachs tipping 238,000, including a chunk of workers returning from strikes, and a jobless rate of 3.8%.”
On the day gold closed down $46.90 at $2024.10, and silver closed down $0.94 at $24.56.
On Tuesday the price of gold dipped on the open, testing $2010.00 before traders bought weakness with little conviction. I expected bargain hunting after yesterday’s drop in prices, but most were too rattled by the sudden rise in bearish sentiment. The strong dollar also encouraged bearish sentiment as the Dollar Index has moved progressively higher since last Wednesday.
The oddsmakers are still making the case that the FOMC will leave interest rates unchanged next week. This optimistic outlook has been a long-standing bullish lynch pin. But any fading of this belief will also encourage bearish sentiment. This could turn into a kind of domino trade as speculators will likely expect further losses if gold continues to slide towards $2000.00.
The idea that the Fed will not change the interest rate dynamic anytime soon is already baked into this cake, so what the bulls need is fresh news to rally base support and push back against rising bearish sentiment. The most likely scenario here would be that the Fed will begin to lower interest rates next year to help engineer a soft economic landing. No one knows how this confusion will end but some Yogi Berra wisdom might help: “It ain’t over till it’s over”.
Vladimir Basov (Kitco) – Nornickel expects palladium and platinum shortage to widen this year – “In its recent research report released today, Nornickel, the world’s largest producer of palladium and high-grade nickel, said that it has revised the 2023 palladium market deficit from -0.2 Moz to -0.9 Moz. The company added it has reviewed the secondary supply of palladium from +9% growth down to 15% fall, while slightly lower than expected primary production from North America will be offset by weaker electronics demand. As for the platinum market, Nornickel expects it to flip into the fundamental deficit this year. “The increase of primary supply, mainly attributed to resilience of South African mining companies to electricity disruptions, will not be enough to offset rising automotive and industrial demand for platinum, as well as lower recycling,” the authors of the report said. Importantly, the company sees platinum market deficit of -0.4 Moz this year, comparing to its previous view of balanced market due to lower secondary supply. As for 2024, Nornickel expects palladium deficit to narrow down to -0.4 Moz amid secondary supply recovery, while platinum market will be relatively unchanged at -0.3 Moz, as recycling volumes recovery will be offset by increase in industrial demand of glass and electronics sector. However, Nornickel sees “significant” risk from South Africa and North America amid potential cost optimization at low margin projects.”
On the day gold closed down $5.60 at $2018.50, and silver closed down $0.36 at $24.20.
On Wednesday the gold trade was less heavy and more optimistic as it traded in a tight range and finished in the green for the day. Whether today’s close represents the early signs of consolidation which was missing in Tuesday’s trade I will leave to the reader.
Still, I would not expect much from this latest insight. The Dollar Index remains at weekly highs (104.00) which creates drag for the bullish scenario. Friday the Labor Department will release November’s employment numbers, but I suspect traders will remain sanguine.
The bulls are hoping for the consolidation, which is helped psychologically as the Bank of Canada left interest rates unchanged today. But this market leans toward sudden changes.
Reuters (Anjana Anil) – Gold firms on weaker yields as focus turns to US jobs data – “Gold prices inched higher on Wednesday buoyed by lower bond yields, while investors awaited for a crucial U.S. employment report that could set the tone for Federal Reserve’s policy meeting next week. Helping bullion, benchmark 10-year Treasury yields hovered near a three-month low. “While gold may draw support from speculation around the Fed cutting rates, it may take a fresh fundamental spark to re-ignite the bullish rally. This could come in the form of the highly anticipated U.S. jobs report on Friday,” said FXTM senior research analyst Lukman Otunuga. “The nearest support can be found at the psychological $2,000 level while multiple resistance can be identified at $2,035, $2,050, and $2,100.” The November U.S. non-farm payrolls data due on Friday, could provide clues on the interest rate path ahead of the U.S. central bank’s policy meeting next week. Bullion climbed to a record high of $2,135.40 on Monday on elevated bets for a Fed rate cut, before dropping more than $100 in the same session, due to uncertainty over the timing of the monetary policy easing. Traders are pricing in about a 60% chance of a rate cut by March next year, CME’s FedWatch Tool shows. Lower U.S. interest rates put pressure on the dollar and bond yields, increasing the appeal of non-yielding bullion. “The buying (in gold) should gradually resume and outlook continues to remain bullish,” said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai. Data on Tuesday showed U.S. job openings fell to a more than 2-1/2-year low in October, signaling that aggressive rate hikes have started to flow through the economy.”
On the day gold closed up $12.00 at $2030.50, and silver closed down $0.31 at $23.89.
On Thursday the price of gold again opened choppy, trading between $2020.00 and $2040.00. An interesting level to me, suggesting consolidation not retreat, but gold’s technical picture suggests an exhaustion top has been reached and lower prices are in the making.
The best you can glean from recent volatility is that this market remains unstable. The fact that gold is trading above $2000.00 is a small plus for the bulls. The holiday season is also a small plus for our shiny friend. But Christopher Lewis (FXEmpire) has hit the nail on the head – this market has turned into a grind – for both buyers and sellers. Whether that portends higher or lower prices for gold or silver remains difficult to say in the short term.
If history is any guide, however “higher” prices over the longer term makes more sense. Because “peace” does not seem to be breaking out anytime soon in this troubled world.
Christopher Lewis (FXEmpire) – Gold Markets Continue to Grind in Consolidation – “Gold markets initially tried to rally during the session on Thursday, as we continue to try to sort out where we are going next. The recent volatility has made the gold market very difficult to deal with, therefore it’s not a huge surprise to see us try to work off some of the fear. The week started out with a huge bang, only to turn around and fall apart. However, it now appears that we are trying to form some type of consolidation range between the $2000 level underneath, and then above at the $2050 level above. Looking at this chart, it’s obvious that the $2000 level will be an area that people pay close attention to, because not only has it previously been resistance, but now it’s acting as support. It’s also a large, round, psychologically significant figure, and an area where I imagine that there are a lot of options barriers to be found. In general, I think this is a situation where you have to be very cautious, but I still like the idea of buying gold, not selling it. We look at gold, it can serve as safety, but it also can serve as a way to fight falling interest rates. In general, I think this is a situation where you will continue to see a lot of noisy behavior, and the fact that Friday has the Non-Farm Payroll announcement coming out, and that of course will move interest rates quite drastically in the United States, which will have its knock on effect here in the gold market. Beyond that though, we also have a lot of geopolitical concerns out there that could drive gold higher, so keep an eye on all of that. Either way, I don’t have any interest in shorting gold anytime soon, but if we were to break down below the $2000 level and the 50-Day EMA, then I would have to reevaluate things, but right now it doesn’t look like we have the momentum to do so. In general, if we break above the $2050 level again, I think we continue to climb much higher.”
On the day gold closed down $0.60 at $2029.90, and silver closed down $0.16 at $23.27.
On Friday the price of gold surprised veteran traders, but I believe this market may now be oversold. To be fair this opinion is likely in the minority, but such are the travels in the metals marketplace these days. I am not ready to concede that price “consolidation” for gold and silver necessarily means significantly lower prices. Today’s “surprise” will need another week to confirm absolute direction.
In the meantime, I’m satisfied that gold and silver are trading at the upper end of their recent highs. Next week will provide a better pricing picture and I would not be surprised to see a stable market in a relative sense. This latest storm may be more talk than action.
Reuters (Anushree Ashish Mukerjee) – Gold slides 1% as strong US jobs data clouds rate cut bets – “Gold prices fell on Friday as the dollar and Treasury yields strengthened after traders lowered bets for U.S. interest rate cuts to materialize by March next year following a stronger-than-expected jobs data. The dollar index (.DXY) firmed 0.2%, making bullion more expensive for overseas buyers. Also, 10-year Treasury yields ticked higher. U.S. job growth accelerated in November while the unemployment rate fell to 3.7%, suggesting financial market expectations of a rate cut early next year were probably premature. “Gold has slumped as the U.S. employment report showed strength across the board,” said Tai Wong, a New York-based independent metals trader. “If today, gold finishes at new lows under $2,009, that would be a signal that the correction has further to run. If gold holds well on a pretty strong payrolls number it will give buyers confidence that we’ve seen at least a short-term bottom.” Traders had earlier priced in about a 60% chance of a March start to Fed rate cuts, but after the jobs data, pared that to just under 50%, with May now a more likely starting point. Traders will seek further confirmation from the Fed meeting scheduled on Dec. 12-13. “We expect short dips in gold market but see continued strength in demand, keeping the overall trend sideways to higher,” said David Meger, director of metals trading at High Ridge Futures.”
On the day gold closed down $31.60 at $1998.30, and silver closed down $0.76 at $22.97.
Platinum closed up $8.10 at $916.20, and palladium closed down $29.20 at $941.14.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls still have the overall near-term technical advantage but became exhausted to suggest a near-term market top is in place. Prices are still in a two-month-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in March futures above solid resistance at the record high of $2,152.30. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,000.00. First resistance is seen at the overnight high of $2,050.40 and then at $2,059.60. First support is seen at this week’s low of $2,027.60 and then at $2,015.00. The silver bulls still have the overall near-term technical advantage, but became exhausted to suggest a near-term market top is in place. Prices are still in a two-month-old uptrend on the daily bar chart but the bulls need to show fresh power soon to keep it alive. Silver bulls’ next upside price objective is closing March futures prices above solid technical this week’s high of $26.34. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at the overnight high of $24.225 and then at $24.50. Next support is seen at $23.65 and then at $23.25.”
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