Gold – No Tapering Timeline, Yet
Commentary for Friday, Aug 27, 2021 (www.golddealer.com) – Gold closed up $24.40 at $1816.60 and silver closed up $0.51 at $24.06. The bulls welcomed good news today as Fed Chief Powell closed the Jackson Hole get together with a cautious tapering view. The dollar moved lower, and gold challenged $1800.00. Powell talked more about transient inflation than anything else. But also noted there was work to be done on the employment front and brought the virus infection surge into the dialogue. I would not call his message dovish, but it did manage to strike a nice balance countering the more aggressive governors. While not taking any “tools” off the table concerning what the Fed might do through year end. Last Friday gold closed at $1781.00 / silver at $23.11 – on the week gold closed up $35.60 silver up $0.95.
The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still 3 to 6 weeks coming from the manufacturer. My guess, however, is that delays will soon shorten.
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 your understanding.
On Monday the gold market surged higher in early trading as the Dollar Index lost a half point and safe haven demand once again came into focus. Also reinforcing this higher move in gold is the jump in the price of crude oil now reversing last week’s trend of lower prices.
All of this interest of course is prompted because of the rising concerns created over the contagious Covid D variant. Significantly higher infection numbers, both here and abroad may alter the Fed’s much talked about tapering intentions. The FOMC governors have been turning more hawkish in their comments about quantitative easing for months. But these rising infections have risen to the point of concern. Some traders believe this argument is strong enough that the Fed will make no QE changes until this picture becomes into focus.
What makes this “transition” difficult is that not long ago FOMC decisions were based on a post-pandemic view. Yet even that optimistic stance was uncertain. The Fed discussed “tapering” but were divided over “when” these modifications might take place. And it is worth noting that the Aug 27th Jackson Hole symposium will be held virtually. Using current rising infection numbers, traders might now make the case that the FOMC will simply consider options at Jackson Hole. After all they were probably not going to “taper” until next year anyway.
With this shift in psychological thinking both gold and stocks moved higher. Lukman Otunuga (Reuters) – If economic data expected this week “paints a positive image of the U.S. economy, this could fuel Fed taper expectations – ultimately boosting the dollar while weakening gold”.
This “see-saw” will likely continue perhaps because professionals are “reluctant bulls” looking for that sell off. Today’s move above the important $1800.00 psychological level will improve gold’s short-term technical picture. But the prize here remains something above that stubborn channel between $1800.00 and $1820.00 established last summer.
Gold must push above these numbers before the bulls can reclaim any significant buzz. Dollar strength is the elephant in the living room. The Dollar Index (93.00) would have to break down at 92.00. This does not seem plausible considering a bright post-pandemic future, but any roadblock will support the bullish gold scenario. The index last summer was trading around 90.00. On the day gold closed up $22.20 at $1803.20 and silver closed up $0.54 at $23.65.
Gold on Tuesday opened mildly higher, struggling against overhead resistance but helped to a small degree by a somewhat defensive dollar. Reuters – “Gold prices held steady on Tuesday above the $1,800 per ounce level, helped by speculation that a spike in coronavirus cases may prompt the U.S. Federal Reserve to defer its tapering of monetary stimulus.”
This from Zaner (Chicago) – “In our opinion, the rally in the gold market yesterday was more than simple technical buying with the market likely inspired by talk that the US Fed might not be as close to tapering as the market has recently feared. Unfortunately for the bull camp, the subject of tapering is likely to waffle in both directions in the coming days and until a large portion of the Fed Symposium has taken place. Gold and silver might be poised to receive outside market support from firming coal and Iron Ore prices in China, as that suggests the foundation of inflation remains in place despite the recent let down in commodity prices. In the near-term, action in the dollar is likely to dominate the ebb and flow of prices, but to spark another large day of gold gains probably requires a definitive extension down in the dollar index. In the meantime, the $1,800 level will likely remain a key pivot point for the bull camp with the next resistance zone pegged at $1,817.90.”
Obviously, the Fed Symposium (Jackson Hole) may push this market one way or the other later this week, but I don’t think it will carry as much weight as some believe. There will likely be no surprises. The Fed governors have made their hawkish thoughts clear and the subsequent surge in Covid D infections has given them reason to reconsider. There are still traders who believe economic progress will not materially change because of the Covid D variant. This is what remains of a very misplaced pipe dream and the winter months are right around the corner.
The current plus for the bulls is that gold is holding steady at or above the important $1800.00 level. It would not be there if this pandemic picture continued to improve. And while some professionals are still behind this learning curve things are slowly turning bullish.
The latest CFTC gold numbers suggest hedge funds are closing their short positions and to some degree betting on higher prices. This amounts to a classic reversal in thinking considering that not long ago a hawkish Fed convinced traders that “shorting gold” was sensible.
Goldman Sachs remains bullish, noting that gold “popped” back nicely after its recent massive washout, notes resistance at $1835.00 and looks for higher prices before year end.
Still, I am worried about gold’s inability to push convincingly above $1800.00. There is more than enough “press” out there suggesting that the Fed will remain cautious about changes in quantitative easing. And there is enough light buzz to keep gold tracking around $1800.00. But not enough to excite the momentum players. Technically gold is experiencing a nice bullish uptrend but is still dealing with the larger question of how it might deal with rising interest rates. So bearish sentiment is lurking around the edges. Sitting on the sidelines to test support if this latest price surge cannot gather itself and push to higher ground. The inflation scenario is losing traction which is beyond my pay grade. In earlier times would have created this reaction would have created a great Twilight Zone episode. On the day gold closed up a sleepy $2.40 and silver closed up $0.24 at $23.89.
On Wednesday the domestic market opened flat, pushed higher but found little interest. So the paper trade decided a test of current support was in the cards. This is typical of a “trading market” with consolidation – both the bulls and bears have something to say.
This sell-off will test current support at 1780.00 providing great insight into whether this latest push above $1800.00 is a “flash in the pan” or the real thing – relative to safe haven demand and the Covid D variant. Also keep in mind the current push from $1720.00 through $1800.00 happened quickly so today’s profit taking round makes sense.
The weakness in gold today was initially helped by a stronger dollar. But this trend reversed itself later in the trading day which resulted in traders buying the dip at $1785.00. Nothing like a short covering rally in a defensive market to bolster damaged bullish sentiment.
This whoopla should enforce the notion that the gold bulls are penned in by dollar strength. But keep in mind that the Dollar Index is now trading at weekly lows (92.82) and was traded as high as 93.5 last Friday, so the dollar trend is weaker and favors the bullish gold scenario. As long as the Fed deep thinkers do not upset the apple cart at Jackson Hold later in the week.
Zaner (Chicago) – “The precious metals are finding moderate pressure coming into this morning’s action, but they remain clear of their recent lows in front of Fed Chair Powell’s Jackson Hole Fed Symposium speech on Friday. If global markets can regain a risk on mood before then, gold and silver could be in a good position to climb back to the upside. The precious metals were able to shake off early pressure and come through choppy midsession action on Tuesday that featured a 3-week high for gold and a 2-week high for silver, both finishing in positive territory. While global markets are relatively subdued, due in part to late summer trading conditions, better than expected results for German GDP and US new home sales strengthened global risk sentiment, providing gold and silver with underlying support.” On the day gold closed down $17.40 at $1788.20 and silver closed down $0.12 at $23.77. While gold holds a bullish technical edge the silver market is struggling. Perhaps because traders are worried that infections numbers may slow down industrial usage. But investors should seriously consider silver bullion and ignore this noise. The downside is likely small, and I love the upside bang.
On Thursday gold opened choppy to unchanged, dipped to $1780.00 but managed to finish in the green even with negative press. Traders are still worried about the Powell speech Friday at Jackson Hole. Any suggestion that the Fed will taper could send gold lower perhaps testing recent support between $1740.00 and $1780.00. Should the FOMC continue dovish because of the resurgence in Covid infections, the US is now averaging more than 1000 Covid deaths daily for the first time since March. Or slowing economic indicators – gold would likely push higher once again trying to break above the tough $1800.00 through $1820.00 region.
Fed Chair Kapan said that after reviewing the impact of the Delta variant he wants the Fed to push ahead with the taper, beginning as soon as October and November. Kansas City Fed President George said it’s time to start dialing back its policy stimulus according to CNBC. And the Dollar Index today is above 93.00, suggesting traders may listening to this hawkish tilt. So our shiny friend is facing some mounting headwinds.
At the same time, Bullard admitted on CNBC price inflation is “higher than we expected” and the terrorist attack at the Afghanistan airport may refocus safe haven buying.
What makes this call difficult is that gold posted a significant gain since the $1720.00 wash out in early August. So, traders will anticipate profit taking if the Fed suggests tapering should soon be in the cards. Gold closed up $4.00 at $1792.20 and silver closed down $0.22 at $23.55.
Gold Friday opened choppy in early trading but pushed higher over Fed Chief Powell’s comments from the Jackson Hole meeting. Reuters – “Powell signaled the U.S. central bank will remain patient as it tries to nurse the economy back to full employment, repeating that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – a defense in effect of the new approach to Fed policy he introduced a year ago.
On the potentially imminent decision by the Fed to begin reducing its $120 billion in monthly asset purchases, Powell said the weeks since the Fed’s policy meeting in July “brought more progress” towards repairing the jobs market, with nearly a million positions added, and that progress should continue.
But it also coincided with “the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks,” Powell said, signaling that Fed discussions about exactly when to begin reducing the bond-buying program remain unresolved, and now must be squared against the health and economic risks posed by the highly contagious coronavirus strain.”
Most of Powell’s speech talked about why the Fed considers current inflation numbers to be transitory but he gave no signal as to when it might begin “tapering”. The notion that the Fed will continue to be “patient” with quantitative easing pushed the Dollar Index from 93.16 through 92.67 and this significant drop encouraged the gold bulls.
Zaner offered a number of gold pricing options, but I favor their bullish “economy versus Covid” argument. And since the FOMC is no longer stonewalling either inflation or the rapid infection rise and has, once again decided to stand pat gold has pushed above $1800.00.
This latest FOMC insight is enough to at least gather the bulls who just a few days ago were considering what damage might ensue over a hawkish statement. But this “when will tapering be appropriate” conversation will not go away. The Fed will continue to monitor employment, it continues to improve relative to early Covid days, but Powell is still not satisfied.
I suspect that gold prices will remain firm but likely will continue to consolidate on both sides of $1800.00 with a cap around $1830.00. If these markets break above this long-standing overhead resistance, it suggests that traders are convinced that “tapering” is on hold. But I think this unlikely. The Fed has made “tapering” a cornerstone of their recent discussion.
Longer term gold gains will have to wait on a definitive higher inflation picture. Or the Dollar Index will have to substantially weaken. Which was the expected but never realized outcome when the Fed originally opened up the fiat currency floodgates at the being of this pandemic. On the day gold closed up $24.40 at $1816.60 and silver closed up $0.51 at $24.06.
Platinum closed up $30.80 at $1005.80 and palladium closed up $15.70 at $2402.20. Our across the counter sales of palladium remain quiet but platinum action is picking up.
My Brothers and Sisters, we thank you for your business and fellowship. If you have unusual circumstances, need cash or are looking for a special visit – talk to Harry. Many on our staff have now received the vaccine as we continue to enforce rigid safety standards between people and product. Be careful, this virus remains a danger. At the same time trust that God will soon get us back to normal. Richard Schwary
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