Gold – No Third-Party Obligation Works
Commentary for Friday, Sept 16, 2022 (www.golddealer.com) – Today gold closed up $6.30 at $1671.70 and silver closed up $0.12 at $19.30. Gold and silver prices were ambushed this week, so few are happy. But honestly the fuss being made by the bulls may be a bit of exaggeration. With negative sentiment and a negative technical picture, expecting a darker trader outlook is normal. I would say however that this stormy weather never lasts as long or is as turbulent as the bears would suggest. Today we saw some mild short covering and perhaps even a bit of bargain hunting. This kind of pricing only works well for the dedicated longer-term buyer. (CNBC) “To reduce inflation down to a benchmark target rate of 2%, the Federal Reserve has already implemented four interest rate hikes in 2022, including two consecutive “jumbo” rate hikes of 0.75% in June and July. The federal funds rate is currently 2.25% to 2.50%.” Most expect the September rate hike to be another 0.75%. I am cautious but not overly pessimistic, even on the short term. This bear market looks tired. I would not be surprised to see the bulls reinvent themselves before the holiday season. Last Friday gold closed at $1716.20 / silver at $18.66 – on the week gold lost $44.50 and silver gained $0.64.
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On Monday gold moved substantially higher in the overnight Hong Kong and London markets threatening $1735.00. This rally gave up some steam in the domestic trade, but gold still finished with a nice upward bounce into the new week as the Dollar Index moved lower by almost a full point. The Consumer Price Index for August will be published Tuesday and should provide further inflation insight to traders looking for fresh information.
There was a significant rise in the price of silver today. More than a dollar an ounce which suggests some “catch-up” trade but primarily a short covering rally. Still, it is too soon for the bulls to celebrate. Higher interest rates and recession talk is not good for silver. I doubt that you will see increasing momentum or higher prices on the short term. But today was a plus for a bullish longer-term scenario. Because it reminds everyone that silver is always a “sleeper” and taking advantage of lower price trends makes good planning sense.
Some thoughts on the CPI relating to gold. If it comes in hot it would likely encourage talk of stronger Fed action in raising interest rates. Because a hot reading is expected the weekly pricing action might be small, even boring, like last week. On the other hand, if the CPI comes in weak, the price of gold could rally. This might suggest the Fed will have more latitude (time) to make sure Wall Street traders do not get too nervous. This too may create little change in the price of gold because pricing remains capped by a strong dollar. In the short term, gold pricing may remain flat, looking for fresh, actionable information. The positive side of all this confusion is that gold remains relatively stable in price, in spite of a progressing Fed policy of higher interest rates. Whether this will hold up remains to be seen but, in the meantime, I believe it is one of the bigger positives for the physical market.
Reuters – “Economists around the world, from the most liberal free-spenders to fiscal conservative deficit hawks, largely agreed the coronavirus pandemic required a go-big, go-fast policy response to avoid an outright global depression. They’ve also reached a rough consensus on another point: The hangover is real.” This too may support gold and silver prices. Even though the price swings may become larger on the short term.
On the day gold closed up $11.90 at $1728.10 and silver closed up $1.10 at $19.76.
Zaner (Chicago) – “With the dollar extending last week’s reversal/slide and reaching the lowest level since August 26th this morning the precious metal markets clearly start the week with support from currency market action. In our opinion, the markets this morning are upbeat in anticipation of evidence on Tuesday that US inflation might be coming under control. In other words, both commodities and equities are hopeful that jumbo rate hikes from the US Fed are over or will be over after next week’s FOMC meeting. In fact, metals, equities, and other commodities are tracking positive today despite the promise of more quantitative tightening from the European Central Bank. Therefore, the bull camp in gold and silver is factoring in expectations for a decline in CPI of 0.1%. The gains in commodities this morning is impressive given the additional Chinese Covid city lockdown announcements over the weekend. While some traders suggest that gold and other metal markets might be poised to benefit from Chinese Mid-Autumn Festival demand, the economic condition inside China remains suspect and the yuan is trading at the weakest level since the beginning of the pandemic, thereby eroding Chinese purchasing power. Furthermore, Chinese August CPI and PPI readings last week weakened significantly which in turn gives credence to views that the Chinese economy is contracting. Furthermore, investor sentiment toward gold and silver remains negative with gold holdings last Friday declining for the 10th straight session and reducing holdings last week by 442,722 ounces. Similarly, silver ETF holdings on Friday declined by 711,955 ounces and reduced their holdings last week by 2.5 million ounces! With the most recent COT positioning report showing a net spec and fund gold long near the vicinity of the lowest levels since May 2019, some gold buyers saw the markets respect and ultimate rejection of the $1,700 level as a sign of fundamental value. The September 6th Commitments of Traders report showed Gold Managed Money traders net sold 19,509 contracts and are now net long 1,217 contracts. Non-Commercial & Non-Reportable traders net sold 17,752 contracts and are now net long 112,977 contracts. Under further declines in the dollar and if the odds of a jumbo US rate hike next week decline, the October gold contract might regain the $1,750 level. With the silver market in the most recent COT positioning report posting a “net short” we suspect last week’s gap higher upside extension was primarily the result of short covering. The September 6th Commitments of Traders report showed Silver Managed Money traders net sold 3,573 contracts and are now net short 24,632 contracts. Non-Commercial & Non-Reportable traders are net short 4,309 contracts after net selling 4,207 contracts.”
On Tuesday gold looked stronger in the overnight Hong Kong and London markets ($1730.00) but the domestic trade weakened over August inflation news. I think this is an overreaction – yes inflation is rising, and some traders are calling the August numbers “hot”. But I think this is a bit of an exaggeration, which has been driving this bearish scenario for months.
Barron’s most recent assessment suggests an improving inflation outlook. But traders remain fixed on Fed bearishness, so August’s CPI numbers were strong enough to push gold and silver lower. Wall Street also reacted negatively but if you look at the record, the Fed is famous for pushing stocks to the breaking point and then reversing direction.
Still, today’s drop in prices was typical of a still defensive market, looking for value. The cash New York market fell from 1730.00 through 1695.00 before bouncing higher and settling between $1705.00 and $1710.00 on the day.
This bounce was a combination of bargain hunting and short covering. Yes, cheaper prices continue to move the needle in the physical world of gold and silver bullion. For most of the last 10 trading days we have been net sellers to the public.
Surprisingly enough, what made this latest pricing action in gold noteworthy was not the inflation data. The rug was pulled out from underneath many savvy traders. Because prior to the Consumer Price Index they were growing more optimistic about higher gold prices.
On the day gold closed down $23.10 at $1705.00 and silver closed down $0.37 at $19.39.
On Wednesday the early gold trade turned choppy between $1702.00 and $1707.00 so there is some interest. But the market broke down later in the day and finished just below $1700.00, as interest faded. It is difficult to make a positive case on this dip because higher prices are capped by rising yields and a stronger dollar. And gold could be subject to follow through momentum selling if this weakness is not bought by bargain hunters.
The Dollar Index these past 5 trading days has been erratic, losing 2 full points and then jumping back to recent highs (110.00) on yesterday news of solid inflation numbers. Traders are still looking for fresh news, expecting a ¾ percent hike in interest rates by late next week. Actually, there are some who believe that a full point might is in order. Increasing the bearish tilt but the Fed should be careful here, too much inflation push equals recession.
Gold pricing on both sides of $1700.00 today is not a confidence statement it is a holding pattern. Higher interest rates are not good news, but it remains to be seen if the Fed will kill the golden goose. Wall Street is trying to recover after its worst trading day since June of 2020.
In some ways stocks and gold are interrelated. Both are suspicious of a hawkish Fed. Yet both see some advantage in lower prices. In other words, gold and stock bulls are not running for cover. Both sectors obviously dislike lower prices, but each is patient enough to see if the Fed can get lucky with this latest attempt in trying to at least control inflation numbers.
On the day gold closed down $8.50 at $1696.50 and silver closed up $0.08 at $19.47.
Zaner (Chicago) – “Gold and silver prices deserved some liquidation pressure yesterday in the wake of inflation news that is unlikely to discourage the US from a jumbo rate hike next week, but in our opinion the washout in most markets yesterday was excessive. An example of the market’s need for softer inflation to avoid a jumbo rate hike next week was seen in a Bloomberg report which labeled the +0.1% CPI result as “a shockingly hot inflation report”. Unfortunately for the bull camp, the recovery in the dollar was very impressive and could have some “legs”. In fact, if the dollar manages to take out contract highs today October gold is likely to fall below the September low of $1,689.80. Gold ETF holdings were reduced yesterday by 79,024 ounces while silver ETF holdings saw an outflow of 1.2 million ounces. On the other hand, the markets will be presented with additional inflation measures from the US later today and that could result in follow-through selling in both gold and silver. Market expectations for today’s producer price index reading matches the trades expectations for the US CPI report yesterday which increases the odds of gold and silver price posted more declines. The bias is down, with a full retracement of the September rally likely without a contraction in the month over month producer price index reading. Obviously, with silver managing a low to high September rally of $2.60, it is very vulnerable to further significant downside corrective action. The first retracement target from the September rally offers an initial target of $19.00 in December silver.”
On Thursday gold increased in bearishness even though the Dollar Index turned flat shy of 110.00. Yesterday’s breakdown encouraged the bears and today’s increased momentum selling should find the bulls hiding under the bed. Reuters – “This sell-off into September, October has really been just on rate adjustments, rates came off pretty hard and now they’re right back up again and pushing gold lower. Prices had briefly pared losses as investors took stock of data that showed U.S. retail sales unexpectedly rose in August, while separate data showed U.S. weekly jobless claims fell 5,000 to a seasonally adjusted 213,000 last week. Markets have fully priced in an interest rate hike of at least 75 basis points at the end of the Fed’s policy meeting next week, possibly even as high as 100 basis points. Although gold is considered a safe bet during economic uncertainty, interest rate hikes increase the opportunity cost of holding non-yielding bullion. Meanwhile, International Monetary Fund chief Kristalina Georgieva said on Wednesday central bankers must be persistent in fighting broad-based inflation.”
I can’t say that lower prices in gold and silver are unexpected. But it is interesting that the decline in stocks and gold were about the same this week (4%). Still, weaker gold and silver prices today are discouraging because we did not see much short-term bargain hunting.
Waiting out the rocket fire is no fun but, in the meantime, remember that the price of gold on the short term is a function of interest rates. For the time being it will not act like an inflation hedge. The origin of “a bull in a China closet” is not known but the affirmation comes to mind and was first used in Frederick Marryat’s novel Jacob Faithful (1834). The more Powell “huffs and puffs” using increased rhetoric, the more important gold and silver bullion becomes in the longer term.
The faithful were not standing in line this morning to buy the latest weakness. Sudden drops usually produce a day or two of decreased volume. But physical buyers will take advantage of this latest drop as soon as they believe gold and silver are oversold.
Look for a short-term bounce, this market is probably already oversold. The bounce will be a combination of bargain hunting and short covering. “Good Grief” Charlie Brown. I’m glad the weekend approaches. It will give these markets time to settle down, even as worry mounts.
On the day gold closed down $31.10 at $1665.40 and silver closed down $0.29 at $19.18.
On Friday we began to see mild bargain hunting across our trading desk as the Dollar Index moved lower, losing ¾ of a point in early trading. No one likes these more dramatic swings in price and frankly I’m surprised. A few days ago, I had envisioned a more stable market with less volatility. But Fed rhetoric rained on my parade. This is not to say that the FOMC is not sincere in its resolve to raise interest rates. I’m suggesting they may not have enough gas in the tank to put up with the expected economic push back. You could very well see higher inflation become their longer-term plan to move away from the pandemic model.
We are members of a national dealer network and most of the time the information and news is boring. But today I got a laugh from one of its more pessimistic dealers. HAPPY LEHMAN BROS BANKRUPTCY ANNIVERSARY! “The bankruptcy of Lehman Brothers on September 15, 2008 was the climax of the subprime mortgage crisis. After the financial services firm was notified of a pending credit downgrade due to its heavy position in subprime mortgages, the Federal Reserve summoned several banks to negotiate financing for its reorganization. These discussions failed, and Lehman filed a Chapter 11 petition that remains the largest bankruptcy filing in U.S. history, involving more than US$600 billion in assets. Got Gold? Got Silver?”
Dealers do not like lower prices any more than their customers. But the best dealers always manage to keep things in perspective. Even when it’s raining outside.
On the day gold closed up $6.30 at $1671.70 and silver closed up $0.12 at $19.30.
Platinum closed down $4.50 at $900.50 and palladium closed down $33.20 at $2098.10.
My Brothers and Sisters, thank you for your business and friendship. 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. At the same time trust that God will soon get us back to normal and our traditional business model. As always, thank you for your patience. Richard Schwary
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