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Gold – “Place Your Bets”

Gold – “Place Your Bets”

Commentary for Friday, December 16, 2022 ( – Today gold closed up $12.80 at $1790.00 and silver closed up $0.02 at $23.15. Gold opened choppy today with a mild yet uncertain upward bias. This trade reminds me of the famous shoot out at the OK Corral. Will the Fed blink or will Chief Powell continue to raise the interest rate ante? The troublesome part of this puzzle is that it will take even more time to figure out a solution. In the process, traders will just have to hope the FOMC proceeds down the right road. During this dilemma – Gold prices have seen their worst weekly decline since mid-November. Commerzbank sees gold falling towards $1,750 per ounce until the Fed’s cycle of interest rate hikes is over. It then expects prices to rise to $1,850 by the end of 2023 (Reuters). Last Friday gold closed at $1798.10 / silver at $23.54 – on the week gold was down $8.10 and silver was down $0.39.    

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On Monday gold pushed higher (1795.00) in the overnight Hong Kong and London markets but sold off ($1782.00) in the domestic trade. This could be a typical round of profit taking in a market with competing bullish and bearish sentiment. Or it could be that investors remain cautious towards the Christmas holiday season. I expect a kind of “froggy” trade through the holidays. Still, there are opposing trends which will certainly clash in the longer term.

Today traders are expecting a half point interest rate hike at the final FOMC meeting this year (December 13th and 14th). The European Central Bank and the Bank of England will announce their plans this week. Data on Friday showed U.S. producer prices rose slightly more than expected in November, reinforcing the view that the Fed may have to keep interest rates higher for longer. Focus now shifts to the U.S. consumer price index (CPI) report for November is due on Tuesday. “Ahead of the key data print, the current strength of the market would be tested on a break below $1,765, a level where support was found on several occasions last week,” said Ole Hansen, head of commodity strategy at Saxo Bank (Reuters).

On the shorter term, the gold price swing might remain surprisingly narrow. But still hopeful for the bulls if inflation remains stubborn or safe haven demand stays in place. The silver trade has been a volatile rodeo this year. Based on today’s close ($23.22), it has been as much as $9.00 higher and $9.00 lower over the past 12 months! World mint premiums remain high and delivery times are growing longer, especially on the popular US Silver Eagle monster boxes.

Reuters (Pitas and Shalal) U.S. inflation will be much lower by end of 2023, Yellen says – U.S. Treasury Secretary Janet Yellen on Sunday forecast a substantial reduction in U.S. inflation in 2023, barring an unexpected shock. “I believe by the end of next year you will see much lower inflation if there’s not … an unanticipated shock,” she told CBS’ ’60 Minutes’ in an interview released Sunday. Asked about the likelihood of recession, the former Federal Reserve chair said, “There’s a risk of a recession. But … it certainly isn’t, in my view, something that is necessary to bring inflation down.” Yellen’s comment came days before the Fed is expected to slow the aggressive pace of interest rate increases it has pursued this year. Fed Chair Jerome Powell has telegraphed a smaller, half-of-a-percentage point increase in the policy rate, to a range of 4.25%-4.5%, after four 75-basis point hikes this year. Yellen told CBS that economic growth was slowing substantially, inflation was easing, and she remained hopeful that the labor market would remain healthy. She said she hoped the spike in inflation seen this year would be short-lived and said the U.S. government had learned “a lotta lessons” about the need to curtail inflation after high prices seen in the 1970s. Shipping costs had come down and long delivery lags had eased, while gasoline prices at the pump were “way down.” “I think we’ll see a substantial reduction in inflation in the year ahead,” she said.

On the day gold closed down $17.60 at $1780.50 and silver closed down $0.32 at $23.22.

On Tuesday gold traders reshuffled the deck and made the same mistake. Reuters – “Gold prices climbed to their highest levels in more than 5 months after data showing a smaller-than-expected rise in US consumer prices cemented bets for a slowdown in rate hikes from the Federal Reserve. “Gold and silver are up significantly on safe-haven bid and also the outlook that rate hikes may be slowing,” said Bob Haberkorn, senior market strategist at RJO Futures. U.S consumer prices barely rose in November amid a drop in the cost of gasoline and used cars, leading to the smallest annual increase in inflation in nearly a year. Following the release of the CPI data, the dollar index dropped more than 1% to a nearly six-month low, making gold less expensive for other currency holders. Benchmark U.S. Treasury 10-year note yields also slipped. Fed funds futures prices now imply a better-than-ever chance that the Fed will follow its expected half-point interest rate hike this week with a smaller 25-basis-point rate hike in February. The inflation print “signals to the market that the interest rate hikes that the Fed’s been doing are working and they might not need to be as aggressive this week or in the coming months,” he added. The U.S. central bank is set to issue its policy statement at 2 p.m. EST on Wednesday, followed by a press conference from Fed Chair Jerome Powell.”

The above word “cement” implies certainty. This fresh information would be more helpful if the analysts said the Fed interest rate policy has turned dovish in the short term. News from the Fed should always be considered “short-term” because they rarely control the world view.

This shift in theory and the significant weakness in the Dollar Index today pushed gold to daily highs of $1825.00. Traders then sold the rally and mild profit taking found support at $1805.00. Gold finished the day in the middle of the pricing range. A good day for the bulls in a still troubled gold market because the “unwinding” process is very uncertain.

You can’t just ignore or walk away from that huge debt mountain which was created during the raging Covid days. For now, the bulls are holding the trump cards and the metals are trending higher. The bears, however, are not close to folding their tent. They are waiting patiently on the sidelines waiting for the next unexpected shift in trading sentiment.

On the day gold closed up $33.40 at $1813.90 and silver closed up $0.58 at $23.80.

On Wednesday gold was choppy again, rising on the open ($1813.00) and falling as traders sold the modest rally. On the day gold was modestly lower, which is surprising considering the Dollar Index made new recent lows (103.30). Still this market is defensive, waiting for this week’s interest rate revelation from FOMC Chief Jerome Powell. The latest and greatest news will be out after the domestic gold market closes today. Today’s aftermarket may provide insight.

Reuters – “Any dovish comment coming from policy makers could give new fuel to gold’s recovery,” Carlo Alberto De Casa, external analyst at Kinesis Money, said in a note. “Vice versa, hawkish rhetoric could determine a consolidation phase or some moderate correction, even if the main trend still appears positive.” Lower rates tend to boost gold prices because they cut the opportunity cost of holding non-yielding bullion. “The market is more focused on the end game or the idea that the Fed will be ending its interest rate hike cycle early in 2023. That continues to be the main focus of many of these asset classes, including gold,” High Ridge Futures’ Meger said. Meanwhile, the dollar hovered at its lowest level in six months, making greenback-priced bullion less expensive for overseas buyers.”

Now this is interesting. The Fed announced the expected half point hike in interest rates, which not long ago would have been considered very dovish. So why did today’s aftermarket move lower on the announcement?

The reality here has to do with a clever though honest bean count on where each of the FOMC gang stands – relating to the interest rate question. Powell heads a sophisticated team of academics which is independent of his thinking and Wall Street.

Believe it or not, the number of hawkish governors increased after this interest rate news was released. In other words, the “insider’s group” still leans towards higher interest rates over the longer term. This is bearish for short term pricing in the metals, but not the end of the world.

Traders will continue to look for a defensive market. Which, I believe, has been their real inside line for months. And the underlining reason we see a “sideways drift” in the price of gold.

The aftermarket in gold dipped below the important $1800.00 – a negative for the metals. But traders bought the flagging market around $1797.00 – which is a minor plus. This suggests a shaky market as traders again embrace negative trading sentiment. Expect the bears to gain strength in proportion to how hawkish the Fed becomes in 2023. But keep in mind this remains a short-term trade, the Fed can’t get too crazy without driving the economy into a bigger ditch.

On the day gold closed down $6.40 at $1807.50 and silver closed up $0.15 at $23.95.

On Thursday gold swooned after the US Federal Reserve said it will deliver more interest rate hikes next year. “The Fed is maintaining its hawkish messaging for the time being, despite the declining growth outlook, and in turn without a cut on the horizon, it’ll be very difficult for speculators to move their capital towards gold,” said Daniel Ghali, commodity strategist at TD Securities. The Fed on Wednesday raised interest rates by 50 basis points (bps) as expected, but bullion fell as much as 0.8% after comments from Fed Chair Jerome Powell indicated that the U.S. central bank expected interest rates to stay higher for longer.

“The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path,” Powell had said.

Bullion is often considered a hedge against big spikes in consumer prices, but interest rate hikes may curb inflationary pressures while also reducing the appeal of non-yielding gold. The European Central Bank and the Bank of England also raised their key interest rates by half a percentage point on Thursday and indicated that more hikes were likely (Reuters).

While returning Fed hawkishness is bad news for the bullish gold scenario, today’s pricing pattern suggests we are approaching oversold territory. Because the domestic market seems to have put in a short-term floor ($1774.00) early in the day.

The idea of trying to guess what the Fed has in mind is dicey. There are academics even this morning that believe this reaction is overcooked. The idea being that the Fed was slow to tighten and got behind the inflation curve. And now they don’t want to make the same mistake.

But whether they are right or wrong this time around investors should consider the case for bargain hunting at these new lower price levels based on three points.

First, $1750.00 has already provided significant support this past month.

Second, we may see a bear raid testing this level. But if gold approaches $1700.00 physical cash buyers will show up early and be standing in line.

Third, this morning the major stock averages had their biggest drop in more than a month. Wall Street is reaching for the aspirin bottle. Recessionary fears move to the front burner. The Fed will “pivot” rather than open Pandora’s box. Powell will take his foot off the interest rate accelerator rather than admit the Fed was again on the wrong side of this volatile trade.

On the day gold closed down $30.30 at $1777.20 and silver closed down $0.82 at $23.13.

Zaner (Chicago) – “While we think the magnitude of the declines in gold and silver prices this morning is exaggerated given fundamental developments the markets were short-term overbought prior to yesterday’s US rate hike decision. In addition to a precious metal negative environment from the barrage of anticipated rate hikes, the dollar has recovered and is applying additional pressure to gold and silver prices this morning. However, the gold market should draft support from a large 153,583-ounce inflow to gold ETF holdings yesterday, with that inflow the 3rd straight daily build. Unfortunately for the bull camp in silver, ETF holdings of silver yesterday declined by 1.7 million ounces and that decline was the 3rd straight daily decline. Adding into the downward motion in precious metal and other physical commodity markets this morning is a deteriorating view toward the Chinese economy after Chinese economic data overnight highlighted an economy already contracting sharply. Furthermore, headlines regarding the explosion of Chinese infections suggest activity going forward is likely to slow even further. Not surprisingly, Indian buyers stepped back from the gold market overnight citing expensive prices and fear of rising rates. In the end, a paradigm shift might be nearing for gold and silver but residual headwinds from the uncertainty in the global economy in the short-term gives the bear camp the edge. With uptrend channel support in February gold violated the next downside target in February gold is the December consolidation low down at $1778.10. Not surprisingly, the breakneck gains in silver have resulted in a very aggressive corrective setback today with investors potentially losing their appetite for the metal above $24.00. We suspect the deterioration in the Chinese economy and concerns of additional economic headwinds from global rate hikes has also downshifted physical demand hopes for silver. Initial downside targeting in silver today is $22.895.”

On Friday gold dipped to $1782.00 and bounced higher ($1793.00) before traders sold this mild rally and it settled for modest gains on the day. This is somewhat encouraging to the bullish trade considering the beating gold took on Thursday. But today’s bounce does not dissuade that heavy feeling that higher interest rates will continue to take their toll on bullish sentiment.

Keep in mind however that the paper trade and physical market are different animals.

Reuters (Francois Murphy) – Inflation, uncertainty fuel new gold rush at ancient Austrian Mint – VIENNA, Dec 14 (Reuters) – The Austrian Mint, one of the world’s oldest and biggest producers of gold bullion coins, is unable to keep up with demand as people rush to find a safe haven for their money amid surging inflation and economic fears caused by war in Ukraine.

“Demand for gold has never been as high as this year,” the Mint’s Chief Executive Gerhard Starsich told Reuters in his ornate office in a Vienna building where coins have been struck since the 1830s. Behind its quiet facade lies a warren of workshops where modern machines melt metals and thump out money.  “At the moment, every gold coin that comes off the coining press has already been sold,” said Starsich. “Right now, we could sell three times as many as we are able to produce.” The Mint’s shop, a modern corner of the building, has had a long queue outside daily for months. Among those standing in line was pensioner Renate, one of the few willing to talk about her purchasing habits. “I’m from an older generation. Whenever things get a bit uncertain, we come back to gold coins and tell ourselves we’ll always be able to sell them,” she said. “Gold has that safety factor.” Starsich said customers were of all ages and from all walks of life. Around a third of the Mint’s sales are to foreign buyers.

The Mint was founded in 1194 to strike coins from the silver paid as a ransom for Richard the Lionheart, after he had been seized and held captive by enemies near Vienna. Today, the Mint says its one-ounce Philharmonic gold coin, named after the world-famous Vienna Philharmonic Orchestra, is the top-selling gold bullion coin in Europe and Japan.

Austria is a financially conservative country in which the public hoards cash and gold in times of crisis. The Mint says demand for gold is the highest it has been since it took on its current form in 1989. The Austrian National Bank, which owns the Mint, said in a presentation on Austrian households’ finances in October that more gold had been bought in the two-and-a-half years since the coronavirus pandemic started than in the five years before that. It noted demand for gold in the first half of this year was higher even than in the first half of 2020, “despite rising prices”, suggesting a rush to an asset seen as a safe haven. “It’s a cascade,” Starsich said of the causes. “It started with the corona crisis, with the pandemic, when people were unsettled. Then in February Russia invaded Ukraine. That boosted sales again. And then the rising inflation over the summer/autumn, which increased sales further slightly.”

On the day gold closed up $12.80 at $1790.00 and silver closed up $0.02 at $23.15.

Platinum closed down $13.20 at $1013.00 and palladium closed down $107.00 at $1684.20.

Zaner (Chicago) – “In retrospect, gold and silver prices were knocked back from recent highs because of the barrage of central bank rate hikes this week which in turn served to lift (likely temporarily) the dollar. Not only did central bankers move aggressively, but they also promised to continue to act aggressively well into the future. Not surprisingly, the central bank action/higher dollar fostered broad-based liquidation of many physical commodities as evidenced by the sharp dive in the Bloomberg commodity index. Not surprisingly, investors pulled 86,204 ounces of gold and nearly 2 million ounces of silver out of ETF holdings yesterday! Adding in the escalating fear of serious slowing in China from the infection explosion and the bear camp should be very confident. In fact, with extremely concerning Chinese economic data released earlier this week upcoming Chinese data is quickly being revised even lower. With Indian buyers already skittish, with prices thought to be expensive into the recent highs, the washout yesterday was justified and did not result in bargain-hunting buying overnight. We see downside follow-through action in gold and silver again today given the severe damage posted on the charts yesterday and a minimal upward bias in the dollar this morning.

Evidence of the breadth of negative sentiment toward gold is noted with Australian gold mining shares falling by roughly 4% this week. In retrospect, minimal trading interest in this week’s downward thrust (falling trading volume and declining open interest) could indicate a lack of downside momentum. A fresh uptrend channel support line in February gold today is $1756 and increases to $1757.50 on Monday. As in gold and other physical commodities, macro signals have turned bearish for silver and damage on the charts has extended this morning with uptrend channel support targeted close this morning at $22.66.”

My Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry or Eric. Most employees have been vaccinated – if this is a concern ask for more information. 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 get us back to normal and our traditional business model. As always, thank you for your patience. Richard Schwary

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