Gold – Political Tension & Safe Haven
Commentary for Friday, Jan 12, 2024 (www.golddealer.com) – Today gold closed up $32.40 at $2046.70, and silver closed up $0.62 at $23.16. The price of gold finished the week with a bang today, touching $2060.00 before settling lower on the day. (Reuters) United States and Britain launched strikes against sites linked to the Houthi movement in Yemen, while Saudi Arabia called for restraint. There are other factors supporting higher gold prices as the chance of an interest rate reduction moves from 70% to 80% according to the CME Fedwatch tool. And typical book squaring as the paper trade closes short positions into this long weekend which creates a short covering rally. A reminder that we will be closed Monday, Jan 15th for Martin Luther King Day. Banks, the Post Office and commodity markets are closed on this national holiday. Last Friday gold closed at $2042.40 / silver at $23.12 – on the week gold was higher by $4.30 and silver was higher by $0.04. Lots of noise and not much action.
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On Monday the price of gold in the domestic US market was weaker but steadied by a dip in the dollar. This “push pull” action is typical these days as gold moved to early lows ($2018.00) quickly followed by a jump to highs on the day ($2034.00) before settling the day in the red.
This trading pattern is not encouraging in that gold moved from highs to lower lows but the fact that prices turned flat around $2025.00 and recovered somewhat is a plus. Traders stepping in to buy the weakness is also a plus. Volume numbers across our trading desk dipped this morning, suggesting a cautious public. But this market never fails to surprise in that Fed Governor Michelle Bowman told CNBC this morning that the “current stance of monetary policy appears to be sufficiently restrictive”. If this Fed Governor is correct, these comments might create the fresh spark gold traders are looking for in a flagging market, threatening support at $2000.00.
FXEmpire (Vladimir Zernov) – Gold Tests Weekly Lows Despite Falling Treasury Yields – “Gold tested new lows despite U.S. dollar’s pullback and falling Treasury yields. The broad pullback in commodity markets served as the key negative catalyst for gold. If gold settles below the support at $2015 – $2025, it will move towards the next support level at $1970 – $1980. Silver managed to rebound from session lows as gold/silver ratio moved towards the 87.50 level. Gold/silver ratio remains close to multi-month highs, and an additional pullback may provide significant support to silver. From the technical point of view, silver is stuck below the resistance at $23.40 – $23.60. A move above $23.50 will push silver towards the next resistance at $25.00 – $25.30. Platinum is under pressure amid a broad pullback in commodity markets. If platinum settles below the $950 level, it will head towards the next support at $925 – $935.”
On the day gold closed down $15.80 at $2026.60, and silver closed unchanged at $23.12.
On Tuesday the price of gold traded on both sides of “unchanged” in the domestic market, but this market feels “heavy”. Technical buying is helping with bullish support, but yesterday’s weakness was enough to discourage fresh physical buying in the short term. The plus here being that paper traders continue to buy weakness. Gold is now trading above its 200 Day Moving Average, which supports the longer-term positive technical outlook. But the cross winds at current prices are strong and easily cap higher prices for our shiny friend. I’m happy that gold remains above $2000.00, but this foothold may be tenuous if inflation does not weaken.
FXEmpire (Christopher Lewis) – Gold Bounces Back a Bit – “We rallied a bit during the trading session on Tuesday in the gold market as we continued to see a lot of noise. I suspect that the 50-day EMA is going to continue to offer a bit of support and we have bounced from there of the last two trading sessions. At this point, I think the $2,000 level is of course going to be important to pay attention to below there as well, as it is not only a large psychological figure, but it’s also an area where we’ve seen a lot of resistance previously. Above, we have the $2075 level offering significant resistance, and therefore, I think we are still very much in a range, but overall, this is a market that I do think favors a buy on the dip approach, as there are a whole litany of reasons to think gold will go higher, not the least of which is going to be geopolitical concerns. As we go into 2024, it’s obvious that there are a lot of things out there that could cause concern. We also have interest rates that are dropping based upon the idea that the Federal Reserve is going to cut multiple times in 2024. So, all things lead to higher pricing before it’s said and done. Looking at this market as a buy on the dip opportunity is probably going to be the way I play it most of the year, but it certainly is right now as traders are just now putting on bigger positions for the year and of course are trying to catch up to the overall trend in and of itself. Once we break above the $2075 level, it’s very possible that we may try to take on the top of that massive candlestick from December 4th. Ultimately, the inherent volatility of gold is showing itself, but I also recognize that this is a market that’s been in an uptrend for multiple reasons. Pay close attention to the 10-year yield in the United States, which can have a major influence, and of course many geopolitical issues at the same time also provide a little bit of support for gold as well.”
On the day gold closed down $0.20 at $2026.40, and silver closed down $0.22 at $22.90.
On Wednesday gold moved between $2036.00 and $2021.00 in the early trade so this looks like a second quiet day after Monday’s weakness. Traders seem content to test this market and see if this drift to lower prices will develop into something substantial. Another day of zero buzz as the market is yawning at current levels waiting for the second shoe to fall. US consumer data due tomorrow may push this market somewhat, but I believe expectations will remain unchanged and this market will settle around current levels, waiting for something more tangible from a Federal Reserve which may still be in transition mode.
Reuters (Anushree Ashish Mukherjee) – Gold treads water as traders gear up for US inflation print – “Gold steadied on Wednesday as traders kept their eyes glued to U.S. inflation data that could shape the Federal Reserve’s outlook on interest rate cuts this year, although a softer dollar kept a floor under prices. Cooler-than-expected inflation data will give more reason for the Fed to cut rates this year, which should move gold higher, said Bob Haberkorn, senior market strategist at RJO Futures. “Right now I expect kind of a quiet session, a little bit of back and forth, but (gold) remaining positive on the day ahead of tomorrow’s data.” U.S. consumer inflation data is due on Thursday. Economists polled by Reuters see year-on-year inflation at 3.2% in December, but think core inflation likely fell to 3.8%, its lowest since mid-2021. A New York Federal Reserve report revealed that consumers expect a decline in inflation, while Fed Governor Michelle Bowman on Monday stated that the U.S. central bank’s monetary policy seems “sufficiently restrictive”. Lower interest rates reduce the opportunity cost of investing in non-yielding bullion. “If markets have to dilute bets for a March rate cut, spot gold may see a brief stint back in the sub-$2k domain,” said Han Tan, chief market analyst at Exinity Group. “Still, bullion bulls would have no qualms restoring spot gold back above that psychologically important mark once markets get a firmer grasp on the Fed’s policy pivot.” The dollar index (.DXY) ticked down about 0.2%, making greenback-priced bullion more affordable for buyers holding other currencies. In other metals, spot silver fell 0.6% to $22.86 per ounce, while platinum lost more than 1% to $920.13, and palladium rose 1.1% to $989.38.”
On the day gold closed down $4.70 at $2021.70, and silver closed down $0.02 at $22.88.
On Thursday gold moved higher on the open ($2038.00) but quickly lost gains moving to lows on the day ($2015.00) before settling mildly in the red for the day. This is another example of mixed short-term signals producing a choppy trade. But the inflation numbers may not be strong enough to significantly diminish the expectations of an interest rate reduction in March. My bet is that in a few days this over the shoulder December snapshot will be forgotten. It is worth noting that the December inflation rate of 3.35% was in fact 6.41% a year earlier, so higher interest rates are taming the inflation dragon. Whether this will produce the expected interest rate cut in March remains to be seen, so keep your options open.
Reuters – US consumer prices rise more than expected in December – “U.S. consumer prices increased more than expected in December as Americans paid more for shelter and healthcare, suggesting that it was probably too early for the Federal Reserve to start cutting interest rates. Expectations for a rate cut in March were also tempered by other data on Thursday showing the labor market remaining tight at the turn of the year, with the number of people filing new claims for unemployment benefits unexpectedly falling last week. The reports followed news last Friday that the economy added 216,000 jobs in November and annual wage growth picking up.” “Overall, today’s inflation data makes a March rate cut seem like a less likely scenario,” said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis.”
Reuters (Anushree Ashish Mukherjee) – Gold pares gains after US inflation data reduces rate cut bets – “Gold prices pared gains on Thursday after higher-than-expected U.S. consumer prices data for December drove concerns that interest rates could stay restrictive for longer, boosting the dollar and Treasury yields. The dollar index (.DXY) and Treasury yields extended gains after data showed U.S. consumer prices rose more than expected in December, which could delay a much anticipated interest rate cut in March from the Federal Reserve. “A modestly more robust CPI report than desired should keep a lid on gold for the session as traders continue to cling to the idea of a March rate cut. Gold is just grudgingly lower and (market) hopes PPI will show softer results tomorrow,” said Tai Wong, a New York-based independent metals.
On the day gold closed down $7.40 at $2014.30, and silver closed down $0.34 at $22.54.
On Friday gold became another reminder of the problematic Middle East. The United States and Britain launched airstrikes in Yemen. A big deal for sure but only a token consideration when compared to crude oil delivery which could be interrupted because of the narrow waterways. This second point has the world wringing their hands and subsequently stoking safe haven demand. My bet is that this problem will correct itself over the long weekend. Gold prices will likely settle back into its current holding pattern around $2000.00. The first FOMC meeting this year (January 30th and 31st) will only be a review of its current policy. The second meeting (March 19th and 20th) is more important. Analysts believe the Fed will commit itself concerning the interest rate problem at this March meeting. A continued dovish approach would likely produce higher gold prices, a turn to the hawkish side would likely push gold prices lower.
Reuters (Anushree Ashish Mukherjee) – Gold shines from Middle East tensions, Fed rate cut bets – “Gold prices rose more than 1% to a one-week high on Friday as an escalation in Middle East conflict fueled safe-haven buying, and a softer U.S. producer price index data boosted bets that the Federal Reserve might cut rates sooner. The United States and Britain launched strikes against sites linked to the Houthi movement in Yemen, while Saudi Arabia called for restraint. A rise in geopolitical risk is pushing gold prices up, and at the same time the U.S. central bank may be getting ready to start moderating its restrictive monetary policy, also a good environment for gold, said Bart Melek, head of commodity strategies at TD Securities. The PPI data came in negative, which was also a significant catalyst for prices, Melek added. U.S. producer prices unexpectedly fell in December amid a decline in the cost of goods, while prices for services were unchanged, which bodes well for lower inflation in the months ahead. However, data on Thursday showed U.S. consumer prices rose more than expected in December. Traders see an 80% probability of a rate cut in March, according to the CME Fedwatch tool, compared with about a 70% chance seen before the PPI report. Considered a safe haven, gold tends to gain during times of uncertainty, while lower rates also lift the appeal of the zero-yield asset. On the physical front, gold demand in most of the top Asian hubs firmed this week as the approaching Chinese New Year encouraged buyers in China and Singapore. Spot silver rose 2.7% to $23.37 per ounce, platinum gained nearly 2% to $932.83, and palladium was up 0.8% to $995.89.”
On the day gold closed up $32.40 at $2046.70, and silver closed up $0.62 at $23.16.
Platinum closed up $1.10 at $910.10, and palladium closed down $1.90 at $972.40.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the overall near-term technical advantage and regained some momentum today. Prices are in a three-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 $2,100.00. 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 $2,058.70 and then at $2,071.10. First support is seen at $2,040.00 and then at the overnight low of $2,033.10. The silver bears have the overall near-term technical advantage. Prices are in a choppy, four-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at the November low of $22.26. First resistance is seen at this week’s high of $23.565 and then at $23.715. Next support is seen at this week’s low of $22.63 and at the November low of $22.26.”
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