Gold – Possible Outcomes?
Commentary for Friday, October 27, 2023 (www.golddealer.com) – Today gold closed up $1.40 at $1988.60, and silver closed down $0.02 at $22.77. Gold closed quietly at the end of this trading week. With escalating troubles in the Middle East and a positive technical picture I’m surprised that both gold and silver seem to have lost focus. This market consolidation could be typical with higher numbers right around the corner. Or it could be the first signs of an insipid turn which might eventually favor the bears. Still, we are up $115.00 this month and $325.00 this past year so gold continues to do its job of keeping everyone honest. Last Friday gold closed at $1982.50 / silver at $23.35 – on the week gold was up $6.10 and silver was down $0.58.
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On Monday the price of gold and silver saw mild settling after reaching short term highs last Friday. The technical picture for both metals also support the bullish scenario.
As usual, however, I would approach these numbers with caution. The bullish case here was made by Barron’s. It claimed the hawkish Fed has turned dovish. Trying to figure out the next Fed move is difficult, perhaps impossible. If they do have a specific plan, they are not sharing details, preferring to track inflation and keeping their options open.
The price of gold Friday made a 3.5-month high moving from $1825.00 to $1985.00. I could be wrong, but this looks like a tired bull, running out of steam. The paper market is looking at a fresh and sizable $160.00 profit. It is easier to believe traders will take profits rather than worry about the Fed’s next move. Especially as gold approaches the $2000.00 overhead resistance.
What the Fed might do in the short term is uncertain and transitory. You could even make the case that their interest rate strategy as of now is already factored into the price of gold. It is because of this uncertainty that their short-term revelations may be largely ignored.
Reuters (Ashitha Shivaprasad) – Gold subdued as yields rise, spotlight shifts to US economic data – “Gold prices eased on Monday as U.S. 10-year Treasury yields advanced higher, while investors kept a tab on growing unrest in the Middle East and awaited U.S. economic data. The yield on the benchmark 10-year U.S. Treasury note hit 5.0%, decreasing the appeal of non-yielding bullion. “Higher yields continue to be a drag on gold prices, but we believe geopolitical tensions and the uncertainty in the Middle East will continue to drive prices higher,” said David Meger, director of metals trading at High Ridge Futures. Bullion prices hit their highest since mid-May on Friday and surged about 9% in the past two weeks as investors fluttered into the safety of gold on fears that the Israel-Hamas war could escalate into a wider Middle East conflict. Focus is also on the U.S. PCE price index — the Federal Reserve’s favored inflation gauge — U.S. GDP figures for the third quarter, the European Central Bank’s rate decision and global flash PMIs for economic cues. “If inflation data come in higher than expected, it will raise concerns about rising interest rates, to which gold might see a knee-jerk reaction to the downside, but safe-haven demand should begin to kick post that,” Meger added. Mirroring investor sentiment, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), rose 1.77% to 863.24 tons on Friday.”
On the day gold closed down $6.20 at $1976.30, and silver closed down $0.28 at $23.07.
On Tuesday the price of gold was a roller coaster ride in the overnight Hong Kong and London markets, dipping to $1955.00 before eventually reversing direction in the domestic New York trade and moving to daily highs approaching about unchanged on the day. Today’s recovery suggests that traders bought the dip – a plus for the bulls.
This may suggest that yesterday’s “profit taking” admonition is a busted flush. But the price of gold may still be overbought. Granted this is a minority opinion considering the Middle East problem. And an uncertain FOMC relative to interest rates.
FXEMPIRE (Christopher Lewis) – Gold Markets Look a Little Heavy – “Gold markets initially tried to rally during the trading session on Tuesday, but then gave back the gains to show signs of weakness. We fell pretty drastically but then turned around to show signs of life again. All things being equal, the $2000 level above is a major resistance barrier, and of course a large, round, psychologically significant figure. This is an area that traders have been looking at for some time, and have fallen from multiple times in the past. Because of this, I think it’s probably only a matter of time before we pull back a little bit deeper. Whether or not we do so drastically remains to be seen, but it is probably worth noting that the major turnaround in gold had more to do with the geopolitical concerns than anything else. Interest rates are still very high, so it doesn’t necessarily think that the market will be able to continue going higher forever. Furthermore, if we get some type of relaxation on tensions in the Middle East, the market then breaks down rather drastically. In that environment, I suspect that the market could go looking to the 50-Day EMA, followed by the 200-Day EMA.
On the other hand, if we were to turn around and take out the $2000 level handily on a daily close, then the gold market could go much higher. At that point, I think you probably have another $50 that traders will be looking to pick up, and then perhaps breaking out above there. A lot of this comes down to geopolitical noise, so it’s difficult to predict it, but at this point it’s obvious that the market had gotten a little overdone so a little bit of digestion does make a certain amount of sense after a massive run higher that we have seen. That being said, if we get some type of bad headline coming out across the newswire, that can change the attitude of the market almost immediately, and therefore you will have to be very cognizant of headlines and recognize that things can change in an instant.”
On the day gold closed down $1.30 at $1975.00, and silver closed down $0.09 at $22.98.
On Wednesday morning gold continued to consolidate in a range between $1970.00 and $1985.00 and managed to finish slightly in the green for the day. And its technical picture leans toward higher prices. Both factors are a “plus” for the bullish scenario.
Still experts are divided over the conflict between safe haven demand and higher interest rates. A significant change in either of these will change the shorter-term outlook and be reflected in the price of gold. It appears however that its price may be turning flat, which suggests a continuation of the narrow trading channel between $1900.00 and $1950.00.
It all depends on what the Fed does between now and the first quarter of 2024. Still this monetary confusion requires patience. A long consolidation in prices tends to diminish the cash trade across our counter because it’s boring. Something like watching paint dry.
Reuters (Ashitha Shivaprasad) – Safe-haven gold gains on MidEast conflict; US data in focus – “Safe-haven gold gained on Wednesday, buoyed by continued conflict in the Middle East, while investors looked forward to key U.S. economic data for further cues on the Federal Reserve’s policy path. The geopolitical concerns are not going away in the short term, which will continue supporting gold, said Bob Haberkorn, senior market strategist at RJO Futures. Israel’s military intensified its bombing of southern Gaza overnight, amid international calls for a pause in fighting. Limiting bullion’s gains, the dollar index and benchmark U.S. 10-year Treasury yields inched higher. Investor attention turns to U.S. third-quarter GDP figures due on Thursday and the U.S. PCE price index on Friday that could impact the Federal Reserve’s outlook on interest rates. Higher interest rates raise the opportunity cost of holding non-yielding gold. Markets are widely expecting the Fed to keep rates on hold at its policy meeting next month, according to the CME FedWatch tool. If the data shows a slowdown, it will give Fed more reason not to raise interest rates, which should be very supportive for gold and see prices back above $2,000, added Haberkorn. U.S. business activity ticked higher in October while output in the euro zone took a surprise turn for the worse, surveys showed on Tuesday, underscoring the diverging path for central bankers in the two regions. On the physical front, China’s gold consumption in the first three quarters of 2023 climbed 7.32% from a year earlier on increasing demand amid economic recovery, the China Gold Association said.”
On the day gold closed up $9.10 at $1984.10, and silver closed down $0.10 at $22.88.
On Thursday the price of gold was generally weaker in the overnight Hong Kong and London markets but recovered somewhat in the domestic trade. And finished the day mildly higher, which is surprising considering the Dollar Index has moved higher by a full point since Tuesday. Today’s pricing spread is also relatively small ($15.00) which suggests that gold is still holding up considering the threat of even higher interest rates.
An improved technical picture and the possibility of no further rate hikes this year favors gold and silver in the short term, and these factors help the bullish scenario.
This week’s strong US economic data encourages Fed hawkishness. A minus for the bulls.
The Middle East does not look solvable at this point and may escalate further. Yet, it is notable that gold is not making new highs on safe haven demand.
A confusing week, which has “insiders” wondering what is around the next corner? New and changing trends fade in and out of this trade. Still, it is a mixed bag of opposing forces.
Reuters (Ashitha Shivaprasad) – Mideast risks cushion safe-haven gold despite strong US data – “Gold was little changed on Thursday as steady safe-haven demand fueled by the Middle East conflict helped bullion weather pressure from strong U.S. data that quelled recession fears. The U.S. economy grew at its fastest pace in nearly two years in the third quarter, again defying dire warnings of a recession that lingered since 2022. A separate report from the Labor Department highlighted labor market resilience after data showed the number of people filing new claims for state unemployment benefits rose to a seasonally adjusted 210,000 during the week ending Oct. 21 from 200,000 in the prior week. The GDP number and jobless claims numbers “paint the picture of a very strong U.S. economy,” and this supports the narrative that the Fed might need to raise rates more, which is negative for gold, said Edward Moya, senior market analyst at OANDA. “I am surprised we are not seeing a bigger move downward in gold. I think there is a realization that geo-political risks are not going away anytime soon.” Keeping a leash on gold, the U.S. dollar rose 0.2%, making gold more expensive for overseas buyers. Gold has gained 9% over the past two weeks as investors sought refuge from the potential fallout of the Israel-Hamas conflict. But the lingering prospects of higher interest rates have softened any upside in non-yielding bullion. In Europe, the ECB left interest rates unchanged as expected, snapping an unprecedented streak of 10 consecutive hikes. Focus shifts to the PCE price index due on Friday for cues on what to expect from the Federal Reserve’s policy meeting next week.”
On the day gold closed up $3.10 at $1987.20, and silver closed down $0.09 at $22.79.
On Friday the trade was a bit more relaxed as gold closed almost unchanged. Still, pricing seems rather subdued in the face of rising inflation according to the latest PCE (Personal Consumption Expenditures) numbers. Is it not amazing that with all the current confusion in the world the price of gold seems almost “stuck” waiting for the next news headline?
Really, it can’t seem to move forward or back up with certainty, even though the notion of “higher interest rates for a longer period” has been in place for some time and carries the most weight among the hard asset fraternity.
It is at times like these that I look at availability and premium for quality bullion products. Sometimes a change in these is insightful. But premiums and availability are steady and typical. Meaning the major mints are not giving anything away and the physical market remains “steady Eddie”. Not too hot and not too cold, waiting for the next turn in this winding road.
Reuters (Ashitha Shivaprasad) – Gold steady with spotlight on MidEast risks, Fed meet – “Gold prices held steady on Friday, supported by continued safe-haven demand fueled by Middle East tensions, while investors awaited the U.S. Federal Reserve policy meeting due next week. “Gold has been consolidating in a very tight range holding nearly all of its recent gains as the market remains concerned about a conflagration in the Middle East,” said Tai Wong, a New York-based independent trader. Israeli forces carried out their biggest Gaza ground attack in their 20-day-old war with Hamas overnight as Arab nations condemned the bombardment. Safe-haven bullion has gained around 8% or more than $140, since the start of the war on Oct. 7. “If there is an escalation in the conflict, there are prospects of additional safe-haven buying … Gold investors will also be watching the outlook for U.S. Treasury yields,” said Daniel Ghali, commodity strategist at TD Securities. The Federal Open Market Committee meeting is due on Oct. 31-Nov. 1, with traders expecting a 98% chance of the U.S. central bank leaving rates unchanged. “In our view the Fed will most likely end its tightening campaign, and this is already priced into the gold market,” Ghali added. Data showed U.S. consumer spending increased more than expected in September, keeping it on a higher growth path heading into the fourth quarter. In the physical market, purchases of gold during a major festival in India improved this week, albeit at a slower pace compared to last year, as domestic prices were near-record highs.”
On the day gold closed up $1.40 at $1988.60, and silver closed down $0.02 at $22.77.
Platinum closed down $2.90 at $897.20, and palladium closed down $21.80 at $1124.20.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the near-term technical advantage. Prices are trending higher on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $2,050.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at this week’s high of $2,003.70 and then at the October high of $2,009.20. First support is seen at Thursday’s low of $1,981.60 and then at this week’s low of $1,964.60. The silver bulls have the overall near-term technical advantage. Prices are still trending higher 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 December futures prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at $23.00 and then at $23.35. Next support is seen at this week’s low of $22.565 and then at $22.25.”
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