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Gold – Rising Bearish Sentiment

Gold – Rising Bearish Sentiment

Commentary for Friday, August 18, 2023 ( – Today gold closed up $2.00 at $1886.10, and silver closed up $0.03 at $22.70. Gold finished the week with a small corrective bounce, likely the result of short-covering and mild bargain hunting, but there are no game changers on the horizon. Interest rates will remain higher, and the Fed will remain aggressive, but the insight here is that the economy is not falling out of bed. CNBC commentator Rick Santelli made an interesting comment this week about traders being fixated over interest rates. By extension, the metals may surprise, moving higher in this transition if traders stop worrying about Fed intention and look at the bigger world picture. Last Friday gold closed at $1912.90 / silver at $22.67 – on the week gold was down $26.80 and silver was up $0.03 

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On Monday the price of gold dipped on the open, pushing towards lows on the day ($1902.00) before traders bought the dip. But the slip towards $1900.00 support remains in place, encouraged by a bearish technical picture and rising interest rates. I think a test of support below $1900.00 is in the short-term cards unless the bulls can find the buzz needed to encourage their base.

Still, the downside at this point might be less than expected for two reasons. First, the price of gold has moved lower by $80.00 this past month, so our shiny friend may already be in oversold territory. Further weakness might create the typical short covering rally. Second, the Dollar Index moved from 100 through 103 during the same time frame. Traders will be looking for an oversold condition. A weaker index will encourage the bullish short-term scenario.

Reuters (Brijesh Patel) – Higher US dollar, yields drag gold to more than one-month low – “Gold prices fell to a more than one-month low on Monday as a stronger dollar and elevated bond yields took the shine off bullion, while investors awaited fresh catalysts to gauge the downside after a mixed bag of U.S. inflation numbers last week.  The dollar jumped 0.5% to its highest level in over a month, making greenback-priced bullion more expensive for overseas buyers, while benchmark 10-year Treasury yields rose to 4.205%. “Technically gold can move below the $1,900 levels here without a lot of problems. We’ve reached recent support levels and the path is quite open for gold to trend lower as short-term interest rates move higher.” Last week, data showed U.S. consumer prices increased moderately in July. However, producer prices rose slightly more than expected, fueling concerns that the Federal Reserve could keep rates higher for longer. Interest rate increases tend to lift bond yields and also raise the opportunity cost of holding non-yielding bullion. “We continue to see a pretty significant decline in long exposure in gold and a significant increase in short exposure. Speculative investors are getting out of gold and interest rate expectations are a big factor here,” said Bart Melek, head of commodity strategies at TD Securities. SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell to the lowest level since January 2020. The focus this week will be on U.S. retail sales data on Tuesday, followed by the minutes of the Federal Open Market Committee’s July meeting on Wednesday that could shed light on the appetite for higher rates.”

On the day gold closed down $2.30 at $1910.60, and silver closed down $0.03 at $22.64.

On Tuesday the gold bulls frowned on the open as gold broke through the important $1900.00 support touching $1896.00 before buying interest developed. A few hours after the dip paper traders pushed prices back to highs on the day ($1912.00), not a spectacular recovery but enough strength to douse the building bearish sentiment, at least for this trading day.

Still, I expect gold to stay left footed as the US economy continues to show strength. Not that one good day makes the case, but our economy has had enough good days to suggest that calamity is not around the corner and improvement may indeed be a developing trend.

This gives the FOMC reason to believe they can continue to fight inflation with a more aggressive interest rate agenda. Or at least venture into these waters with the idea that if the economy looks like it is heading south, a course correction for the FOMC would be no big deal.

Reuters (Brijesh Patel) – Gold drops as bond yields rally on US retail sales data – “Gold prices fell to a 1-1/2 month low on Tuesday as Treasury yields jumped after data showed U.S. retail sales rose more than expected in July, fueling worries that the Federal Reserve will likely keep interest rates higher for longer. U.S. retail sales jumped 0.7% last month, the Commerce Department said on Tuesday, suggesting the economy continued to expand early in the third quarter. Economists polled by Reuters had forecast retail sales would climb 0.4%. “Another impressive retail sales report, which suggests the economy is not weakening and that’s going to force the Fed to keep the prospect of more rate hikes on the table,” said Edward Moya, senior market analyst of the Americas at OANDA. “The $1,900 per ounce is a key level for a lot of traders when they focus on gold. At times it can trade extremely technical and we can see some key support around this level for gold prices.” Benchmark 10-year U.S. bond yields hit almost 10-month highs after the data, decreasing the appeal of non-yielding gold. According to the CME’s FedWatch Tool, the probability that the Fed will leave rates unchanged this year is at 57%. The Fed has since March 2022 raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range. High interest rates increase the opportunity cost of holding bullion. Indicative of sentiment, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell to their lowest since January 2020 on Monday.”

On the day gold closed down $8.10 at $1902.50, and silver closed down $0.04 at $22.60.

On Wednesday the price of gold seemed to be waiting on the next FOMC headline. In the early trade it held above the important $1900.00 support. This is the likely result of a steady Dollar Index trading flat around 103.00 since Monday.

But ultimately the price of gold broke down and moved to lows of the day ($1892.00) giving the already worried bulls more trading woes.

But there may be a small silver lining in this slow decline below $1900.00.

It is worth noting that the index has moved two full points higher this past month. If this uptrend continued it could of course be a big negative for gold. But I believe the index is now in overbought territory and will settle lower, helping the flagging bullish sentiment.

The reasoning here is worth consideration because of contrarian theory. With most of the bad news about gold already known it figures that potential sellers have sold. This process helps create the typical classic bottom in a weak market, so don’t be surprised to see the price of gold channel at the lower end of its current trading range.

Reuters (Deep Kaushik Vakil) – Gold ticks up as dollar eases before Fed’s July minutes – “Gold edged up on Wednesday on a weaker dollar and bond yields, recovering some ground after retreating below the key $1,900 level in the previous session following robust U.S. economic data. Bullion traders also positioned for minutes from the Federal Reserve’s July policy meeting for further cues on interest rate strategy, as well as U.S. homebuilding and factory output data due later in the day. Gold has found short-term support from a weaker dollar as the pound strengthened after data showed British core inflation stayed strong in July, said Quantitative Commodity Research analyst Peter Fertig. Non-yielding gold, priced in dollars, also gained as benchmark 10-year Treasury yields retreated from near 10-month highs. “Economic data out of the U.S. thus far has provided room for rates to be kept high for longer. We have the U.S. retail sales data yesterday pushing back against recession concerns and potentially keeping safe-haven flows at bay,” said Yeap Jun Rong, a market strategist at IG. Gold fell to its weakest level since end-June after the data on Tuesday. Indicating investor sentiment, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell to their lowest since January 2020. No inflows have been reported since late July. Minneapolis Fed President Neel Kashkari on Tuesday said interest rates may still need to go higher to tame inflation. “The main factor slowing gold’s decline is the lack of confidence in the health of the global economy with the latest data out of China adding to that negative sentiment,” Kinesis Money analyst Rupert Rowling said in a note.”

On the day gold closed down $6.40 at $1896.10, and silver closed down $0.12 at $22.48.

On Thursday the price of gold pushed higher on the open today ($1903.00) but failed to hold gains as traders sold the small rally and gold finished on lows for the day ($1884.00). This of late is the typical trading pattern as gold moves slowly lower as traders fear further interest rate hikes. I think there are two lessons to be learned from these recent trading cycles.

The first is that few should now question this downward drift. But it would be a mistake to dwell too much on the negatives because this market remains very transitory.

The second is that while bullish sentiment is being kept left footed by uncertainty, bargain hunting and short covering have mitigated weaker prices.

Gold, while weaker as interest rates continue to climb, does not look like it is anywhere close to capitulation even at the higher end of its recent trading range.

Reuters (Brijesh Patel) – Gold ekes out gains as softer dollar counters higher yields – “Gold prices edged higher on Thursday as a dip in the dollar offered some respite from rising Treasury yields and U.S. rate hike concerns that has pushed bullion below the key $1,900 per ounce level. “Gold has been down over the course of the last several sessions due to rising interest rates and bond yields,” said David Meger, director of metals trading at High Ridge Futures, adding, “we did see a bit of bargain hunting at these levels.” “We noticed yesterday in response to the FOMC minutes the market portended that the Federal Reserve still might need to be a bit more aggressive than previously expected in regards to continuing to raise rates.” Minutes of the Federal Reserve July 25-26 meeting on Wednesday showed most policymakers continued to prioritize the battle against inflation, while few participants cited risks to the economy if rates were pushed too high. The expectation that U.S. interest rates will likely be higher for longer has boosted benchmark 10-year U.S. Treasury yields to their highest since October, making non-yielding bullion less attractive for investors. Data showed the number of Americans filing new claims for unemployment benefits fell last week, pointing to a still tight labor market. “Markets are looking for cracks in the U.S. labor market to really change the current trajectory and until such time, bullion may remain under pressure,” DailyFX analyst Warren Venketas noted.”

Ernest Hoffman (Kitco) – Gold prices oscillating around $1900 as Philly Fed survey beats expectations to turn positive in August – The gold market is trading on both sides of the key $1,900 level with neither bulls nor bears able to establish a clear direction after the Philadelphia Federal Reserve said its manufacturing sector survey surged dramatically into positive territory. Thursday, the regional central bank said its manufacturing business outlook for August was much improved, climbing back into expansionary territory to 12, compared to July’s reading of -13.5. The data significantly beat expectations as economists were looking for only modest improvement to a -10 reading. August is the first month the survey has given a positive reading after eleven consecutive months in negative territory. The gold market is not seeing a massive reaction to the latest surprising economic data. Spot gold last traded at $1,898.90 an ounce, down 0.37% on the day, and has been trading only slightly above or below $1,900 since the minutes before the 8:30 AM EDT release. The components of the index were mixed. The New Orders Index saw massive improvement, rising to 16 from July’s reading of -15.9, while the Shipments Index also turned positive, improving to 5.7 from the previous reading of -12.5. On the other hand, the labor market component continued to worsen, with the Employment Index dropping to -6.0, down from -1.0 in July.” The report also noted a rise in inflation pressures, which should be a concern for Fed watchers. The Prices Paid Index increased to 20.8, well up from July’s reading of 9.5. “The survey’s indicators for general activity, new orders, and shipments were all positive for the first time since May 2022,” the Philly Fed wrote in the report. “The price indexes remained near long-run averages. Expectations for growth over the next six months were less widespread, as most of the survey’s future indexes remained positive but declined.”

On the day gold closed down $12.00 at $1884.10, and silver closed up $0.19 at $22.67.

On Friday the price of gold wavered between $1885.00 and $1896.00, finishing mildly in the green but still defensive and looking for a short-term bottom. The week-over-week close was again a tight trading range, suggesting a fair degree of trader indecision.

The technical picture favors the bears so there are plenty of them in the woods. The bulls have been stubborn suggesting trading caution is a good idea during this transition period.

Still, even with this week’s usual speculation about the end of the world, this market feels like a typical summer trade. The public is not standing in line and may even be disinterested.

Reuters (Seher Dareen) – Gold heads for third weekly fall on fading bets for Fed cut – “Gold gained on Friday as the dollar and bond yields eased but remained on course for a third straight weekly dip as strong U.S. economic data reinforced bets that the Federal Reserve will keep interest rates elevated. The dollar was down 0.1%, making gold cheaper for holders of other currencies. “Ultimately, the medium-term outlook for gold is set to be influenced by Powell’s highly anticipated speech at Jackson Hole. In the meantime, $1,900 remains a key level of interest,” said Lukman Otunuga, senior research analyst at FXTM. “Sustained weakness below the $1,900 level may open a path toward $1,870.” Traders expect the Fed to hold rates in the 5.25%-5.5% range until 2024, according to CME’s Fedwatch tool. “If the market interprets what is said there as making another rate hike more likely in the U.S., the gold price could fall somewhat further still,” said analysts at Commerzbank in a note. “In general, we are convinced that U.S. interest rates have already peaked.” Benchmark 10-year U.S. Treasury yields eased from their highest levels since October, propping up zero-yielding bullion. On Thursday, holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, registered the biggest drop since July last year. UBS cut its year-end target for gold from $2,100/oz to $1,950/oz, highlighting that the next boost in gold prices would require a renewal of ETF demand, expecting gold to remain range-bound until such a time. However, the Swiss bank forecast central bank gold-buying would remain strong for the rest of the year.”

Jim Wycoff (Kitco) – “Technically, the gold futures bears have the firm overall near-term technical advantage. Prices are in a three-week-old downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $1,980.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at Thursday’s high of $1,933.50 and then at Wednesday’s high of $1,938.20. First support is seen at this week’s low of $1,914.20 and then at $1,900.00. The silver bears have the overall near-term technical advantage. Prices are trending lower on the daily bar chart. Silver bulls’ next upside price objective is closing September futures prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at $20.00. First resistance is seen at this week’s high of $23.07 and then at $23.255. Next support is seen at Thursday’s low of $22.39 and then at this week’s low of $22.265.”

On the day gold closed up $2.00 at $1886.10, and silver closed up $0.03 at $22.70.

Platinum closed up $19.60 at $909.20, and palladium closed up $39.50 at $1249.10.

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