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Gold – Steady and Quiet

Gold – Steady and Quiet

Commentary for Friday, January 27, 2023 ( – Today gold closed down $0.50 at $1928.60, and silver closed down $0.40 at $23.53. Gold prices were choppy today as the Dollar Index moved marginally higher. This looks more like a pause in a generally bullish market as traders anticipate a less aggressive Fed interest rate policy. Still, I’m hesitant to call this any kind of consolidation above $1900.00. Too many loose ends if you know what I mean. That is my story and I’m sticking to it – at least for this week. Last Friday gold closed at $1926.40 / silver at $23.83 – on the week gold was higher by $2.20 and silver was lower by $0.30. The metals don’t seem to be too worried about world politics or problems.

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On Monday gold dipped on the open on early selling, but traders bought the weakness at $1912.00, and pricing moved back to virtually unchanged. This is typical of the recent and more optimistic sentiment created by the theory that the Fed will indeed be modest when considering their coming interest rate hikes. The cause of the initial weakness was typical. An uptick in the dollar and bond yields (Reuters). Which suggests that not all traders are convinced the Fed will take its foot off the interest rate acceleration pedal. Gold’s technical picture this past month is creating a positive buzz but it looks like pricing may be turning flat around $1900.00.

Can gold move above $2000.00 in the short term? Obviously, the Fed would have to turn seriously dovish on interest rates, an old argument. But bullish gold sentiment may gain steam over an equally old idea. Perhaps moving away from Covid spending will not require higher interest rates – and create the requisite recession. (Reuters) “The likelihood that the United States is already in recession or will fall into one this year has dropped over the past three months to 56% from a nearly two-thirds possibility, according to a survey on business conditions.”

On the day gold closed up $0.70 at $1927.10 and silver closed down $0.38 at $23.45.

On Tuesday the pricing pattern for gold was similar to that seen on Monday – we opened flat, gold dipped in price and traders bought the dip. Today gold offered a modest upward bias in prices as traders anticipate a dovish shift in upcoming interest rates hikes. But gold remains static in the short term, waiting for next week’s FOMC meeting for clues and insight.

Reuters – Gold eases off nine-month peak as U.S. dollar, yields gain – “Gold prices pulled back from a nine-month high on Tuesday due to a slight uptick in the dollar and U.S. bond yields, although hopes of slower interest rate hikes from the Federal Reserve underpinned the market. The dollar index was 0.1% lower against its rivals, making greenback-priced bullion cheaper for many buyers, while benchmark U.S. 10-Treasury yields edged lower from their one-week high. A survey from S&P Global showed price pressures ticking higher for the first time since last spring, indicating that inflation is far from licked despite aggressive measures to contain it by the Fed. “I think gold is still holding quite strong as the market expectations are turning more towards a pause from the Fed potentially, or a turn to a more dovish policy,” said Ryan McKay, commodity strategist at TD Securities. The U.S. central bank delivered four consecutive rate hikes of 75 basis points (bps) before slowing its pace to 50 bps last month to fight soaring inflation. Traders are now pricing in a 96% chance the Fed will raise rates by 25 bps at its policy meeting next week. “As the expectation of inflation continuing to come down, there will be lesser need for Fed interest rate hikes and the market is really focused on the idea of an ending to the Fed interest rate cycle,” said David Meger, director of metals trading at High Ridge Futures.

On the day gold closed up $6.80 at $1933.90 and silver was up $0.20 at $23.65.

Zaner (Chicago) – “While the US dollar is not weak enough to provide definitive lift for gold, startling demand news was presented overnight with reports that Swiss exports of gold reached multiyear highs in 2022. More importantly, Swiss exports of gold to China were pegged at 524 tons up from only 354 tons in 2021 and the highest tally in 5 years! In conclusion, demand for the largest consumer of gold was solid last year despite a lack of Press coverage on the subject. Swiss exports to India in 2022 were 224,464 kg up from 147,760 in 2020. However, Swiss exports to India last year were less than half of the 2021 intake of 507,224 kg. Unfortunately for the bull camp November Swiss export figures showed a 79% decline in Indian gold imports. After a string of daily outflows from gold ETF instruments, Monday saw an inflow of 276,181 ounces bringing the year-to-date tally to a “flat” reading. Silver ETF holdings saw a notable inflow of 2 million ounces, but year-to-date holdings are still down 1.2%. Unfortunately for the bull camp, Indian gold buyers overnight backed away after a new high in gold valued in rupees, which is clearly a pattern in the Indian gold trade. In a minimally negative overnight development Freeport Indonesia estimated this year’s gold production at 1.8 million ounces relative to 1.6 million ounces last year. In retrospect, the gold market deserved a measure of back and fill technical balancing after last week’s stellar rally. In fact, seeing the US dollar recoil from a potential downside breakout on the charts yesterday should temporarily increase overhead resistance and potentially entice profit-taking in the bull camp with a failure of support at $1,938. At present, we see gold and silver as classic physical commodity markets needing progressively lower dollar action, a notable expansion in global uncertainty or a significant drop in US treasury yields to finish the month of January as strong as the market started out the month. Uptrend channel support in the April gold contract today is $1,929.75, with a closer in pivot point seen at $1,938.80. Unfortunately for the bull camp in silver a significant risk-on start to the trading week failed to inspire positive silver price action. However, seeing the trade aggressively reject a spike below $23.00 yesterday and seeing a large inflow to ETF holdings should provide fresh confidence for the bull camp. However, the bull camp has been off balance over the last several weeks and probably needs several more days of gains in equities, a distinct downside breakout in the dollar and or an upside breakout in gold to rekindle notable buying interest.”

On Wednesday gold’s pricing pattern was similar to that which we saw on Tuesday. The dip gives traders the opportunity to buy weakness, and the “up/down/up” pattern is repeated. Normally this would cause the physical bullion trade to lose interest. In this case, however gold pricing has worked itself back to highs on the month, which always stokes the physical market.

This dynamic is not simple to understand because there are several ways of considering the “see-saw”. It is a bit early to consider any of these “as the right option”. Because this puzzle has several moving parts, the tea leaves will likely remain cloudy through the first half of 2023.

Some gold analysis will claim this back-and-forth pattern is simply an easy way for traders to take profits in a normally developing market. And because gold’s technical pattern in the short term suggests higher prices are in the making, this does create interest and buzz.

Others will claim that the Fed “pivot” is already factored into the current price of gold. And this latest upward market will need “fresh” bullish information to sustain higher prices.

Still others believe that ultimate Fed action is becoming less important. Changing world events will first underpin the price of gold. And then reinvent safe-haven demand in a world struggling with political turmoil and rising inflation. Reuters – “Germany announced plans to deliver heavy tanks to Ukraine, and the United States was poised to do so too, a breakthrough hailed as a decisive military boost by Kyiv and condemned by Moscow as a reckless.”

On the day gold closed up $7.30 at $1941.20 and silver closed up $0.19 at $23.84.

Zaner (Chicago) – “While it is too soon to suggest a pattern is developing both gold and silver saw inflows to ETF holdings yesterday of 25,518 ounces with silver posting the largest one-day inflow since February 2021 of 18.6 million ounces. Therefore, both gold and silver ETF holdings sit above the levels at the start of the year. In fact, silver ETF holdings are now 1.3% higher on the year. It is likely that a measure of gold weakness this morning is the result of classic back and fill profit-taking from a recent 9-month high. In fact, the dollar action this morning has been narrow and the index sits at nearly the exact middle of yesterday’s somewhat narrow trading range. While we think it is suspect reasoning some Press outlets are suggesting initial weakness in gold today is the result of signs of lingering inflationary pressure following inflation readings from Australia and New Zealand. Certainly, gold and silver are off balance heading into a likely Bank of Canada 25 basis point rate hike later this morning. Overnight some gold mining companies raised forward production guidance while one major producer saw reduced current production one of which was the result of reduced operations following a fatality. At present supply issues in both gold and silver are likely to remain less important than dollar action and demand signals. However, Chinese gold production was up 13% in 2022 with a gain of 43 tons and that news more than offsets temporary production losses from other gold mining companies. We are not sure of the potential price impacts from reports that Russia’s 2nd largest gold mining company (Polymetal International) is moving its headquarters from New Jersey to Kazakhstan reportedly to move to a friendlier domicile with closer ties and acceptance by Russia. Initial support in April gold today is $1935 and then again down at $1929. Despite a very supportive massive daily inflow to silver ETF holdings yesterday, a forecast from Fresnillo predicting 2023 silver production to rise to 64 million ounces from 57 million in 2022 justifies early weakness in prices. However, Fresnillo silver production last year came in 3 million ounces below the company’s forecast. Like the energy markets, we see gold and silver as temporarily overbought from both technical and fundamental perspectives. However, gold bulls are likely to jump into the market with fresh buy orders if the US dollar index falls below 101.26. While not as powerful of an impact as a downside breakout in the dollar, seeing treasury prices return to last week’s highs could spark a rally without specific support from a weak dollar. In our opinion, gold and silver have settled into a pattern where the dollar will still need to pull precious metal prices higher with periodic downside extensions. Key uptrend channel support today in March silver is $22.99 and at $23.06 on Thursday.”

On Thursday gold pricing was typical for this week – the New York cash market pushed to $1942.00, and traders sold the rally (profit taking). Gold then trended lower, finally catching a solid bid at $1924.00. On the day our shiny friend closed modestly lower supported by the belief that the Fed will be less aggressive in fighting inflation, especially in the short term.

Looking at the bigger picture, gold continues to struggle with traditional overheard resistance. The bulls are holding above $1900.00 (a plus), but conviction looks thin. Do not be surprised to see traders dance around these higher numbers and expect dips to the downside.

At the same time, give credit to traders of both stocks and the metals for adjusting to these crazy times. I don’t think either asset is out of the doghouse – but both are holding up, considering.

Reuters – “While gold is still somewhat pressured by the fact that the data has given the Fed room to be higher for longer, on the other hand, concerns about a slowdown, especially with recent headlines on layoffs, are limiting the downside,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. “This is giving bulls the momentum backed by strong technical moves in the past couple of months.” Initial jobless claims also fell more than expected, signaling a tight labor market. The data likely sets the tone heading into the Fed’s policy-setting committee’s two-day meeting next week.”

On the day gold closed down $12.10 at $1929.10 and silver closed up $0.09 at $23.93.

Zaner (Chicago) – “While gold and silver prices are lower to start today because of strength in the US dollar, most markets could set their trends for the coming days following today’s 7:30 wave of US scheduled data. Obviously, the initial claims reading will be important considering the downside breakout last week, but overnight sentiment seems to have shifted up off hopes of solid US growth evidence from GDP this morning. In other words, the dollar will be presented with fresh impactful data which we think will fail to provide sustained gains. Therefore, gold and silver could see an early knee-jerk reaction dip from the data flow this morning, but ultimately, we see the bull trend in gold returning. As indicated several times earlier this week, several days of inflows to gold and silver ETF holdings do not represent a solid “trend”, but a modest pattern of inflows is in place with the magnitude of daily inflows material. Yesterday gold ETF holdings increased by 115,207 ounces putting year-to-date holdings above the level at the start of the year. Furthermore, silver ETF holdings have exploded this week with over 23 million ounces added and holdings 1.6% above levels at the beginning of the year. In retrospect, action in gold and silver yesterday was very impressive with the markets forging gains in the face of a Canadian rate hike, minimal weakness in the dollar and ongoing economic slowing fears. In our opinion, it is possible that gold and silver are beginning to look beyond the final stages of the rate hike cycle and/or there is a growing fear of recession prompting flight to quality buying. While many markets did not show a definitive reaction to favorable Chinese Covid news from the Chinese Center for Disease Control indications that current infections were 72% below their peak, traders are skeptical. However, the Chinese government also indicated that 82% of their population has been infected and that should be seen as building national immunity. In another suspicious bullish development, a major Russian gold producer expects significant Russian government buying of gold ahead. The bias is up but further gains will need a downside breakout in the dollar index below 101.26 which is only 3 ticks below the dollar index price as of this writing.”

On Friday the trade looked like it needed a rest – perhaps information fatigue. The professional trade believes that interest rate uncertainty caps higher gold prices. The US economic picture remains a mixed bag of “some good” (no recession) and “some bad” (recession this year). Hedge funds may be reinventing their interest in gold because they too are looking for some way to balance the possibility of a Fed “mistake” during this transition period.

I would not say our physical market is hot – but it remains steady. Some larger bullion selling by the public has reappeared, but these transactions are from veteran players taking profits at these higher levels. Some of these trades are simply “adjustments” – trading one metal for another.

On the day gold closed down $0.50 at $1928.60 and silver closed down $0.40 at $23.53.

Platinum closed down $6.20 at $1007.40, and palladium closed down $64.10 at $1591.20.

Jim Wyckoff (Kitco) – “Technically, the gold futures bulls have the solid overall near-term technical advantage. Prices are in a 2.5-month-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in February futures above solid resistance at $2,000.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,885.00. First resistance is seen at this week’s high of $1,949.80 and then at $1,962.50. First support is seen at Thursday’s low of $1,918.40 and then at this week’s low of $1,912.50. The silver bulls have the overall near-term technical advantage. However, trading has been sideways and choppy recently. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at the January high of $24.775. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at today’s high of $24.12 and then at this week’s high of $24.415. Next support is seen at $23.50 and then at $23.26.”

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