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Gold – Still Waiting

Gold – Still Waiting

Commentary for Friday, Jan 14, 2022 (www.golddealer.com) – Gold closed down $4.70 today at $1816.50 and silver closed off $0.25 at $22.91. Recent weakness in the US Dollar Index, this morning’s slide in treasury yields, the disappointing US December retail sales number and increased physical demand from India underpin gold pricing. But waning momentum going into a long weekend is disappointing. Gold’s short term technical picture favors the bulls, but it has recently failed on two occasions to sustain pricing above $1820.00. Which suggests the fear of rising interest rates has the paper trade stymied. They want to play the long side of this market because of inflation fears but lack conviction. The defensive DOW also clouds this picture because it too fears higher interest rates. I look for this kind of static trade to continue unless gold can challenge significant overhead resistance at $1850.00. Our shiny friend yawned at the latest North Korean threat and tensions over our Iranian sanctions, although I’m less sanguine about the growing Iran problem. Last Friday gold closed at $1797.00 / silver at $22.39 – on the week gold closed up $19.50 and silver closed higher by $0.52   

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for understanding.

Monday gold pushed surprisingly higher on the open ($1800.00+), this drive however was quickly reversed as Treasury yields surged (8%), the highest number seen in 2 years. And traders ponder inflation news. The CPI (Consumer Price Index) for December will be released this Wednesday and is expected to come in hot (5.4%) – according to Reuters.

At the same time the Dollar Index came off daily highs (96.17) and this managed to settle early gold trading into the unchanged range. Considering last week’s debacle, it is too soon to say if gold is oversold as it continues to struggle with overhead resistance ($1800.00). Chief Powell’s confirmation as Fed Boss this week, and the subsequent media coverage will be a great reminder that the FOMC can keep everyone up at nights with interest rate worry. Tech stocks are already shaken over higher Treasury rates, promised interest rate hikes and virus concerns. It is not my intent to show any disrespect, but these fellows have some heavy lifting to accomplish over the next 6 months, regardless of how they dice interest rate changes. Still, it is a moderately safe bet that this first “dog and pony show” will not appear too hawkish.

If the FOMC is behind the inflation curve, they could correct the situation. But their mandate will be to “do no harm”. The unanswered question is whether the economic and pandemic situation, here and in Europe can withstand a point or two rise in interest rates over the next two years. Big uncharted waters here folks. Historically central banks have been able to raise interest rates without significant short-term damage in an expanding economy. But with various pandemic outcomes in the making expect the tension level to grow as the Fed moves forward.

Zaner (Chicago) – “With a slight recovery in the US dollar, slightly higher US treasury yields and a good measure of risk off flowing from commodities and global equities, the gold market looks to have technical and fundamental resistance at the $1800 level to start the new trading week. After mounting a series of inflows last week, gold ETF holdings on Friday declined by 56,949 ounces bringing this year’s net purchases down to 103,872. With infections surging around the world a Bloomberg article suggesting that China’s capacity to handle the surge will be a significant determinant for commodity price action in the coming weeks is right on the mark. While the closure of a key port city (Tianjin) in China due to infections is a negative sign, China’s capacity to act with impunity served it well in the very first surge of the coronavirus. However, given that omicron is more transmissible, the current wave could be more difficult to arrest. So far for the month of January, February gold has seen a high to low break of $52 and the market saw a big range down aggressive reversal on strong volume and a decline in open interest last Friday. Therefore, the gold market corrected its overbought fundamentals from the January highs and should be considered at some form of value zone. The most recent COT report partially showed the liquidation, but clearly overstates the magnitude of the net long which we now estimate to be near the lowest levels since April 2021. The January 4th Commitments of Traders report showed Gold Managed Money traders net sold 3,893 contracts and are now net long 94,942 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 7,061 contracts to a net long 253,462 contracts. From a fundamental perspective, the gold market also looks to find support as the US dollar fell precipitously last week and several financial markets might have started new trends on Friday and with a trade below 95.57 in the dollar index, the currency impact on gold and silver could suddenly become very supportive. Looking ahead to this week’s scheduled data, the markets will be presented with a series of price readings in the form of Chinese consumer prices, US consumer prices, US producer prices and price readings from Japan, Australia, Germany, France, and Spain. With Chinese inflation expectations projected to be relatively benign and forecasts for US consumer prices soft, we suggest that traders look to get long on a coming break into of off the reports as we think economists are setting too low of a bar for the reports. We also think the very disappointing US nonfarm payroll tally leaves the US Federal Reserve in a difficult position, potentially delaying tightening. It should also be noted that recently gold ETF holdings had begun to show a pattern of inflows and further weakness in prices in the near term could attract further bargain-hunting buying. Like the gold market, the silver market also forged a downside extension and aggressive rejection/recovery of a sub $22.00 trade. It should also be noted that the $22.00 level has been very credible support since late September, with that level potentially a long-term value zone. Unfortunately for the bull camp, a recent pattern of significant outflows from silver ETFs highlights a lack of investment interest in silver. Since the last COT positioning report, March silver into the low Friday declined by $1.15 and adjusting the most recent net spec and fund long reading for that action, the long could be near some of the lowest levels since June 2019! The January 4th Commitments of Traders report showed Silver Managed Money traders are net long 21,909 contracts after net buying 4,210 contracts. Non-Commercial & Non-Reportable traders are net long 44,554 contracts after net buying 1,806 contracts.”

While the PGM markets have not paid much attention to classic inflation signals (like CPI and PPI), this week could bring a key test of the focus of the markets following an avalanche of inflation reports. In other words, platinum and palladium have not shown a tight correlation with gold and silver prices, but that relationship might manifest itself later this week. While UBS sees a PGM price recovery in 2022, analysts there prefer platinum over palladium because of substitution of cheaper platinum for palladium. In fact, UBS expects platinum substitution will be double last year at 300,000 ounces. As a result, UBS suggest palladium could see large surpluses in the coming 2 or 3 years! Recent PGM ETF flows have not shown a pattern, but a lack of investment interest is generally assumed. From a technical perspective, the net spec and fund short in palladium adjusted for the low last Thursday, would likely put the market at a new “record short”. In short, palladium has forged a consolidation low pattern, the specs are heavily short already, significant inflation data looms and open interest is near some of the lowest levels since mid-October. The January 4th Commitments of Traders report showed Palladium Managed Money traders were net short 2,538 contracts after increasing their already short position by 43 contracts. Non-Commercial & Non-Reportable traders added 116 contracts to their already short position and are now net short 3,434. Critical support in March Palladium is seen at $1,822 and resistance at the top of the anticipated trading range is $2,018. Similarly, the platinum market has also forged an extended pattern of pivots around the $950 level since September and therefore that level appears to offer value. However, the net spec and fund long in platinum is somewhat burdensome at 12,882 contracts. The Commitments of Traders report for the week ending January 4th showed Platinum Managed Money traders were net short 1,927 contracts after decreasing their short position by 1,870 contracts. Non-Commercial & Non-Reportable traders net bought 1,437 contracts and are now net long 12,882 contracts. We see initial pivot point support at $946.10, a failure with a trade below $928.70 and a potential upside trend reversal with a trade back above $990. We see the gold, silver, palladium, and platinum markets nearing an intermediate low. In addition to a noted downside failure in the dollar index recently, the markets could see a “selloff” from Chinese or US inflation data (estimates call for muted readings) and that could offer a cheap long entry opportunity. However, seeing prices fall this week off tempered inflation could have an additional longer-term silver lining, as that could dampen or push back US Federal Reserve tightening timing which in gold and silver was the main selling force of the past two weeks.”

Gold closed up $1.40 at $1798.40 and silver was up $0.06 at $22.45.

On Tuesday gold opened again choppy with an upward firm bias as traders assessed Chief Powell’s early release notes. This was enough to initially push gold modestly higher, but it was Jerome’s live question and answer session before the Senate Banking Committee which encouraged the bulls. And today’s close puts gold within striking distance of recent highs.

Many believe it was Powell’s focus on the positive aspects of this recovery which set a less hawkish tone. Or if that is too strong, this latest Chief appearance did not increase an already nervous market. This milder approach seemed to push the Dollar Index lower, helping gold move higher. But consider that technicians were calling for a weaker dollar before Powell’s comments. Treasury yields also moderated, helping the bullish sentiment and crude oil moving back to November highs ($81.00) supports the inflation scenario.

I suggest that Powell’s Wednesday confirmation will better gauge Federal Reserve intentions. The questioning will be more specific. But here is where Powell shines, he does very well at picturing FOMC options. Reminding everyone that these choices are still on the table. The most recent Consumer Price Index will also be released Wednesday, and this could introduce price volatility. The rapid spread of the new corona variant is imposing serious restrictions in China. Because the pandemic remains a wild card this could spark more safe-haven demand.

The Fed has already stated that it will wind down asset purchases before moving on to interest rate hikes. Economists believe the “taper” will be over by the end of March. And while the Fed could raise interest rates any time most believe the first hike will not happen until June. This “delay” may be the underlying reason gold is trending higher in the meantime.

Grant on Gold (Zaner) – (1) Gold ended the first trading week of 2022 with a loss of 1.8%. This makes for a rather inauspicious start to the new year, especially on the heels of the 3.5% annual loss in 2021. (2) Silver remains defensive at the low end of last year’s range. The white metal is trading just about a dollar off the cycle low established in September at $21.42. (3) Platinum and palladium remain on the ropes due to the ongoing slump in vehicle production. Meanwhile, South African mining output has rebounded strongly.

Zaner (Chicago) – “With a slight recovery in the US dollar, slightly higher US treasury yields and a good measure of risk off flowing from commodities and global equities, the gold market looks to have technical and fundamental resistance at the $1800 level to start the new trading week. After mounting a series of inflows last week, gold ETF holdings on Friday declined by 56,949 ounces bringing this year’s net purchases down to 103,872. With infections surging around the world a Bloomberg article suggesting that China’s capacity to handle the surge will be a significant determinant for commodity price action in the coming weeks is right on the mark. While the closure of a key port city (Tianjin) in China due to infections is a negative sign, China’s capacity to act with impunity served it well in the very first surge of the coronavirus. However, given that omicron is more transmissible, the current wave could be more difficult to arrest. So far for the month of January, February gold has seen a high to low break of $52 and the market saw a big range down aggressive reversal on strong volume and a decline in open interest last Friday. Therefore, the gold market corrected its overbought fundamentals from the January highs and should be considered at some form of value zone.”

On the day gold closed up $20.20 at $1818.60 and silver closed up $0.36 at $22.81.

On Wednesday the CPI (Consumer Price Index) came in hot, as expected (7%). These are the highest CPI numbers seen in 40 years and yet gold yawned. Stocks were bolstered and investors continue to ignore higher pandemic numbers so Powell’s talk yesterday has calmed the financial waters. And perhaps today’s confirmation hearing as well, which will help bolster the concept that while the Fed has all the tools needed to create a soft landing, it is in no hurry to use them. The Dollar Index was 96.5 in late December and today is approaching 95.0, which is significant, suggesting interest rate hikes are not an immediate concern, obviously helping the bullish gold scenario. You could make the case that today’s higher gold price trend reflects these higher inflation numbers – but its failure to create buzz is disappointing. Still, let us be happy with today’s pudding, not too long ago a major trading house feared raging interest rates and $1600.00 gold. So, let’s be happy with today’s pudding, keeping in mind that ETF numbers and hedge fund managers are still fearful of gold prices in a raising interest environment.

My bet is that physical investors will continue their “wait and see” approach which has been in place this past year. While gold prices are trending higher an attempt at $1850.00 seems unlikely. Look for continued consolidation. It is significant that the Fed’s confirmation of three interest rate hikes this year has not undermined gold. But the proof of this next pudding will be in the eating – let’s see what gold does as interest rates are increased.

In the meantime, there are enough scenarios to make your head spin because inflation is a beast to understand, let alone control. Suppose inflation moves lower over the next 6 months? Would gold move higher because the Fed would likely be less hawkish? Or suppose the more traditional academic point of view holds true? Inflation will not peak for another year because it typically lags the monetary event. Given the wide range of choices, how can investors feel comfortable with assessing value of gold when assets like stocks and real estate already reflect the explosion in the money supply? Our physical business today was a bit on the quiet side, but volume numbers remain in the average range. Live silver monster boxes remain challenging.

Zaner (Chicago) – “While the downside breakout in the dollar to start today is insignificant, a lower low has been forged and the currency influence on gold and silver should help support prices against an initial bearish tilt. In fact, China saw its consumer price index on a month over month basis contract by 0.3%, with producer prices coming in below expectations and below the prior month’s result. Further price measures debunking the inflation story line came from Germany where their wholesale prices grew at only 0.2% or a full percent less than expectations. Looking ahead, market expectations for US consumer prices call for a modest gain of 0.4% and that report should set the trend for the remainder of the session. In our opinion, the gold and silver markets yesterday rallied aggressively when the US Federal Reserve Chairman came off in testimony as less hawkish than was expected and that should dampen bearish sentiment toward gold and silver ahead. If US CPI is softer than +0.4% that could add to fomenting chatter that the Fed will push back tightening timing. Yet another supportive outside market force going forward is the WTI surge above $81 and the rally in Brent crude oil above $83.00. On the other hand, the Federal Reserve chairman indicated that the median forecast for the number of US rate hikes this year was three and that official revelation failed to undermine gold. Unfortunately for the bull camp, the rally in gold this week has been forged on lower trading volume than was seen last week on the dive in prices.”

On the day gold closed up $8.60 at $1827.20 and silver was higher by $0.39 at $23.20.

The gold market Thursday opened lower as inflation cooled – the Producer Price Index came in under expectations. This is what I was referring to yesterday. In the quest for more accuracy, the tools used for measuring inflation have been modified to the point where results should be studied but considered tentative on the short term – indicative not gospel. This would save mere mortals from worrying too much about inflation moving higher one day and lower the next.

The dip in today’s prices highlights the continued ambiguity in the gold trade. A few days ago, inflation was roaring – gold was hot, prices were rising. The next day a miss in inflation expectations sends gold in the opposite direction, even as the Dollar Index weakens.

I would look for other reasons why gold cannot hold momentum approaching recent highs ($1830.00). This may lead you to believe that the paper trade is back to selling rallies and buying dips (which happened again today). Not that I would blame them – the leveraged paper trade cannot shake the fear that in March the Fed will begin 3 interest rate hikes. Yet there are few who would short this market – an overlooked bullish factor. Still, this “early” scenario may be prophetic as Fed governors join the chorus suggesting the Fed is behind the inflation curve.

Reuter’s aggressive Brainard quote is telling – “Controlling inflation that has spiked to nearly a 40-year high is the “most important task” the Federal Reserve must tackle to keep the current economic expansion underway, Fed Governor Lael Brainard told a Senate panel on Thursday in a hearing on her nomination to become vice chair of the U.S. central bank.

“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Brainard said to members of the Senate Banking Committee. “But inflation is too high and working people around the country are concerned about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task.”

Zaner (Chcago) – “Gold and silver prices are not responding to another downside extension in the US dollar this morning, but gold and silver remain positively position on their charts. The precious metal markets have been held down by this week’s initial jump in US treasury yields even though treasury yields have declined from Monday’s peak. Also holding back gold is a 5th straight day of outflows from gold ETF holdings which surprisingly are now showing “no” change on the year. As we indicated yesterday, the precious metal markets saw a counterintuitive reaction to slightly hotter than expected US consumer prices and may be expected to exhibit the same reaction today. In other words, seeing hot inflation pushes up the prospects of an earlier US Federal Reserve rate hike sooner than would have been seen otherwise. Therefore, today’s PPI report (which is predicted to gain by 0.4%) is an important force for the precious metals trade. Comparatively, expectations for the PPI call for a less incendiary number but estimates can always be breached. On the other hand, the markets seem more interested in the year-over-year gains in inflation and today’s estimate for PPI gains over year ago levels is for a 9.8% rise. Perhaps would be buyers are put off by record daily US infections Monday and ongoing concerning infection rates since then. Some economists see a continuation of high infection counts as a force that could shift inflation fears into fresh slowing fears.”

On the day gold closed down $6.00 at $1821.20 and silver was off $0.04 at $23.16.

The gold market Friday opened typically choppy with a mild upward bias going into the long three-day weekend. But momentum and buzz are lacking even as gold fights to hold these higher numbers. The problem with the bullish gold trade is that it is looking for further weakness in the dollar. Technicians, at the same time are bullish on the short-term dollar, offering a weekly “buy” signal and a monthly “strong buy” signal. This “mixed” picture of rising inflation and possible higher dollar valuation presents a cloudy picture as traders ponder changes in Fed sentiment as the next FOMC meeting approaches (January 25th and 26th).

Worth noting is the perennial idea that gold – regardless of price remains the perfect “gate-keeper”. Prices will unexpectedly rally on bearish news or fall on bullish news because of its innate ability to keep government honest. Most long-term physical owners adopt this philosophy because it is at the root of understanding why gold works when everything else does not.

Zaner (Chicago) – “While the February gold contract did manage a 7-day high overnight, the breakout up was very modest and failed to hold initially. However, the market should draft support from news that Indian December gold imports increased by 5.4%. From a technical perspective, the action this week is significant with the gain on the week potentially the biggest since the middle of the 4th quarter 2021. Yesterday gold and silver ETFs saw inflows, but year-to-date gold holdings are still flat and silver holdings have gained a mere 0.2%. After 4 days of positive closes and the regaining of $1,825, the February gold contract appears to have run out of upside capacity. While the US PPI report signaled inflation, trade expectations were for higher inflation than was seen and that seemed to take the wind out of the bull’s sails. Once again, the gold and silver bulls were disappointed by the lack of definitive lift from another downside extension in the US dollar. We suspect that gold and silver were undermined because of comments from the Fed’s Harker who indicated he was warming up to the idea of a March interest rate “hike”. In the near term, the gold and silver trade are being buffeted by action in interest rate markets and currency markets and that buffeting is likely to become a daily condition. From a technical perspective, the rally this week in the gold market was carved out on very minimal gains in trading volume and no change in open interest. In looking ahead to today’s action, the gold and silver trade could see some sustained impact from Chinese import and export data for December and from Japanese and Spanish producer price readings.”

On the day gold closed down $4.70 at $1816.50 and silver closed down $0.25 at $22.91.

Platinum closed down $7.50 at $964.40 and palladium closed down $11.80 at $1874.20.

My Brothers and Sisters, thank you once again for your business and friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry. All our in-house staff have been vaccinated and many now have the booster! We continue to enforce ridged safety standards between people and product. Be careful, the highly contagious Omicron variant is dangerous and accounts for most US infections. At the same time trust that God will soon get us back to normal living and the traditional business model. Richard Schwary

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