Gold – Surges on Growing Bank Fears
Commentary for Friday, March 10, 2023 (www.golddealer.com) – Today gold closed up $32.70 at $1862.00, and silver closed up $0.35 at $20.38. Traders got the Full Monty this week as hawkish Fed rhetoric was overshadowed by bank failure, which focused safe haven demand and created higher gold prices. The Dollar Index joined the chaos by moving down from 105.83 to 104.00 since Wednesday. A drop of almost 2 points, as traders scratched their heads and wondered if this was the beginning of another round of safe haven buying. Reuters (Seher Dareen) – Gold climbs on safe-haven rush as banking rout grips markets – “Gold prices jumped more than 1% on Friday, driven by a slide in U.S. Treasury yields and broader financial markets as worries over a fallout in the banking sector eclipsed a strong U.S. jobs report and drove safe haven flows into bullion. U.S. tech lender SVB’s troubles rippled through global markets and hit banking stocks, shoring up interest in bullion often seen as a safe store of value during uncertain times. “I think the main focal point is yields and with yields dropping today, that is a boost for the gold market,” said David Meger, director of metals trading at High Ridge Futures. Gold, which does not yield any interest, benefited as Treasury yields slid amid the financial market turmoil and after U.S. jobs data showed hourly earnings rose by less than expected last month. That gave hope that the Fed can be less aggressive in its path of interest rate hikes, even though job creation was strong. “As the marketplace sees it, the wages component of the U.S. jobs report was tamer than expected, which has apparently mitigated the higher-than-expected rise in non-farm payrolls,” wrote Jim Wyckoff, senior analyst at Kitco Metals. “There is keener risk aversion in the marketplace to end the trading week, and that is likely prompting some safe-haven demand for gold and silver.” Last Friday gold closed at $1847.70 / silver at $20.09 – on the week gold was higher by $14.30 and silver was higher by $0.29. Don’t let the tight spreads fool you, this market turned into a whipsaw trade which caught everyone by surprise.
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On Monday gold opened choppy, trading between $1845.00 and $1853.00 – likely a nervous trade waiting for Powell’s testimony to Congress scheduled for Tuesday and Wednesday. And the February US jobs report is due on Friday (Reuters). The jobs report is always a big deal and stronger data would suggest the Fed has less wiggle room on their interest rate decisions.
“San Francisco Fed President Mary Daly on Saturday said that if data continue to come in hotter than expected, interest rates will need to go higher and stay there longer. “Currently, gold is in a wait-and-see mode,” said UBS analyst Giovanni Staunovo. “There’s unlikely to be a change of script from Powell, reiterating the need for further rate hikes to bring inflation under control.”
In typical fashion today’s stronger opening was sold because of this long-standing worry. It is a “plus” for gold that traders bought the “dip” in prices. But this conviction is thin, and pricing uncertain – gold finished the day on “lows”, almost unchanged.
Will we see a repeat of last week’s tight trading ranges in gold? Not likely, with the Chief’s speech on deck and perhaps better jobs data. The bears are patiently waiting on the sidelines.
This latest “information package” does not contain enough new information to change the already “heavy” Fed sentiment. Traders are bracing for higher interest rates and an aggressive FOMC – prices will head south if the Fed remains resolute, and Powell does not suggest options.
But if the Chief sounds a bit more “dovish” tomorrow traders would believe current gold pricing already reflects these fears and there would be little downside in the near term. This bullish “optimistic view” flies in the face of repeated Fed dialogue stating that inflation is a threat, and they will act accordingly. Many analysts see higher interest rates and lower gold prices.
On the day gold closed down $0.20 at $1847.90, and silver closed down $0.11 at $20.98.
Zaner (Chicago) – “While the initial high in April gold this morning failed to take out the Friday high, prices remain significantly above last week’s low and near the highest level since February 15th. Both gold and silver could have been undermined because of the Peoples National Congress meeting in China failed to present a major stimulus package. While there was a lack of definitive flows in gold ETF holdings last week, holdings increased by 49,406 ounces, while silver ETF holdings increased by 998,372 ounces. In a negative overnight psychological headline, gold demand was questioned by a survey in India which indicated 65% of Indian women think housing investments are more important than gold investments. In retrospect, gold and silver bulls were extremely fortunate last week that bearish outside market influences did not send prices reeling to the downside. In fact, the gold market showed extremely impressive strength in the face of growing interest rate adversity and recent signs of a deterioration in investment interest. However, evidence of very strong buying from the Turkish central bank and news from the IMF that global central bankers purchased record gold for reserves last year should provide gold with a strong injection of important internal fundamental support. In other words, gold may be less of a hostage to fluctuations in the dollar and perhaps even less sensitive to further gains in US interest rates. While a very unlikely development at present, market chatter suggesting rate hikes are not containing inflation could be a “switch” capable of turning on classic inflation, speculation and flight to quality buying of gold. Unfortunately for the bull camp, the sharp range up rally in gold at the end of last week was done on very low trading volume and a very minimal uptick in open interest. While the COT reports continue to be delayed by several weeks, the most recent positioning report showed Gold reducing its net spec and fund long further from the 2023 highs and with the market at last week’s lows $75 per ounce below the level where the report was measured the net spec and fund long in gold today is probably the lowest in 4 months. Gold positioning in the Commitments of Traders for the week ending February 7th showed Managed Money traders net sold 32,701 contracts and are now net long 78,839 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 37,075 contracts to a net long 172,696 contracts. Near term support in April gold is $1,840 and upside targeting/resistance is $1,871. The silver market action has been significantly less impressive than gold action since the late February low, but the bull camp has regained a slight edge. Unfortunately for the bull camp, the large range up move last week was forged on softening trading volume and declining open interest. However, silver ETF holdings remain 1.7% higher year-to-date and have seen a developing pattern of very large daily holdings change, potentially indicating increased investor activity or simple attention to the asset class. While the most recent COT positioning report remains outdated because of technical issues, the latest net spec and fund long in silver adjusted for the post report slide of $1.90 should put the net spec and fund long near the lowest level since early December. Silver positioning in the Commitments of Traders for the week ending February 7th showed Managed Money traders were net long 6,064 contracts after decreasing their long position by 18,782 contracts. Non-Commercial & Non-Reportable traders net sold 13,620 contracts and are now net long 29,878 contracts. We see a thin resistance line at $21.52 with higher resistance at $21.81. To start the new week, key pivot point support in May silver is pegged at $20.76.”
On Tuesday a shaky gold market opened at $1840.00 and quickly tumbled to $1815.00 as Chief Powell spoke to Congress and reaffirmed the Fed commitment to taming inflation. Why Jerome’s hawkish resolve seems to be a revelation is hard to understand. In the recent past Powell and the FOMC have been consistently hawkish. But left the interest rate door open in the hope that inflation rates would continue to decrease. Today the Chief delivered the bad news. Inflation rates continue to rise, and the Fed will raise interest rates accordingly.
Reuters (Bharat Gautam) – Gold down after Powell’s hawkish testimony boosts dollar – “Gold prices fell more than 1% on Tuesday, as the dollar jumped after Federal Reserve Chair Jerome Powell indicated rate hikes could come at a faster pace from the U.S. central bank in his testimony to a congressional committee. The Fed will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation, Powell told U.S. lawmakers on Tuesday. “This direct reference to ‘faster tightening’ even if mitigated by ‘if warranted’ is more of a shove than a nudge, putting the precious metals complex under pressure as the dollar surges,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. The dollar index gained almost 1% following Powell’s comments, making bullion less affordable for overseas buyers. “Gold had already retreated from Friday’s strong close, but so far Powell is more direct and aggressive than the market had anticipated.” U.S. stock indexes also fell after the remarks. The U.S. jobs report for February is due on Friday. If Friday’s jobs data shows significant resilience in the U.S. labor market, it would pave the way for even higher U.S. rates and could unwind the month-to-date gains garnered so far by gold, said Han Tan (Exinity).”
The dip in prices today should not surprise us. We have experienced dramatically changing bullish and bearish sentiment several times in the past 12 months. Look at this latest turn to the bearish side as an opportunity to meaningfully test support. Gold will quickly turn into a value trade if the cash market approaches $1700.00.
At that time, we will likely see a nice bounce to the upside if the Fed does not get crazy with interest rates. During this process keep in mind that as much as Powell claims political independence, he owns the problem if Wall Street crashes. This threat alone will help stabilize both gold and silver prices as this dog and pony show continues to unwind. The big question is not how much the price of gold will be this summer – it is how much it will be next summer.
On the day gold closed down $34.00 at $1813.90, and silver closed down $0.93 at $20.05.
Jim Wycoff (Kitco) – “Technically, April gold futures bulls have lost their slight overall near-term technical advantage. The Bulls’ next upside price objective is to produce a close above solid resistance at this week’s high of $1,850.50. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at $1,835.00 and then at $1,850.00. First support is seen at the February low of $1,810.80 and then at $1,800.00. May silver futures prices hit a five-month low today. The silver bears have the firm overall near-term technical advantage and gained fresh power today. Prices are in a steep five-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $21.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at $20.50 and then at $21.00. Next support is seen at $20.00 and then at $19.50.”
On Wednesday gold managed to steady itself, waiting for Powell’s second day of testimony, as traders look for further FOMC clues and speculate as to the Fed’s next rate hike. Analysts believe we will see a half point rate hike the next FOMC meeting (March 22nd and 23rd). If this is the case, it would obviously be a negative for the gold bulls. But Powell, even in testimony today claims that no decision has been made on the next rate hike.
And there are cross currents which support the bulls. The Bank of Canada displayed caution last night, halting the rise in their interest rates (4.5%), helping to stabilize this downdraft. Today’s bounce to the upside in the price of gold was insipid – the market closed almost unchanged. Still, the bounce may suggest a short-covering rally or the early stages of an oversold market.
Reuters – “There are still several more event-driven risks the gold market needs to absorb – Powell today, jobs data on Friday, CPI on Tuesday,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, adding prices had near-term support around $1,800. The Fed will likely need to raise rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation, Powell said on the first day of his semi-annual two-day testimony before Congress. U.S. private payrolls increased more than expected in February.”
On the day gold closed down $1.20 at $1812.70, and silver closed down $0.04 at $20.01.
Zaner (Chicago) – “Both gold and silver face a 2nd day of US Federal Reserve Chairman testimony to the US Congress where discussions of more aggressive and longer in duration tightening policy are expected to flow again. Unfortunately for the bull camp the dollar index has forged a higher high extension this morning following yesterday’s sharp range up move thereby pulling currency-related pressure on gold and silver into another session. Not surprisingly, expectations for the March 21st/22nd FOMC meeting have boosted the odds of a 50-basis point rate hike and that should leave gold and silver in a general downward motion. In what might be a delayed reaction to recent declines in prices, both gold and silver ETF holdings continue to plummet with gold holdings yesterday shedding 226,383 ounces for a 6th straight daily decline and silver posting the biggest one-day decline (5.1 million ounces) in holdings since last September. In another minimal negative demand development, the Perth Mint indicated February gold sales declined while the sale of silver coins and minted bars increased. Apparently, the gold trade has a different opinion on what constitutes a noted amount of Chinese central bank gold buying, as a bullish story on Bloomberg yesterday regarding a 25-ton purchase from the Chinese Central bank had little supportive impact on gold which fell by more than $35 per ounce yesterday. Nonetheless, seeing the Chinese central bank buy 25 tonnes of gold last month and with that purchase the 4th straight month in a row of purchases that looks to be the beginning of a trend of reserve building by the central bank representing the world’s largest gold consuming nation. In our opinion, reports that Chinese central bank gold reserves are roughly 2,100 tonnes are a wild guess, with the Chinese central bank likely building gold reserves consistently over the last several years in a bid to raise Chinese status in global financial markets. It should also be noted that the World Gold Council recently indicated that 2022 saw record central bank gold purchases and we see no reason to expect the “trend of buying” to come to an end as many central banks liquidate extensive bond portfolios. However, in the near term a strong dollar and talk of even higher rates should leave the bear camp in gold and silver with the edge.”
On Thursday gold traders created that oversold bounce and short covering rally suggested in yesterday’s commentary. This modest underpinning was also encouraged by “calm and collected” Chief Powell, in a second day of commentary Wednesday. He did not equivocate but displayed that professional expertise which engenders the Wall Street faithful – and that is all he needs for the present. Wall Street and the metals are not out of the interest rate woods by a long shot, but the Chief managed to calm the waters for today.
Another round of anxiety, however, is right around the corner. The US jobs report for February will be out tomorrow. Analysts are expecting a solid gain in the number of people employed. This employment dynamic was one of Powell’s talking points yesterday.
More people working creates competition and higher wages. Which in turn fuels higher inflation. If the jobs number tomorrow comes in hot, the Fed will double down on its hawkish sentiment. And the gold bulls will struggle to hold this psychologically important $1800.00 floor. If this is not the case, you could see gold rising in the shorter term.
One way or the other I expect this “grind” toward higher interest rates will hinder short term gold prices. At the same time, the possibility of a Fed induced crisis underpins physical demand. The physical bullion trade also holds the wider view that world inflation is more than troubling – and will fuel higher gold/silver prices over the longer term.
On the day gold closed up $16.60 at $1829.30 and silver closed up $0.02 at $20.23.
Zaner (Chicago) – “While the US Federal Reserve Chairman this week indicated the Fed is data dependent and undecided on the magnitude of the March 22nd rate hike, the pendulum continues to swing toward a 50-basis point hike. However, despite Fed insistence that they are not targeting jobs, today’s US economic report slate will be limited to jobs data and therefore the gold and silver markets will be especially sensitive to interest rate and US dollar action. According to some economist’s strong jobs readings are threatening to the Fed and gives them the latitude to be more aggressive without increased threats of recession. Nonetheless, the path of least resistance remains down in gold and silver with inside and outside market factors expected to pressure prices again today. Certainly, the passage of 2 days of very hawkish US Federal Reserve testimony provided significant pressure to gold and silver prices, especially with higher US rate talk resulting in a upside explosion in the dollar. In retrospect, given US jobs-related data released so far this week, we expect today’s US jobs data to show lingering strength which in turn should add to chatter of a 50 basis point March US Fed funds rate hike. Furthermore, solid jobs data is likely to add to Fed inflation concerns and add to the ongoing movement to raise the terminal rate target. Unfortunately for the bull camp, gold, and silver ETF holdings this week have seen outflows indicating that bargain hunting investment buying has not surfaced yet on the recent slide in prices. Therefore, in today’s action we see a further slide in gold toward $1,800 and a decline in May silver to an old gap down at $20.045/$19.715. The silver market should see added pressure from news of higher-than-expected Chinese February silver production with a 2.6% month over month rise and a 17% year-over-year silver production increase. The CFTC yesterday released positioning data as of February 14th and is continuing to “catch up” to the hacking shutdown delay of positioning reports. Gold positioning in the Commitments of Traders for the week ending February 14th showed Managed Money traders were net long 57,353 contracts after decreasing their long position by 21,486 contracts. Non-Commercial & Non-Reportable traders net sold 23,181 contracts and are now net long 149,515 contracts. The Commitments of Traders report for the week ending February 14th showed Silver Managed Money traders are net long 5,524 contracts after net selling 540 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 3,235 contracts to a net long 26,643.”
On Friday the move of gold prices to weekly highs was very surprising. Most traders were looking for a strong jobs report (which they got today) and this should have left gold struggling at $1800.00. It might be a bit early to claim the “fear factor” has again come crashing through the front door. That will take price confirmation, and a new bullish technical picture.
This looks like an overreaction to a failed Silicon Valley bank which was seized by regulators after failing to raise needed capital. Still, it was a big deal. The bank had 17 locations, and this was the largest bank failure since the Great Recession.
It has unnerved even the wider world market. Those presupposed to the “disaster theory” will claim that gold is ahead of the curve. Throwing up a red flag and providing a warning about how much fiat money has been created worldwide since the onset of the pandemic.
I remain suspicious and believe this rally will be sold, sooner than later. The metals will then revert to the usual back and forth pricing action we have seen for months, as everyone waits for further Fed clarification as to its interest rate intensions.
Investor’ Business Daily – Dow Jones Dips, Tech Stocks Pressured; First Republic Plunges 60% As Contagion Fears Hammer Financials. Yahoo! Finance – Stocks sink amid jobs beat, bank jitters. CNN – Fear overtook Wall Street Thursday after SVB Financial Group, a bank that lends primarily to tech companies, told investors it had to sell $1.75 billion in shares at a loss in order to cover rapidly declining customer deposits. That triggered losses across the banking sector and concern that the Federal Reserve’s interest rate hikes are preventing banks from raising capital. Bank stocks fell by their largest levels in nearly three years on Thursday, bringing all three major indexes down with them.
On the day gold closed up $32.70 at $1862.00, and silver closed up $0.35 at $20.38.
Platinum closed up $12.90 at $959.70, and palladium closed down $11.30 at $1348.10.
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