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Gold – Technical Boost

Gold – Technical Boost

Commentary for Friday, March 3, 2023 ( – Today gold closed up $14.20 at $1847.70, and silver closed up $0.32 at $21.09. The price of gold was off to a good start today in New York, closing in on $1850.00. Traders initially sold the first rally and gold reversed direction, bouncing off $1839.00. But they bought the second rally, which was sparked by bargain hunting and short covering. This reversal was interesting in that neither the Fed talk, or pricing variation was significant. But the fact that gold finished in the green 4 out of the last 5 trading days was not overlooked. Last week’s technical picture for gold was bearish. This week’s pricing advances were enough to place the bulls and bears on equal footing. Which discourages bear raids and provides needed cover for the bulls during this transition. Last Friday gold closed at $1808.80 / silver at $20.81 – on the week gold was up $38.90 and silver was off $0.28.       

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On Monday gold moved higher on the open ($1820.00) and traders sold the rally, in typical fashion. Buyers then reappeared ($1812.00), creating another updraft and eventually our shiny friend managed to close in the green for the day, and at the higher end of the range. But these pricing spreads are tight suggesting traders continue to “sell” the rallies and “buy” the dips.

Reuters (Bharat Gautam) – Gold gains as dollar rally cools; rate-hike fears linger – “Gold prices ticked up on Monday as the dollar retreated, although worries of further interest rate hikes from the U.S. Federal Reserve kept bullion near a two-month low. The dollar index fell 0.4% after hitting a seven-week peak, making gold less expensive for overseas buyers. Gold has support around $1,806 but it has been sliding on higher-than-expected inflation and economic data continues to be firm, Bart Melek, head of commodity markets strategy at TD Securities, said. After hitting their highest since April 2022 this month, gold prices have fallen by more than 7% after U.S. data pointed to a resilient economy. Data on Friday showed U.S. consumer spending increased by the most in nearly two years in January, while inflation accelerated, adding to market fears the Fed could continue raising interest rates. “Given how the Fed’s favored measure of inflation accelerated in January, appetite for zero-yielding gold may be soured by rate-hike bets in the near term – ultimately dragging prices lower,” Lukman Otunuga, senior research analyst at FXTM, said. “Gold (will) remain highly sensitive to chatter by Fed officials, key economic data and any topic relating to inflation as we head into the new month.”

On the day gold closed up $8.20 at $1817.00, and silver closed down $0.14 at $20.67.

Zaner (Chicago) – “Gold fell to its lowest level since December 22 overnight as the market fell on expectations that the Fed will continue its tight policy. Scheduled data on Friday suggested more tightening ahead. The Personal Consumption Expenditures price index rose 5.4% in January from a year earlier versus a 5.3% number in December. The month-on-month gain was 0.6% versus 0.2% in December. Goods fell 0.7% from the previous month, but services increased 0.5%. Consumer spending increased 1.8% last month, the biggest increase since March 2021. News overnight was bearish from the fundamental side as well, with China’s net gold imports via Hong Kong reported at 22.24 tonnes in January, down from 42.16 (-47%) in December. Strong economic numbers could be positive for silver industrial demand, but the market followed gold lower on Friday and overnight, reacting negatively to the strong price data with March silver trading to its lowest level since November 4. Bloomberg reports that ETFs cut their holdings by 17,046 ounces in the last session and by 347,017 last week. It was the 11th straight day of declines. Silver holdings fell 3.194 million in the last session, a 1.7% decline. The CFTC has started to release its backlog of Commitments of Traders report. The most recent data was as of January 31, and it showed managed money traders were net buyers of 4,909 for the week, increasing their net long to 111,540. This was their highest since last April. The market has sold off considerably since February 2, so we suspect that net long is quite lower by now. Managed money traders were also buyers of 3,923 contracts of silver, bringing their net long to 24,846 contracts, which was not setting any records. Their net long could be down considerably given how far the market has fallen since that date.”

On Tuesday gold moved lower overnight in Hong Kong/London but reversed losses in our domestic market. Traders bought overnight weakness in New York pushing gold towards $1830.00. Enough of a hint to provide the bulls with some needed breathing room. Do not call this latest impromptu rise a “reversal” in pricing. But it was the result of two factors:

The first being that traders bought the early dip – suggesting mild bargain hunting. The second was today’s swoon in consumer confidence. Consumers are spending less because interest rates are moving higher – which suggests recession fears are growing. Today’s price hike is not significant enough to hinder the recent bearish shift in gold’s technical picture. But it does point to a growing and underlying tension created over uncertainty on the economic front.

Grant on Gold (Zaner) – (1) Gold dropped 1.7% last week. It was the fourth consecutive lower weekly close, as better-than-expected U.S. economic data, and stubbornly high inflation continue to weigh. (2) Silver tumbled 4.5% last week, notching its sixth consecutive lower weekly close. (3) Platinum was down a little more than 1% last week and recorded a seventh consecutive lower weekly close. (4) Palladium continued its slide last week, reaching a 3-year low of $1353.04.

On the day gold closed up $11.90 at $1828.90, and silver closed up $0.29 at $20.96.

On Wednesday the gold opened choppy, trading back and forth between $1834.00 and $1845.00. In each cycle the drop was met with bargain hunting and mild short covering.

This price pattern was similar to yesterday and driven by a weaker dollar. The Dollar Index lost nearly a full point today, reacting to much stronger than expected economic data from China. There really is still no clear dividing line between the bulls and bears but it does count for something that gold has moved to higher ground three consecutive days this week.

Reuters (Seher Dareen) – Gold hits 1-week high as dollar slides on robust China data – “Gold prices gained 1% on Wednesday as strong Chinese economic data dented the dollar and drove some bets for better physical demand from the top bullion consumer, although the risk of elevated U.S. interest rates capped gains. With strong data out of China and some countries looking to continue with rate hikes, the dollar was weakening against other currencies, providing some support to the gold market, said David Meger, director of metals trading at High Ridge Futures. The dollar hit a one-week low earlier today after China’s yuan gained as the country’s manufacturing activity expanded at its fastest pace since April 2012. Since gold is priced in U.S. dollars, a weaker currency makes it more affordable for foreign buyers. The day’s gains in prices come after bullion posted its worst month since June 2021 in February after strong U.S. data pointed to a resilient economy, suggesting that the Federal Reserve could deliver more rate hikes to curb inflation.”

On the day gold closed up $8.80 at $1837.70, and silver closed unchanged at $20.96.

Zaner (Chicago) – “With the dollar in the early action today matching 5-day highs in the early action, and upbeat global economic sentiment following strong Chinese PMI readings the early strength in gold and silver is justified. In another minimally supportive overnight development Russian gold miner Polymetal indicated their reserves declined with operations suffering indirect negative impacts from sanctions from the difficult in obtaining drilling equipment and other necessary mining materials. Significant volatility in daily gold and silver ETF holding flows continued yesterday with gold holdings declining by 77,532 ounces and silver holdings declining by 935,118 ounces! Obviously, gold, silver, platinum, and copper prices are being lifted this morning following better than expected Chinese PMI results which clearly bolstered hope for improved Chinese metal demand. The trade is also expecting additional stimulus efforts from this weekend’s Chinese National People’s Congress. While only a minimally supportive story (without actual proof of purchases), Bloomberg overnight indicates central banks are likely to continue to build holdings as they hike rates and sell bonds from their quantitative easing efforts. A Bloomberg story overnight also noted that current gold prices are “just above” levels where central bankers were inspired to purchase gold before. It is possible that increased tensions between China in the US (over the origins of the coronavirus) could provide minimal flight to quality buying of gold and silver, but there is an equal chance that severe escalation of US/Chinese tensions could be seen as a slowing threat against the world economy and in turn that cold dent gold and silver physical demand expectations. Not surprisingly, chart action in both gold and silver early this morning has shifted positive with 3-day highs and the markets regaining key chart levels in the early action. However, the US session will also bring an avalanche of US and Canadian PMI readings, with Germany and the US also releasing price (inflation) related measures. Expectations for German and US price data call for minimal increases which could produce negative but temporary weakness in prices.”

On Thursday gold moved on both sides of “unchanged” even though the Dollar Index strengthened. The index drifted from 104.39 through 105.14 on follow through momentum after recent lows (104.14) yesterday. None of this is particularly important in the sense that it will overshadow what the Fed has in mind. But it suggests a highly sensitive trade is still in place despite the fact that today’s pricing spread in gold was an unexciting $8.00.

Today Reuters suggests that U.S. weekly jobs data hinted at a tight labor market that could keep the Federal Reserve on its rate-hiking cycle, underpinning the dollar and Treasury yields. U.S. central bank officials are divided over whether more restrictive interest rates are needed or just maintain a tight monetary policy for a longer period of time to tame inflation that was much higher than the Fed’s 2% target. Spain, France, and Germany earlier in the week indicated that inflation remained sticky, with the European Central Bank leaning towards remaining hawkish.

The EU is caught between a rock and hard place. Which makes our FOMC decisions difficult – we could get drawn into their inflation mess because of factors outside our control.

Patience is the best approach – keep your powder dry. Ignore the noise/opinion which always increases while waiting for definitive Central Bank decisions. These folks are masters at dragging their feet – they are not sure of the outcome and will play on both sides of the street.

Good economic news out of China has pushed crude oil towards $80.00 – a plus for the bulls.

On the day gold closed down $4.20 at $1833.50 and silver closed down $0.19 at $20.77.

Zaner (Chicago) – “With the dollar extending yesterday’s late rebound and ECB officials indicating more rate hikes are possible and Dutch officials taking note of significant food price inflation the bias in gold and silver has shifted down after 2 days of upward action. In fact, according to reports, the US Federal Reserve is discussing the potential for continued rate hikes beyond January, as opposed to more significant near-term rate hikes which should entrench the rate hike story on the front page of the marketplace. Unfortunately for the bull camp gold and silver ETF instruments saw outflows yesterday, further disrupting the pattern of inflows presented at times last month. Clearly, investment in gold instruments has been much more disappointing to the bull camp than in silver, with gold holdings year-to-date down by 1.2% and silver holdings clinging to a year-to-date gain of 1.8%. The divergence between gold and silver yesterday reconfirms gold is almost exclusively tracking action in the Dollar, while the silver market is at least partially focused on classic physical commodity market demand fundamentals. However, gold did manage to hold up yesterday in the face of fresh inflation data and against dialogue from the Fed indicating that Fed funds will likely have to rise above 5.0%. On the other hand, favorable Chinese economic data should help to reinforce current expectations of an economy regaining momentum following the removal of activity restrictions. If the Chinese growth story is backed up by additional positive data tonight that should begin to foster ideas of improved Chinese gold consumption. While some traders might suggest improved Chinese economic activity is a bigger benefit to base metal markets than to precious metal markets, China remains the world’s largest gold consumer (consuming more than double India) and the Chinese central bank has seemingly shifted into a pattern of adding to reserves which have been partially confirmed by the IMF. However, some of the optimism from the prospects of improving Chinese gold demand have been mitigated overnight following estimates from the China Gold Association of a 13% increase in Chinese 2022 gold production over 2021 output. On the other hand, US implied treasury yields continue to climb with 30-year bond rates overnight reaching the highest levels since November 14th and that could begin to pull money from gold into safer in and higher yielding fixed income investments. Another potential negative force for gold and silver prices today is hot consumer price index readings from Italy and the Euro zone with Tokyo price index readings scheduled for Friday morning expected to be hot. Keep in mind, in the current market condition hot inflation readings inspire stronger dollar action and signal even higher interest rates. In fact, overnight US treasury yields reached the highest level since November 10th and the markets were presented with hotter than expected Italian and EU inflation readings overnight. Therefore, the latest inflation results should foster fresh pressure throughout precious metal markets. While we will not argue against additional upside action in gold and silver ahead, the bias this morning has clearly shifted back in favor of the bear camp.”

On Friday gold finished the week on an upbeat note. Our shiny friend heads for its first weekly rise this past month on dollar weakness. Reuters – “Until a new catalyst is found, such as next week’s jobs or consumer prices data, gold is likely to remain range-bound between the $1,830-$1,850 levels, Bart Melek, head of commodity markets strategy at TD Securities, said. With China recovering, there may be continued robustness in gold consumption, with people also buying the metal to hedge against inflation, Melek added. The U.S. dollar index was headed for its first weekly loss in five, making bullion more attractive for other currency holders, while benchmark U.S. 10-year yields crept lower from near a four-month peak. While Fed Governor Christopher Waller said strong economic data could see rates above the 5.1%-5.4% range, Atlanta Fed President Raphael Bostic said he favored a “slow and steady” increase moving forward and a pause by mid or late summer. Traders are now pricing in at least three more 25 basis point rate hikes this year, with rates peaking at 5.43% by September.”

On the day gold closed up $14.20 at $1847.70 and silver closed up $0.32 at $21.09.

Platinum closed up $14.30 at $977.20, and palladium closed up $0.23 at $1431.20.

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