Gold – Terminal Interest Rate
Commentary for Friday, Dec 15, 2023 (www.golddealer.com) – Today gold closed down $9.10 at $2021.10, and silver closed down $0.23 at $23.87. On Wednesday Chief Powell created a thunderclap by claiming the latest Consumer Price Index and Producer Price Index suggest that a terminal interest rate has been reached. Jerome then put some icing on the cake by saying that the FOMC expects to cut rates in 2024. Keep in mind, however, that the Chief also said that declaring victory over the evil inflation demon is premature, suggesting that changes to this new dovish policy are still very much on the table. Last Friday gold closed at $1998.30 / silver at $22.97 – on the week gold was up $22.80 and silver was up $0.90. We will be closed Dec 25th (Monday) and Dec 26th (Tuesday) for Christmas. And Jan 1st (Monday) for New Years.
Please note that FedEx is no longer asking for delivery signatures. They are scanning IDs. We have complained to FedEx, but they remain resolute. Scanned identification is safer, but if you have a problem with this decision, please make your feelings known to FedEx. Unfortunately, the present delivery time for the USPS alternative is 2-3 weeks.
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 a 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.
On Monday my last week’s optimism about gold holding the upper end of its recent trading range seems misplaced as our shiny friend moved to three-week lows. Adding insult to injury typical bargain hunting after last Friday’s big drop was non-existent while technical selling always increases this typical “momentum” pile on. Still, there are many factors outside the present discussion which could either reverse or mute rising bearish anxiety.
Gold trading below $2000.00 is unfortunate and represents expected volatility in stormy financial waters. Its recent bottom was in October ($1825.00), its recent top was in early December ($2050.00). The pricing spread being $225.00 which is not the end of the world if you consider this large push to higher ground was prompted by speculation that the Fed’s interest rate intentions might turn dovish. Since March of 2022 the Fed has increased rates 11 times to tame inflation. But experts believe there will be no more hikes this year (money.com). It is also a real possibility that the FOMC will lower rates next year to help create a soft economic landing. Keep your powder dry, this story is still unfolding because of the number of variables at play.
Reuters (Stephen Culp) – Wall Street subdued, gold slides ahead of CPI, Fed – “U.S. stocks were muted and gold slid on Wednesday, as investors bided their time ahead of crucial inflation data and the U.S. Federal Reserve’s monetary policy meeting. The three major U.S. stock indexes were mixed, with the Dow Jones edging higher and the Nasdaq nominally lower and the S&P 500 essentially unchanged. Gold dropped to a near three-week low as the dollar firmed and Treasury yields moved higher. On Tuesday, the Labor Department is expected to release its closely watched Consumer Price Index (CPI) report, which is expected to show inflation continues to cool but remains well above the Fed’s 2% annual target. “This is typical market action prior to big releases,” said Jay Hatfield, portfolio manager at InfraCap in New York. “There’s considerable uncertainty CPI, to a lesser to degree PPI and the Fed.” Also on Tuesday, the Federal Open Markets Committee (FOMC) is due to convene for its two-day monetary policy meeting, which will culminate on Wednesday with its interest rate decision and the release of its summary economic projections. “When something big is about to happen, usually nobody makes any big bats either direction, and that’s what’s happening today,” Hatfield added. While the Fed is largely expected to let the Fed funds target rate stand at 5.25%-5.50%, market participants will parse the central bank’s dot plot in order to assess the central bank’s expected path forward.”
On the day gold closed down $20.30 at $1978.00, and silver closed down $0.20 at $22.77.
On Tuesday the price of gold firmed in reaction to the latest inflation numbers. This must be a surprising turn of events given the big drop in gold prices yesterday. But it makes sense in that professional traders point out that important variables can change overnight. Gold pushed to daily highs ($1996.00) before traders sold this rally and it finished at lows for the day ($1979.00). This kind of trading ruckus will continue because paper traders are still not sure about what the Fed has in mind regarding its inflation policy.
Even the best commentators are split into opposing camps. Those who believe interest rates are high enough and because of this inflation will move lower. And there are those who insist that the Fed maintain a hawkish interest rate policy or risk getting behind this dangerous curve.
Today is an example of the clash between these two opposing camps, which produces a kind of “pendulum” thinking – which swings back and forth between these adversaries.
The FOMC meets today and Wednesday. Chief Powell will then hold his usual press conference. The expectation is that the Fed will leave rates unchanged, a dovish shift. But the Chief’s rhetoric will remain hawkish, which gets us into next year without upsetting the apple cart.
Reuters (Ashitha Shivaprasad) – Gold prices pare gains after U.S. inflation data – “Gold prices on Tuesday pared gains after data showed that U.S. consumer prices rose unexpectedly in November, while traders’ focus shifted to key central bank policy meetings for clarity on monetary policy. The consumer price index (CPI) rose 3.1% in Nov on an annual basis, in line with economists’ expectations. The CPI edged up 0.1% on a month-on-month basis in Nov. “Inflation data was in line with the expectations, but people really needed to see a strong down tick in order to cement the those marked interest rate cuts,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “Gold will be stuck between $2,050 on the upside and $1,950 on the downside. Weak economic data and geopolitical tension could boost prices.” All eyes turn towards the Fed’s two-day policy meeting that will end on Wednesday with its interest rate decision and the release of its summary economic projections. The Fed is widely expected to leave rates unchanged this week, with about an 80% chance of a rate cut in May, CME FedWatch Tool shower. Lower interest rates tend to support zero-yielding gold. “If a recession does occur, the dollar could weaken and that would help to propel the gold price to new highs… Gold is forecast to trade between $1,880-$2,250,” Heraeus Metals said in its 2024 outlook. The dollar pared losses after CPI data, making gold more expensive for other currency holders.”
On the day gold closed down $0.20 at $1977.80, and silver closed down $0.04 at $22.73.
On Wednesday gold was choppy to mildly higher waiting for today’s comments by Fed Chief Powell. He will likely not offer anything fresh so I suspect gold prices will remain steady through the close. But keep in mind that his comments come after today’s close. The aftermarket prices or further insight will be reflected in tomorrow’s domestic trade.
It was typical that Janet Yellen was talking to the press today before the market close. I believe our Secretary of the Treasury’s comments were designed to ensure that folks believe Washington and the Fed are on the same financial page. She also makes two important points. First, Yellen said that there is always a threat of recession, but she does not believe that threat is high today. And second, she also believes that inflation be will 2% by the end of 2024.
If she is correct lower inflation obviously decreases gold’s “fear trade”, which creates the current support for gold just under $2000.00 – a negative for the bullion trade. If she is wrong, higher inflation numbers would increase Fed hawkishness – also a negative for the bullish gold scenario. But if the result is something between these two extremes, the Fed option would be to lower interest rates in 2024, an obvious plus for the gold market.
This is also a great time to roll out one of my favorite sayings. “May you live in interesting times.” Some claim this is an old Chinese curse. I have not been able to trace its origin, but does it not fit our current interest rate predicament? Maybe “interest rates” are not as important as once thought, and gold pricing hinges on investor “fear factor” and “safe haven” demand.
You should be asking why gold got substantially stronger ($2050.00) in the aftermarket after Powell’s announcement? The answer – traders believe the Fed will loosen monetary policy in 2024 by lowering interest rates as soon next March. Today’s latest bullish surge in gold may be laying the groundwork for all-time highs sooner than many expected. But a caution flag is warranted. Gold may now be overbought. And traders will sell rallies, creating volatility.
FXEmpire (James Hyerczyk) – Fed’s Final Decision of 2023: Market Impacts and Predictions – “As the Federal Reserve prepares for its final interest rate decision of the year, the financial markets are on alert for any potential shifts. The prevailing opinion among Wall Street experts is that the Fed will hold the current interest rate steady at 5.25% to 5.50%, signaling a phase of stabilization following a series of substantial hikes since March 2022. Notably, futures market data, including insights from the CME Group’s FedWatch Tool, indicate a roughly 40% chance of the first rate cut by the Fed occurring in March 2024. This expected timing is crucial, as it will significantly influence perceptions of the Fed’s stance as either hawkish or dovish. The decision, complemented by the Fed’s policy statement, dot plots, and Chair Jerome Powell’s remarks, is set to critically shape the short-term trends in Treasury yields, the US Dollar, gold, and the stock market. Treasury Yields – Firstly, the impact on Treasury yields could be significant. If the Fed adopts a hawkish stance, signaling further rate hikes or a longer period of high rates, we could see an uptick in yields as investors anticipate a tighter monetary policy. Conversely, a dovish outlook, hinting at rate cuts or a halt in hikes, might lead to a drop in yields as expectations for a more accommodative policy take hold. US Dollar – The US Dollar’s trajectory is closely tied to the Fed’s tone. A hawkish stance typically bolsters the Dollar, as higher interest rates attract investors seeking better returns. On the flip side, a dovish approach could soften the Dollar, making it less attractive to yield-seeking investors. Gold Market Reactions – Gold, often seen as a hedge against inflation and currency devaluation, reacts inversely to the Dollar’s movements. A hawkish Fed could dampen gold prices as a stronger Dollar and higher yields make gold less appealing. However, if the Fed leans dovish, we could witness a rally in gold prices, driven by a weaker Dollar and lower opportunity cost of holding non-yielding assets.
Stock Market – The stock market’s response is a bit more complex. A hawkish Fed could initially trigger a sell-off, as higher rates can dampen economic growth and corporate earnings. But it could also signal confidence in the economy’s strength, potentially offsetting some negative reactions. On the contrary, a dovish Fed might be welcomed by the stock market, as lower rates can stimulate economic activity and improve corporate profitability.”
On the day gold closed up $4.50 at $1982.30, and silver closed down $0.09 at $22.64.
On Thursday the choppy rise in the price of gold was initially confusing. The Fed did not raise interest rates, but traders had already suspected this would be the case. But the confirmation of this suspicion was the first step in stoking the bullish fireplace. The second step became apparent as Chief Powell’s next comment left traders scratching their heads. According to the Chief the CPI and PPI (inflation indicators) support the idea that the FOMC might be able to begin lowering interest rates as soon as March of 2024. The third step was typical as paper traders jumped on the initial bullish idea and short covering created even more buzz.
Reuters (Anushree Ashish Mukherjee) – Gold touches one-week high as Fed hints at lower US rates next year – “Gold prices touched a one-week high on Thursday as the U.S. dollar and Treasury yields were beaten lower after the Federal Reserve signaled an end to its monetary policy tightening cycle. “Fed’s dovish pivot was telegraphed over yesterday’s FOMC meeting and very pragmatically gave a green light for markets to price in a more aggressive Fed cutting cycle on the horizon, and we expect that the market will run with it,” said Daniel Ghali, commodity strategist at TD Securities. “This is extremely positive for gold prices, given that investor demand was one of the missing pieces for the rally to new all-time highs to be sustained.” Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies. The dollar slipped to a four-month low, while the U.S. benchmark 10-year yield dropped to its lowest level since late-July. Seventeen of 19 Fed officials projected lower interest rates by end-2024, after the Fed kept interest rates steady for the third meeting in a row, as was widely expected. Markets are now pricing in around an 83% chance of a rate cut in March from the Fed, according to the CME FedWatch tool. The European Central Bank also left interest rates unchanged as expected on Thursday, signaling an early end to its last remaining bond purchase scheme. “We retain a positive outlook for gold, targeting a price of $2,250 per ounce by end-2024,” UBS analyst Giovanni Staunovo said. Elsewhere, spot silver rose 1.6% to $24.14 per ounce, platinum gained 1.7% to $949.70 and palladium climbed 6.5%, to $1,056.97.”
On the day gold closed up $47.90 at $2030.20, and silver closed up $1.46 at $24.10.
On Friday the price of gold dipped on the open, tried to recover but finished the day mildly in the red. This rather dismal performance after the big jump in prices yesterday is a good reminder that gold is subject to outside influences which ignore relative interest rates and even Fed thinking concerning inflation. Today’s dip in prices may be a round of profit taking. Or reduced safe haven demand as traders now believe that a “soft landing” is a reality. Still, let a solid bullish week for gold put a smile on your face. Be happy that physical gold, the only real safe haven protection, is still above $2000.00. In spite of the “new” Terminal Interest Rate.
FXEmpire (Arslan Ali) – Gold, Silver, Copper Daily Forecast: Rising on Fed’s Dovish Stance and Economic Data – “Gold prices have risen, driven by the Federal Reserve’s dovish signals, with spot gold stabilizing above $2,036, despite remaining below its monthly peak. In the wake of dovish signals from the Federal Reserve, gold prices experienced a modest rise in Asian trade, as expectations of lower interest rates in 2024 weakened the dollar and Treasury yields. Markets are now pricing in at least three rate cuts from the Fed, starting possibly in March 2024. This shift has bolstered gold’s appeal, with spot gold stabilizing at $2,036.83 an ounce and futures rising by 0.3%. Despite this uptick, gold prices remain below the monthly highs of over $2,100. The prospect of reduced rates, while beneficial for gold, may divert investments towards riskier assets if economic conditions improve. Copper prices also strengthened, supported by a weaker dollar and positive economic data from China. March copper futures saw a 0.3% increase, reflecting optimism fueled by the People’s Bank of China’s liquidity injection into the economy. This action suggests the continuation of low loan rates to aid economic recovery, positively impacting copper prices. Gold, on December 15, is exhibiting a promising upward trend, currently priced at $2,041, marking a 0.33% rise. This positive movement situates the precious metal just above its pivotal point of $2,039. The asset now faces immediate resistance at $2,057, with further barriers at $2,072 and $2,085. Support levels are established at $2,019, $2,008, and $1,991, which might come into play if the current bullish momentum wavers. The technical indicators offer an insightful perspective. The Relative Strength Index (RSI) is nearing the overbought threshold at 69, suggesting a strong but potentially overstretched bullish sentiment. Significantly, Gold’s trading above the 50-Day Exponential Moving Average (EMA) of $2,017 reinforces the current uptrend. A critical development in the chart pattern is Gold breaking above the $2,040 double-top pattern, a move that traditionally signifies a continuation of the buying trend. This breakout indicates potential for further upside. In conclusion, the technical outlook for Gold remains bullish above the $2,040 mark. Silver’s market performance on December 15th reflects a cautiously optimistic outlook. The metal, currently trading at $24.219, has seen a modest gain of 0.16%. Positioned just above its pivot point of $24.22, Silver faces immediate resistance at $24.63, with further levels at $24.91 and $25.20. Should the momentum shift, support can be found at $23.83, $23.52, and $23.24. The Relative Strength Index (RSI) of 71 indicates an overbought condition, suggesting the possibility of a near-term pullback. Notably, Silver’s current trading above the 50-Day Exponential Moving Average (EMA) of $23.64 confirms a short-term bullish trend. A significant technical pattern is Silver completing the 50% Fibonacci retracement around the $24.20 mark. A bullish breakout above this level could signal further buying interest. In summary, Silver exhibits a bullish trend above the $24.15 threshold.”
On the day gold closed down $9.10 at $2021.10, and silver closed down $0.23 at $23.87.
Platinum closed down $15.30 at $949.80, and palladium closed up $86.40 at $1198.10.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the firm overall near-term technical advantage and have regained strength. Prices are in a nine-week-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in March futures above solid resistance at $2,100.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,000.00. First resistance is seen at this week’s high of $2,062.90 and then at $2,072.70. First support is seen at the overnight low of $2,045.50 and then at Thursday’s low of $2,039.10. The silver bulls have the overall near-term technical advantage. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at $26.00. The next downside price objective for the bears is closing prices below solid support at this week’s low of $22.785. First resistance is seen at $24.75 and then at $25.00. Next support is seen at the overnight low of $24.285 and then at $24.00.”
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