Gold – The Bears Roar
Commentary for Friday, Jan 7, 2022 (www.golddealer.com) – Gold closed up $8.30 today at $1797.00 and silver closed up $0.22 at $22.39. Considering this week’s sudden shift in gold sentiment from bullish to bearish our shiny friend seems to be holding up. Better than expected on the short term. Still, I would describe this market as pensive with a downward bias. The technical picture has changed from positive to a push between the bulls and bears. Gold’s recent support line ($1780.00) must hold up or further downward pressure could develop next week, depending on dollar strength. Today’s green close is promising but might simply point to a mild short covering rally into an uncertain weekend. So next week’s action will be watched closely.
Last Friday gold closed at $1830.80 / silver at $23.40 – on the week gold lost $33.80 and silver lost $1.01. The good news is that delivery on US Gold and Silver Eagles is again improving. We are receiving .9999 fine silver round orders. The bad news is that “new orders” are still delayed 3 to 6 weeks. The Canadian Royal Mint is raising premiums.
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.
Gold bulls were disappointed Monday as traders took profits. And the rising expectations of the December rally which challenged $1830.00 have fizzled. This was not unexpected – given rising Treasury yields and a Dollar Index pushing to monthly highs (96.50) but it is disappointing.
It appears European and US stock traders have adopted a new optimism according to Reuters. And do not seem worried over omnicom – encouraging more “risk on” days for Wall Street, creating further drag for the metals and less safe haven buyers in gold.
The primary bearish element for gold this year will continue to be the Fed’s promise of higher interest rates. This threat has never been a “straw dog”, but I believe it is overemphasized in the gold pricing equation because the Fed can “tap down” inflation with small interest rate changes and analysts expect 3 one quarter point hikes between now and September.
Certainly not the zero rate we all now enjoy but a rate which still supplies historically cheap money to a growing economy and stock market. And before you jump out the gold window consider that these “small increases” are all the Fed has to offer – after all, Uncle Sam must finance the cost of a still growing balance sheet.
There is nothing new in this picture. It is another version of the typical FOMC story line heard since inflation turned out to be “not transitory”. But for now, gold will remain left footed anticipating FOMC changes in 2022. Traders will get hints at the first FOMC meeting this year (January 25th and 26th). With specifics at the more important gathering on March 15th and 16th. The wise and worldly are talking about September of this year before the program will “settle down” and become reality. My feeling is that there is little chance of seeing more hawkishness and depending on the still developing inflation numbers we could see less. But there is a real possibility that gold and silver could benefit from these changes, once they are no the table. And remember that the physical market loves cheaper prices and will eagerly buy the dips.
Zaner (Chicago) – “While the gold market is tracking lower as of this writing, the February contract managed a higher high overnight and reached the highest price since November 22nd. However, the gold and silver markets appear to be on edge because of surging infection counts, higher interest rates and a higher US dollar. The gold market is fighting negative sentiment from gold’s 3.6% annual decline in 2021 as that figure is circulating in the financial Press this morning. In a developing negative for silver, it should be noted that silver ETFs reduced their holdings by 9.4 million ounces last week, which suggest investment interest in the metal remains negative. It should also be noted that gold ETF holdings declined by 8.6% on the year in 2021 with total ounces held sitting at 97.8 million. The gold and silver markets are also held back by a lack of Indian jeweler purchases as they are concerned of a loss of further business in the event of shutdowns. In fact, Indian gold remains at a $5 discount to world gold prices while Chinese gold premiums are at $6 to $8 (positive) with traders anticipating increased Chinese jewelry demand ahead of the Chinese New Year. Apparently, gold and silver are caught in classic physical commodity market standing, with surging Covid infections thought to slow physical demand even further. On the other hand, the charts in gold and silver are positive with the 2nd half of December rally intact following the higher highs overnight. Unfortunately for the bull camp, US treasury yields remain high and could threaten silver and gold longs as the markets look ahead to this Friday’s nonfarm payroll report. Expectations for this week’s monthly nonfarm payroll report project a gain of 400,000 jobs which is nearly double the surprisingly negative reading from November. From a technical perspective, the charts favor the bull camp with last week’s higher low and higher high pattern extended so far in the Monday US trade. Key support in February gold is now seen at $1821 and then again down at $1796. Key support in March silver is seen at $23.06 and then again down at $23.07.”
Gold closed down $28.10 on the day at $1799.40 and silver was off $0.54 at $22.79.
On Tuesday gold opened choppy but quickly higher, eventually closing above the magic $1800.00 mark. It is too strong to claim gold resiliency at this point. But this is a welcomed bullish surprise since both the Dollar Index and Treasury yields remain firm. Reuters claims new demand for physical gold is prompted internationally as the rapid spread of the omicron variant renewed safe-haven interest in a complacent market.
There is however a disconnect between the two physical gold giants, China, and India. In China gold premiums are moving higher in anticipation of the Chinese New Year. In India the fear of government shutdown over omicron is having the opposite effect, premiums are moving lower.
Today the DOW posted a new record high! Another headwind for gold. But I typically off this thought when Wall Street is drinking champagne. Most understand that high equity prices and yields usually work against physical gold investment. But the recent explosion in Covid infections may bring some of those profits back into the physical gold market. I’m surprised that a larger percentage of Wall Street players are not using gold bullion as a hedge – considering the uncertainty of this pandemic. But recent hedge fund buying suggests they are not.
Professional opinion as to gold’s pricing in 2022 varies widely. Some pros expect a blowout number approaching $1600.00 as the Fed turns hawkish. Others, equally qualified see gold prices making new highs this year. As the Fed grapples with the limitations imposed by its massive balance sheet. Today’s guess for 2022 is likely something in the middle using last year’s pricing as a guideline. And assuming the pandemic remains a problem. The past 30-day pricing channel is something between $1770.00 and $1830. If you open the widow – considering the past 6-month trend for example – these numbers move between $1720.00 and $1860.00 with the yearly swing moving between $1950.00 and $1690.00 depending on the fear factor. I would not get too carried away here, but if you examine the various opinions – gold price estimates fall between the 2021 yearly high and yearly low. Depending on the analyst’s opinion of pandemic success.
On the day gold closed up $14.60 at $1814.00 and silver closed up $0.25 at $23.04.
On Wednesday gold once again pushed higher, looking at $1830.00 before profit taking set in and gold settled moderately higher on the day. This “higher trend” was supported by a Dollar Index which dipped below 96.00. And follow through momentum from yesterday. Tech stocks this morning tanked – perhaps an indication that the omicron virus explosion will encourage further safe haven demand. But the path forward for gold bulls on the short term is far from certain. This can be seen in today’s profit taking round, which suggests paper traders are happy with “buying the dip” and “selling the rally”. Fed direction should become nuanced after the FOMC December minutes are released – after the domestic market closes.
Update: The gold trade turned bearish over the December FOMC minutes released today. And the aftermarket dipped significantly below $1800.00. Reuters – The Fed may need to hike rates faster, reduce balance sheet quickly, minutes show – “Federal Reserve officials said last month that the U.S. labor market was “very tight” and might need the U.S. central bank not just to raise interest rates sooner than expected but also reduce its overall asset holdings to tame high inflation, according to minutes of their Dec. 14-15 policy meeting. “Participants generally noted … it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes stated.”
The latest Fed minutes increased hawkish fear as gold lost as much as $35.00 in a confused aftermarket, Treasury yields spiked, the Nasdaq and S & P tanked. I’m not sure all this ruckus was necessary as the FOMC is still considering options. And Uncle Sam sees no problem with adding to its balance sheet while suggesting that a faster subtracting process is in order. Analysts focus the confusion factor claiming this dramatic shift in monetary dialogue is the result of the Fed being behind the inflation curve. Probably true, but the worst kind of hindsight. The Fed’s first big job during this pandemic was to make sure the economic machinery did not simply shut down; the key was liquidity, and they supplied plenty of that, so good job!
Today’s drop in gold was jarring because it appeared out of nowhere, in the middle of a bullish uptrend. Because of this suddenness, downward momentum may be difficult to shake this week. But traders are sensitive to the international nature of the gold market. And the word “oversold” is always on their desktop – it will be interesting to see when they buy this dip.
Today’s pricing, even with this hawkish news is familiar. Consider gold’s 6-month pricing chart. Gold bulls have challenged $1830.00 overhead resistance 5 times since last summer. They succeeded once in November ($1860.00). Paper traders took profits the other four times, setting up the most recent consolidation line ($1780.00). The $1780.00 support becomes more important in a defensive market. And should be used to judge whether gold is “oversold”.
I can’t imagine the Federal Reserve will overplay its hand. There is no need to drastically change accommodative monetary policy, upsetting an already overextended apple cart. On the short term, two questions should focus the gold trade. First, will traders adapt – being less fearful of small interest rate hikes? And second, will the omicron threat fade or require a doubling down of financial aid? Remember that the December minutes were written before the subsequent explosion in the omicron variant so there are enough whipsaws here to call your chiropractor.
Give this market time to settle and remember the overriding Federal mandate is to manage massive debt – without creating a recession or worse. With Wall Street reaching for the aspirin my bet is that Chief Powell is already hard at work on another “calm down” speech.
Zaner (Chicago) – “While the gold and silver markets are showing early strength, we are skeptical of that action as some buyers have pointed to flight to quality interest because of the blow away record US daily infection count from Monday. In our opinion, a market propelled higher by a flight to quality issue which in turn could foster significant slowing is destined to fall apart. Certainly, a return to significant activity restrictions creates economic and emotional uncertainty but that condition is also likely to temper physical and investment demand, tamp down inflation concerns and promote general bearishness toward physical commodities. However, in our opinion, the inflation theme sparked the rally yesterday and that view was justified by news from the Job Openings and Labor Turnover statistics as there were a record number of “quits” in the report. In other words, people left jobs in search of better pay and or better opportunities and that was partially confirmed by a significant decline in the number of job openings. In a strange twist of recent performance, treasury prices fell precipitously despite disappointing ISM manufacturing readings and a drop in job openings. We suspect a jump in energy and grain prices yesterday added to the rumblings of inflation and it was impressive to see gold and silver prices hold up in the face of a significant decline in Treasury prices. In fact, some traders and economists think the US Federal Reserve is already behind the curve and may not be able to halt inflation. However, gold and silver have shown many start and stop patterns off the inflationary angle and therefore a bull view should coincide with a bit of skepticism. In fact, if yesterday’s gold and silver rallies were the result of uncertainty/anxiety, then we would have expected Bonds to have rallied and equities to have washed out. While one day does not make a trend, the inflation camp will need to see a continuation of commodity price gains without sharply higher oil and treasury yields. In a positive development yesterday, gold ETFs saw inflows for 6th straight session, with holdings starting the year above 98 million ounces! Unfortunately for silver bulls, silver ETFs saw another outflow and year-to-date have seen net sales of 1.56 million ounces.
Both PGM markets showed volatility yesterday, with the palladium market displaying more volatility than the platinum market. With the washout on Monday a new uptrend channel support line in March palladium is seen at $1,847. While we are suspicious of the belief that inflation lifted precious metals markets yesterday, that view is difficult to discount as internal fundamental news has been absent for months in the palladium trade. Furthermore, palladium rallied in the face of disappointing US auto sales which is a primary demand force for palladium. Near term support in March Palladium is seen at $1,825 and resistance is pegged at $1,968.50. While the platinum market rallied yesterday it also lacked clear internal fundamental justification. Therefore, we give a nod to the inflation argument but maintain some skepticism. Critical support in April platinum is pegged at $946.10 and resistance is seen rather close-in at $985.”
On the day gold closed up $10.60 at $1824.60 and silver was up $0.11 at $23.15.
The gold market Thursday opened to the downside reflecting yesterday’s aftermarket. It did catch an early bid, but downside pressure prevailed ($1785.00). The route settled on both sides of $1790.00. Not the worst of outcomes considering Treasury yields spiked to 1.75% and the confusion factor still has these markets left footed. Silver slipped to 3-week lows this morning, losing almost a dollar so I would expect bargain hunting as we approach $22.00.
Zaner (Chicago) – “Clearly, the gold and silver markets this morning are playing catch-up to yesterday’s hawkish US Federal Reserve meeting minutes release. In fact, the gold trade is discounting news that the Perth Mint saw 2021 gold sales reach the highest level in 10 years (gold coins and minted bars), a very hot overall Euro zone producer price index gain of 1.8% and gold ETF adding to their holdings for the 7th straight day. In fact, despite bullish sensitivity to the inflation storyline last week, and the potential activity restrictions that could hit supply chains again, the markets this morning are uninterested in inflation as they are “confident” that the US Fed can ultimately control inflation. Apparently, gold sees the hawkish US Federal Reserve pivot to be more dominating than the uncertainty of the omicron threat and that is justified given the increased chances of earlier rate hikes and increased potential for the Fed to carry out balance sheet reduction. In the end, treasury note yields broke out and hit the highest level since April and equity prices this morning are fostering deflationary psychology.”
On the day gold closed down $35.90 at $1788.75 and silver was down $0.08 at $22.17.
The gold market Friday opened choppy, dipped ($1782), recovered and held steady on both sides of yesterday’s close but surprisingly managed to close in the green, reacting no doubt to a Dollar Index which pushed a half point lower in late trading. The somewhat missed US jobs numbers created little stir but $80.00 crude oil may have gotten some inflation attention. I would not say this suggests traders are eager to buy the dip seen earlier in the week. But it is a nice psychological finish to a confusing week. While the informed are not sitting on their hands they will want to see confirmed support ($1770.00 and $1790.00) holding up next week. And this will give the bulls time to collect themselves. And appreciate a glass half full – not half empty. This distinction is a big deal if you consider that gold has struggled this past year with widely changing scenarios. And yet has managed to hold that middle ground ($1800.00).
Is the public buying or selling on this latest bearish news? Not much selling, which figures – longer term buyers have developed patience. Classically there is not much buying either because the physical market always looks for a few dollars cheaper when defensive. But “premiums” on major bullion products are firm supporting the longer-term bullish scenario.
At the same time, many have worked through changes in the FOMC dialogue a number of times. In each case the Federal Reserve was quick to develop dialogue with itself, yet characteristically slow to make changes to their overriding liquidity mandate.
I’s likely there will be more “nibbling” next week. The small to medium action is still not convinced – but they want to take advantage of “cheaper”. Our typically large players are absent which also figures as caution here makes sense. This market will take more time to settle. Don’t place too much emphasis on gold finishing in the green today – up from 3-week lows. You could be looking at minor short covering into the weekend. Being patient should prove rewarding – we are still looking for significant buying activity.
Zaner (Chicago) – “While February gold managed to hold above yesterday’s spike low overnight, prices remain pinned down to those lows and should find modest outside market support from $80.00 plus oil and from a weaker dollar. Gold and silver should also find support from a significant jump in euro zone inflation. In fact, euro zone consumer inflation reached 5% which is a record high and in turn probably added to the big jump in euro zone retail sales. Not surprisingly, gold ETFs broke their recent chain of inflows with a 23,357-ounce outflow yesterday which clearly was fostered by the massive washout in bullion and gold futures prices. Even central banks have produced bearish news this morning with gold reserves falling for the first time in 11 months. Obviously, the gold and silver markets are under ongoing pressure due to expanding market consensus that interest rates are set to rise at some point in the coming quarter. The markets showed little in the way of support from a return to $80.00 crude oil prices but had almost no direction from the dollar index action in the first four trading sessions of this week. We suspect a large dive in bitcoin added to the selling in gold yesterday with bitcoin futures falling to the lowest level since September 29th. However, bitcoin has returned to the vicinity of consolidation value level seen in late September and may not continue to weigh on gold prices. Another force gold and silver traders need to monitor closely is the action in treasury bonds with yesterday’s jump in yields reaching the highest since late March 2021. As we indicated several times over the last week, we were skeptical of the bull track given the markets pattern of “starting and stopping” short term trend action. It should also be noted that trading volume on this week’s slide increased while open interest hooked up suggesting the bears had noted trading interest in their favor. Sentiment toward the silver market also favors the bear camp with silver ETF holdings on Wednesday posting a 9th straight day of declines and bringing this year’s net sales to 1.8 million ounces. The palladium market yesterday saw a range down move, but the trade quickly rejected that slide and at times the market was trading $51 above its low for the day. The brunt of palladium demand news this week was negative from claims, housing, and vehicle sales. Therefore, outside market pressure from gold and silver should keep the palladium market under pressure going forward. Obviously, initial, and perhaps unreliable support is seen at $1,838 with resistance at $1,924.50. In the near term we see palladium holding within a $2,000 and $1,800 trading range with the most likely breakout coming on the downside. It should be noted that a downtrend channel resistance line is seen today at $1,974.30 and a rise above that level could reverse a downtrend in place since last May!”
On the day gold closed up $8.30 at $1797.00 and silver closed up $0.22 at $22.39.
Platinum closed down $3.60 at $957.00 and palladium closed up $47.70 at $1917.60.
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
Risk Disclosure – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisors. The precious metal and rare coin markets are random and highly volatile so they may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.