Gold – The Inflation Question
Commentary for Friday, Nov 17, 2023 (www.golddealer.com) – Today gold closed down $2.30 at $1981.60, and silver closed down $0.08 at $23.81. Even in the midst of confusion this has been interesting and perhaps a pivotal week for gold. Consider the pricing action on Tuesday of this week as inflation numbers softened. Observers claim that the Fed should be satisfied as inflation moves lower. At the same time many believe the FOMC will keep rates at these elevated levels until the Fed is sure they have accomplished their goal. When analysts first visited this “higher for longer scenario” they found it lacking. Now they are suggesting that their first assessment was incorrect and weaker inflation numbers support this change in the wind. These “back and forth” changes could be transitory – so continued caution is a good idea. This week’s $1980.00 bullish surge could turn into a $1880.00 “wet blanket” by the middle of next year. Last Friday gold closed at $1964.20 / silver at $22.83 – on the week gold was up $17.40 and silver was up $0.98.
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On Monday the price of gold held steady on the open but quickly moved toward highs on the day ($1946.00) providing needed support for bullish sentiment. Whether this move to the upside is bargain hunting or short covering is an open question, it could be a transitory anomaly.
In my opinion this market has the right to be sagely worried about higher inflation and higher interest rates. Still, the pudding will soon be tasted as the last FOMC meeting of this year will be held Dec 12th and 13th. Believe it or not, even this far into the unwinding process, this outcome remains a mystery. Obviously, if they raise interest rates gold may remain defensive.
But the consensus is that they will “pause”. Whether this “rest” will help or hurt the bullish scenario will be confirmed in the first quarter of 2024. Their all-important action will answer the question as to whether the Fed will throw in the interest rate towel and live with higher interest rates. Or will they regain hawkish momentum in an effort to force lower inflation?
Reuters (Ashitha Shivaprasad) – Gold little changed as traders strap in for US inflation data – “Gold prices held steady on Monday as investors looked towards key U.S. inflation data due this week that could throw some light on the Federal Reserve’s interest rate stance. U.S. consumer prices index (CPI) data will be released on Tuesday. According to a Reuters poll, core U.S. CPI month-over-month is expected to have risen 0.3% in October, with a year-over-year increase of 4.1%. Traders will also scan the U.S. producer price index data due on Wednesday. If the data shows higher-than-expected inflation, gold will likely pull back as that would raise the possibility of another rate hike, said Bob Haberkorn, senior market strategist at RJO Futures. “But, if data comes in line, gold will trade north of $1,950.” Although gold is seen as a hedge against inflation, higher interest rates dull non-yielding bullion’s appeal. The market is currently pricing in an 86% chance that the Fed will leave rates unchanged at the December meeting, according to the CME FedWatch tool. Bullion dipped nearly 3% last week as safe-haven demand driven by the conflict in the Middle East eased, while Fed officials said they “are not confident” that rates are yet high enough to end the battle with inflation. Goldman Sachs said in a note, “Going forward, in the short-term the investor appetite to add length will rely on the extent of (geopolitical) escalation but (gold) will face headwinds from elevated U.S. real rates”. “Tactically, we would view a potential selloff in gold as a buying opportunity as we see an environment with elevated risk channels ahead playing into gold’s hedge qualities.”
On the day gold closed up $12.90 at $1945.50, and silver closed up $0.08 at $22.30.
On Tuesday the price of gold rallied ($1970.00) as inflation eased more than expected in October creating a weaker Dollar Index which lost a full point in early trading. This “easing” of inflation should be taken with a grain of salt. The analysts are talking about small changes, October came in at 3.2% versus a gain of 3.7% in September.
But this is enough to get everyone’s attention and suggests the current interest rates may be high enough to tame the inflation dragon. It is not like the Fed has been sitting on its hands, a year ago the Fed Funds Rate was 4% and currently it varies between 5.25% and 5.5%.
This rapid increase created anxiety in the financial markets because during the rise the Fed remained hawkish. But analysts hope that today’s 0.5% drop in inflation may help the Fed turn to the dovish side. An obvious plus for the gold bulls. How seriously everyone will take this insight might be gauged by how long recent gains in gold remain in place.
Reuters (Ashitha Shivaprasad) – Gold moves higher as yields, dollar slip after U.S. inflation data – “Gold prices gained on Tuesday as the dollar and Treasury yields retreated after softer-than-expected U.S. consumer inflation data, which fueled more bets that the Federal Reserve may be done hiking interest rates. U.S. consumer prices were unchanged in October and underlying inflation showed signs of slowing. In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September. The market is pricing in a 100% chance that the U.S. central bank will leave rates unchanged in December versus 86% before the inflation report, according to the CME FedWatch tool. “CPI data came in significantly weaker than expected, which is quite supportive for precious metals. We are expecting a significant deterioration in the data over the course of the fourth quarter, which should weaken dollar and support gold,” said Daniel Ghali, commodity strategist at TD Securities. “Over the next six months, we’re looking at gold prices to rally towards $2,100 per ounce.” Boosting bullion’s appeal, the dollar index fell 1% while benchmark 10-year U.S. Treasury yields hit a more than one-month low after the data. Investors will also keep a tab on the U.S. producer price index data due on Wednesday. Commerzbank lowered its price forecast for silver at the end of 2024 to $29 per ounce from $30. But, it added that this would still see silver noticeably outperform gold, attributing it to a positive outlook for industrial demand and ongoing transformation of the economy towards climate neutrality, in which silver plays an important role.”
On the day gold closed up $16.30 at $1961.80, and silver closed up $0.78 at $23.08.
On Wednesday the New York cash price for gold was transitory, moving between $1972.00 and $1956.00, a small bullish disappointment. It is too early to claim that yesterday’s price surge is losing momentum, but today’s “quiet” mood does serve as a warning against too much bullish optimism. Next week is Thanksgiving, and some traders are already on the holiday road. Expect tight price ranges and little drama. The US markets are closed Thursday (Nov 23rd). We will be closed Thursday and Friday thanking God for his bounty and providence. Cheers!
Reuters (Anushree Mukherjee) – Gold eases as firm dollar counters bets on peak US rates – “Gold eased on Wednesday as the dollar ticked up, while expectations that the U.S. Federal Reserve may be done with its interest rate hikes capped bullion’s losses. Denting bullion’s appeal, the dollar index was up 0.4%, while benchmark 10-year U.S. Treasury yields rebounded after a revision of retail sales data showed strong gains in September. Bullion gained over 1% in the previous session after data showed that U.S. consumer prices were unchanged in October. U.S. producer prices fell by the most in 3-1/2 years in October, the latest indication of subsiding inflation pressures. “The results from CPI and PPI are positive and it continues to support gold prices with the expectation that inflation will continue to pull back adding to the expectation that the Fed is done raising interest rates,” said David Meger, director of metals trading at High Ridge Futures. The market is pricing in a 100% chance that the U.S. central bank will leave rates unchanged in December, according to the CME FedWatch tool. While gold is considered an inflation hedge, rising interest rates dull non-yielding bullion’s appeal. “With yields backing up gold is lower after the initial spike up. I think the outlook will remain positive for (gold) assets but the moves will be more measured,” said Tai Wong, a New York-based independent metals trader. Investors also looked at data that showed that U.S. retail sales fell in October, though by less than expected, after months of strong gains, pointing to slowing demand that could further strengthen expectations that the Fed is done hiking interest rates.”
On the day gold closed down $1.70 at $1960.10, and silver closed up $0.41 at $23.49.
On Thursday the price of gold moved from $1965.00 though $1985.00 before settling at the upper end of the day’s pricing. While yesterday’s rather flat close took away from Tuesday’s charge to the upside, today’s higher close has once again encouraged the bulls.
This latest bit of good news rekindles, to some degree, the notion that even higher prices for gold may become a reality sooner than later. This optimistic bullish view is based on two assumptions. The first is that the Fed’s higher interest rate program has begun to tamp down real inflation rates. The second, and probably the more important of the two, is that this week’s small decline will be just the beginning of a steady trend towards lower and more manageable rates.
This second assumption falls into the “too much too soon” category because it puts the cart before horse. It fails to address the question of how this country is going to pay back all the fiat money created during the tough days of the pandemic.
Reuters (Anushree Mukherjee) – Gold climbs over 1% as U.S. jobless claims data cement Fed pause bets – “Gold prices rose more than 1% on Thursday as the dollar and Treasury yields dipped after U.S. weekly jobless claims increased more than expected, cementing expectations that the Federal Reserve will pause its interest rate hiking cycle. The number of Americans filing new claims for unemployment benefits increased more than expected last week, which could help the Fed’s fight against inflation. The data confirms that the U.S. economy is slowing down a little bit, giving gold and silver bulls confidence that the Fed is not going to raise interest rates again, said Jim Wyckoff, senior analyst at Kitco Metals. Data on Wednesday showed U.S. producer prices fell the most in 3-1/2 years in October, while another set of data on Tuesday highlighted that U.S. consumer prices were unchanged in October. The market is pricing in around a 100% chance that the U.S. central bank will leave rates unchanged in December, according to the CME FedWatch tool. While gold is considered an inflation hedge, rising interest rates dull non-yielding bullion’s appeal. Boosting gold’s allure, the dollar index fell 0.3%, hovering around to a more than two-month low hit in the previous session, while benchmark 10-year U.S. Treasury yields also slipped. “The charts have turned more friendly for gold. If there is a geopolitical development, it could help gold but if we get strong U.S. data, then it would raise the notion of one more (rate) hike and pressure the metals market.”
On the day gold closed up $23.80 at $1983.90, and silver closed up $0.40 at $23.89.
On Friday gold finished the week on a quiet note, closing almost unchanged on the day. Three of the five days this week gold moved higher creating bullish buzz on the notion that because inflation is cooling, the Fed will turn dovish. Whether that is true or not remains to be seen. Still, higher gold prices create attention, and the $1940.00 short term bottom is solid.
Still this week’s good bullish news is not pie in the sky speculation. Some technical insiders believe the dollar has peaked and will soon correct lower. The holiday season is typically good for the jewelry trade. And the desperate war in the Ukraine supports safe haven demand.
We are closed two days next week (23rd and 24th) for Thanksgiving. Have a blessed day!
FXStreet (Eren Sengezer) – Gold Price Weekly Forecast: Technical outlook turns bullish heading into Thanksgiving Week – “Gold gathered bullish momentum and gained more than 2.5% this week as the US Dollar (USD) declined alongside the US Treasury bond yields. Next week’s economic docket will not offer any significant macroeconomic events and participants could watch XAU/USD’s technicals for trading opportunities. In the absence of high-tier data releases, Gold managed to stage a technical upside correction on Monday as sellers booked their profits after XAU/USD tested the 200-day Simple Moving Average (SMA) below $1,940. On Tuesday, Gold gathered bullish momentum and advanced beyond $1,970. Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.2% on a yearly basis in October from 3.7% in September, the Bureau of Labor Statistics (BLS) reported. The Core CPI, which excludes volatile energy and food prices, rose 4% in the same period, down slightly from the 4.1% increase recorded in September. The benchmark 10-year US Treasury bond yield fell more than 3% after soft inflation data and broke below 4.5%, while the USD came under strong selling pressure. In turn, XAU/USD gained more than 1% on the day. Retail Sales in the US declined 0.1% on a monthly basis in October, the US Census Bureau reported on Wednesday. This reading came in better than the market expectation for a 0.3% contraction and helped the USD stabilize following the previous day’s sharp decline. Thursday’s data, however, showed that the number of first-time applications for unemployment benefits climbed to 231,000 in the week ending November 11 from 218,000 and didn’t allow the currency to extend its recovery. Furthermore, the Federal Reserve (Fed) announced that Industrial Production contracted by 0.6% on a monthly basis in October. After Wednesday’s choppy action, Gold regained its traction and advanced toward $1,980. As US Treasury yields continued to stretch lower on the last trading day of the week, Gold preserved its bullish momentum and advanced to its highest level in over a week above $1,990. Reuters reported that Fed Vice Chair Philip Jefferson told a US senator that the process of balance sheet wind-down faces no imminent end. “Under plausible assumptions, the size of the balance sheet could decline considerably further before reserves reach the level consistent with the ample reserves operating framework,” Jefferson wrote in response to Republican Senator Rick Scott, who posed a series of questions regarding the central bank’s balance sheet. Meanwhile, demand-side dynamics also provided a boost to gold prices this week. “Indian buyers brushed off record high local prices this week making gold purchases during the Diwali festival week in the country, while China premiums remained buoyant after the top-buyer continued to accumulate gold holdings,” Reuters reported.”
On the day gold closed down $2.30 at $1981.60, and silver closed down $0.08 at $23.81.
Platinum closed down $2.40 at $894.70, and palladium closed up $9.30 at $1056.50.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the slight overall near-term technical advantage. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $2,000.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at the overnight high of $1,996.40 and then at $2,000.00. First support is seen at the overnight low of $1,983.90 and then at $1,975.00. The silver bulls have the overall near-term technical advantage and have momentum. Silver bulls’ next upside price objective is closing December futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at $22.50. First resistance is seen at the overnight high of $24.22 and then at $24.50. Next support is seen at the overnight low of $23.805 and then at Thursday’s low of $23.35.”
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