Gold – The Middle East & The Fed?
Commentary for Friday, April 19, 2024 (www.golddealer.com) – Today gold closed up $16.10 at $2398.40, and silver closed up $0.48 at $28.81. Gold, while still firmly priced within the range, saw a back and forth seesaw in pricing this week as the Middle East danger rose dramatically and then cooled as Tehran claimed it had no plans for retaliation. And traders have become cautious believing that the Fed is turning hawkish about inflation and may only tap the interest rate pedal between now and the end of this year. These are the primary reasons gold is not much higher in my opinion. Still, our shiny friend finished only mildly in the green today, as trader anxiety moves higher in the short term. Last Friday gold closed at $2356.20 / silver at $28.26 on the week gold was higher by $42.20 and silver was higher by $0.55.
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On Monday gold dipped on the open, which was expected because pricing looked like it might stall at the end of last week. Still managed to close mildly in the green and today’s aftermarket was up almost $20.00 to boot. These events are notable considering these higher interest rates.
Increasing tension in the Middle East will also help bullish sentiment, creating more safe haven demand to underpin the existing pricing structure. I would like to see at least the beginning of a settling trend but there is now plenty of gas in this bullish tank. And investors are now preparing for interest rates cuts, which may suggest higher gold prices before the end of this year. If you are among the bullish doubters, consider the latest from Goldman Sachs – “Gold will be $2700.00 by the end of this year.” I don’t know about that, but the buzz is increasing!
Reuters (Ashitha Shivaprasad) – Gold slips as dollar, yields firm up after US retail sales data – “Gold prices slipped on Monday as the dollar and Treasury yields gained following a higher-than-expected uptick in U.S. retail sales in March, feeding apprehensions that the Federal Reserve could delay cutting interest rates this year. Spot gold eased 0.5% at $2,332.97 per ounce as of 10:18 a.m. ET (1418 GMT). The dollar rose 0.1% and 10-year Treasury yields hit a five-month high after data showed U.S. retail sales increased more than expected in March, further evidence that the economy had ended the first quarter on solid ground. “I don’t think gold’s rally is over by any means as market expectations of rate cuts is still there,” said Daniel Pavilonis, senior market strategist at RJO Futures. The market is now pricing in fewer than two 25-basis-point cuts by the year-end, after previously expecting three. Gold prices hit a record high of $2,431.29 on Friday in anticipation of Iran’s retaliatory attack against Israel. Iran launched explosive drones and missiles late on Saturday in the first attack on Israel by another country in more than three decades, stoking fears of a broader regional conflict. “The latest run-up in gold had to do with geopolitics. However, in the near-term, gold prices could fall towards $2,200 as the geopolitical premiums get washed out,” Pavilonis said. Central bank buying has also lent support to bullion. “It is unlikely that there will be a wholesale reversal to net selling in the near term despite the record gold price, as central bank buying tends to be strategic and insensitive to the price,” analysts at Heraeus said in a note. Meanwhile, spot silver rose 1.3% to $28.23 after hitting a nearly three-year high in the previous session. “Both industrial demand – mainly from solar PV manufacturing – and institutional investing appear to be supporting” silver, Heraeus analysts said. Platinum fell 1.1% at $963.40 and palladium lost 2.4% to $1,024.37.”
On the day gold closed up $9.60 at $2365.80, and silver closed up $0.39 at $28.65.
On Tuesday the price of gold unexpectedly threatened $2400.00 after a choppy opening as tension between Israel and Iran grows more dangerous. The Israeli war cabinet has now met three times as Iran’s aggressive threats of retaliation grow. This region has always been an underestimated hot spot but increased violence on both sides of this war again focuses world attention and pushes gold higher. Still traders plan for fewer interest rate cuts this year.
President of the European Bank Christine Lagarde said this morning that ECB will cut rates soon, barring any major surprise. It is easy to see that gold pricing continues to be a contradictory bag as traders position themselves for a short term advantage. If the Middle East further escalates it will support higher gold prices but could create an unstable trade.
Reuters (Ashitha Shivaprasad) – Gold eases as rate cut concerns counter geopolitical risks – “Gold prices eased on Tuesday, as rising expectations of fewer U.S. rate cuts this year overshadowed safe-haven demand amid ongoing tensions in the Middle East. Spot gold fell 0.2% to $2,376.90 per ounce by 09:26 ET (1326 GMT). The yellow metal touched an all-time high of $2,431.29 on Friday in anticipation of Iran’s retaliatory attack against Israel. Data on Monday showed U.S. retail sales increased more than expected in March. The 10-year Treasury yields were up for the second consecutive day, making non-yielding bullion less attractive. “The market is in pause mode and waiting for the other shoe to drop on this Israeli-Iran confrontation. You will see another rally in gold if the situation escalates,” said Jim Wyckoff, senior analyst at Kitco Metals. “If the Middle East conflict de-escalates, market focus will turn to the Fed. It has become apparent that Fed is not going to be able to cut rates soon, which is a bearish element for gold and silver markets.” Federal Reserve Chair Jerome Powell told a U.S. Senate panel just over five weeks ago the Fed was “not far” from gaining confidence in inflation falling to the level needed to cut interest rates but policymakers, investors and outside analysts have lost a bit of faith in that outlook in light of a series of strong economic data. On gold, “we lift our 3 and 12 month price targets to $2,200 and $2,000 per ounce. We recommend not to position for lower prices now, even though we remain convinced that in the medium to longer term, there should be more downside than upside,” wrote Julius Baer analyst Carsten Menke in a note. The Shanghai Futures Exchange said it will raise the trading bands for gold and silver contracts to 8% from 6% and 7%, respectively. Spot silver fell 1.4% to $28.48 per ounce, platinum gained 0.3% to $971.85 and palladium was down 1.3% to $1,021.75.”
On the day gold closed up $25.00 at $2390.80, and silver closed down $0.27 at $28.38.
On Wednesday the price of gold was choppy between $2394.00 and $2378.00 in the early trade but lost steam by the end of the day. And made new lows in the overnight market, not a good trading sign, perhaps suggesting a general weakening of the gold market in the shorter term.
This is a bit surprising to me considering the world is waiting for an Israeli response to the latest Iranian provocation. Still, counterintuitive moves in the gold marketplace are commonplace.
It is sensible to expect safe haven demand to reassert itself if the warring factions become more aggressive in the short term. At the same time inflation numbers have Powell and the Federal Open Market Committee between a rock and hard place as the Chief claims that lower interest rates may be placed on hold to tame the inflation genie.
These powerful cross winds compete and as they do the outcome becomes more complicated as the chance of a rate cut moves to 67% by September. Expect continued volatility and keep your seat belt fastened. My feeling however is that gold will remain generally firm unless the Fed turns very hawkish between now and the summer months.
Reuters (Ashtha Shivaprasad) – Gold drifts higher as Middle East turmoil lifts appeal – Gold prices firmed on Wednesday as geopolitical turmoil in the Middle East spurred safe-haven demand, but fading U.S. rate cut hopes capped further upside. Spot gold rose 0.4% to $2,391.10 per ounce, as of 9:40 a.m. ET (1340 GMT). Prices hit an all-time high of $2,431.29 on Friday. U.S. gold futures fell 0.1% to $2,405.40. “Geopolitical uncertainty continues to support gold and if there is any escalation in the situation, then prices could move towards the $2,500 range,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “Gold prices will only come lower if central banks stop buying or if investors go back to a risk-on phase,” he said. Iran said its military was ready to confront any attack by Israel. Iran carried out its first-ever direct attack on Israel last weekend in retaliation for a suspected Israeli strike on an Iranian diplomatic compound in Damascus on April 1. Top U.S. central bank officials including Federal Reserve Chair Jerome Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer. The market is pricing in a 67% chance of a U.S. rate cut by September. Higher interest rates reduce the appeal of holding non-yielding gold. While gold has largely remained uncorrelated with the U.S. dollar and Treasury yields in the current trend, it may still show short-term responses to movements in both, said FXTM research analyst Lukman Otunuga. Spot silver rose 1.8% to $28.60. The global silver deficit is expected to rise by 17% to 215.3 million troy ounces in 2024 due to a 2% growth in demand led by robust industrial consumption and a 1% fall in supply, the Silver Institute said. Platinum fell 0.3% to $953.75 and palladium firmed 1.7% at $1,031.00.”
On the day gold closed down $19.10 at $2371.70, and silver closed down $0.03 at $28.35.
On Thursday the price of gold moved to highs on the day ($2390.00) but could not sustain the run as traders aggressively sold the rally. Still, the price of gold managed to finish the day in the green. While gold offers a strong technical picture today’s bland reaction to yesterday’s drop in prices may suggest that overhead resistance at $2400.00 is formidable. Still, there seems to be plenty of bullish sentiment floating around these days. Ernest Hoffman (Kitco) – Citi’s most bullish forecast has become likely, bank now sees $3,000 gold ‘in play’ – “$3,000 per ounce gold by 2025, which banking giant Citigroup considered an extreme bullish outlier scenario only two months ago, has now become not only possible but likely, according to Aakash Doshi, Citi North America Head of Commodities Research.”
Is $3000.00 gold still in the cards? Of course, given enough time but the price of gold could presently be overbought, being up $200.00 in the past month. And traders will expect trouble if the Fed raises the bearish ante by delaying that much talked about interest rate reduction. Look for price settling, in the short to mid-term, but I do not expect a great deal of downside.
Reuters (Ashitha Shivaprasad) – Gold surges as escalating Middle East tensions bolster demand – “Safe-haven gold gained on Thursday as persistent tensions in the Middle East added to the metal’s appeal despite robust economic data from the U.S. that raised prospects of fewer interest rate cuts. Spot gold firmed 0.8% at $2,378.53 per ounce at 9:44 a.m. ET (1344 GMT). Prices touched an all-time high of $2,431.29 last Friday. U.S. gold futures rose 0.2% to $2,392.90. In the Middle East, Israel has signaled it will retaliate to a volley of attacks from Iran despite calls for restrain from Western countries but has not said how. Bullion’s upside came despite data showing U.S. weekly jobless claims were unchanged at low levels last week. Strong U.S. economic data and hawkish rhetoric from Fed officials have prompted investors to drastically rethink the chances of the Federal Reserve cutting rates any time soon. Higher interest rates reduce the appeal of holding non-yielding gold. Bank of China International (BOCI) analyst Xiao Fu said that with rate cut expectations from the Fed coming down and with the natural profit-taking that comes when prices rally quickly, there might be some pressure on gold, but a sharp decline is unlikely. Spot silver rose 0.5% to $28.36 per ounce. “The silver shortage narrative is gaining attention, with demand consistently outpacing new supply. This imbalance could lead to a significant price adjustment in the future,” said Alexander Zumpfe, a precious metals trader at Heraeus Metals. “Long-term trends in the silver market remain bullish, and while short-term price movements can be volatile and influenced by futures trading.”
On the day gold closed up $10.60 at $2382.30, and silver closed down $0.02 at $28.33.
On Friday traders seriously considered two very dicey situations. The possible de-escalation of the Middle East, if such a thing is possible. And, at the same time there is the chance that the Fed will not significantly lower interest rates in the short term because of inflation fears.
Considering overhead resistance at $2400.00 has been tested and may be more significant than the technical picture suggests, we might be seeing at least the beginning of a cooling period. Of course, this is speculation but there does seem to be a small loss of enthusiasm as traders are happy to close the week with a modest rise in the price of gold.
Reuters (Ashitha Shivaprasad) – Gold on track for weekly rise as Middle East risks loom – “Gold prices held firm on Friday, on track for a fifth consecutive weekly rise, as fears of further tit-for-tat retaliation between Iran and Israel triggered safe-haven demand. Spot gold was little changed at $2,378.30 per ounce as of 9:10 a.m. ET (1310 GMT), after rising as high as $2,417.59 earlier in the session. Prices were up more than 1% this week. U.S. gold futures eased 0.2% at $2,393.50. Explosions echoed over an Iranian city early on Friday in what sources described as an Israeli attack, but Tehran played down the incident and indicated it had no plans for retaliation. “The escalation and de-escalation situation in the Middle East has taken hold of the markets. If the situation does de-escalate, then gold will pull back or consolidate as safe-haven buying dries up,” said David Meger, director of metals trading at High Ridge Futures.
“However, longer term, higher uptrend in gold will continue as the Federal Reserve might not be cutting rates as soon as the market expects.” Fed officials have coalesced around the idea that there is no urgency to cut interest rates. The market currently sees a 65% chance of a rate cut in September. Elevated interest rates reduce the appeal of holding non-yielding gold. Gold, which has notched strong gains this year, will rise further on robust Chinese demand outlook and macro uncertainties, Chinese state-backed research house Antaike said. Spot silver rose 0.3% to $28.29. Meanwhile, HSBC lowered its 2024 average price forecasts for platinum to $1,055 per ounce from $1,105 and palladium to $1,095 per ounce from $1,138. “A feature of both the palladium and the platinum markets has been weak prices in the face of substantial deficit,” it added. Spot platinum fell 0.9% to $926.63, and palladium slipped 1.9% to $1,005.72. Both metals were headed for weekly declines.”
On the day gold closed up $16.10 at $2398.40 and silver closed up $0.48 at $28.81.
Platinum closed down $11.20 at $934.10, and palladium closed down $12.10 at $1025.50.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the strong overall near-term technical advantage. A two-month-old uptrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close in June futures above solid resistance at $2,500.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,300.00. First resistance is seen at $2,415.00 and then at today’s high of $2,433.30. First support is seen at Thursday’s low of $2,377.20 and then at Wednesday’s low of $2,370.70. The silver bulls have the strong overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing May futures prices above solid technical resistance at $30.00. The next downside price objective for the bears is closing prices below solid support at $26.00. First resistance is seen at this week’s high of $29.10 and then at $29.50. Support at $28.00 and then at this week’s low of $27.66.”
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