Gold – A Pausing Moment Perhaps?
Commentary for Friday, March 24, 2023 (www.golddealer.com) – Today gold closed down $11.70 at $1982.10, and silver closed up $0.11 at $23.25. The gold trade was somewhat weaker today as traders remained anxious over the implied threat of still higher interest rates before the end of this year. At the same time, the bullish sentiment has not particularly faded, which can be seen in the consistent ability of the bulls to buy the dips in current pricing. Still, without fresh news which will further enable bullish sentiment, the trade in both gold and silver should remain left footed on the short term. Last Friday gold closed at $1969.80 / silver at $22.35 – on the week gold was higher by a modest $12.30 and silver was higher by $0.90.
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On Monday gold made new recent highs in Hong Kong ($2010.00). London sold the rally, so the domestic New York market opened lower ($1985.00) but still managed to finish the day in the green. But this tepid response was unimpressive, especially for those looking for the kind of buzz which war created over the weekend. The trading pattern should look familiar and suggests traders remain unsure about upcoming changes in the Fed interest rate policy.
The good news, if you are looking for less uncertainty is that Chief Powell and friends will meet Tuesday and Wednesday – March 21st and 22nd and preside over what the Fed calls a meeting associated with a Summary of Economic Projections. This rather long name does not suggest certainty – the word “projections” simply implies a best guess given the present circumstances.
The metals may tread water during this important FOMC meeting. These meeting days are called “quiet” because they are held behind closed doors. They are not trying to hide anything; they just want to make sure everyone is on the same page before the Chief starts talking.
This traditional approach does increase the drama and tension as traders wait for Powell’s insight this week. Analysts believe a modest quarter point rate hike is the right choice given the failure of Silicon Valley Bank and problems with Suisse Credit. You could see a “tension creating” half point hike in interest rates if the Fed is worried about rising inflation. Still, there are others who are so sold on inflation that an aggressive half point hike would not retire the bulls. But it would certainly keep them from thinking that $2500 gold is a cinch.
On the day gold closed up $9.40 at $1979.20, and silver closed up $0.18 at $22.53.
Zaner (Chicago) – “Needless to say, fear toward the global banking sector remains in place into the new trading week with flight to quality instruments like gold and silver clearly remaining in vogue. While the purchase of Credit Suisse by UBS for $3.2 billion calms fears slightly, in the 2008/2009 financial crisis, we did see buyers of embattled companies become embattled themselves. With a contraction in German producer prices and the prospect of a pause by the US Federal Reserve on Wednesday, interest in gold and silver should remain firm. However, investment interest in gold and silver in the form of ETF holdings showed significant outflows last Friday, perhaps in a sign of profit-taking by investors. On the other hand, despite the 78,954 ounces outflow from gold ETF instruments last Friday, gold holdings increased by 498,630 ounces on the week. Unfortunately for the bull camp in silver, ETF holdings on Friday declined by a massive 10.5 million ounces which reduced holdings on the week by 15.3 million ounces. However, some traders suggest that many gold and silver ETF holders are smaller specs and could be seen as a contrary indicator. For now, it is no longer a question if the money flowing into gold is primarily the result of uncertainty over a contagion in either the US or global banking sector. While gold and silver generally showed little response to strength and weakness in the dollar at times last week, the very poor close in the dollar last week clearly shows some market expectations for a pause in rate hikes from the US Fed later this week. Certainly, significant declines in implied Treasury futures yields have been an added source of lift for both gold and silver. In fact, the silver market has reversed its charts significantly and has come alive and begun to track with gold. Obviously, signs of trouble at any other financial institution beyond the three banks currently fostering anxiety, (Silicon Valley Bank, First Republic, Credit Suisse) will instantly inject and likely accentuate flight to quality buying of gold, silver, and US treasuries. Fortunately for the bull camp, the weekly COT positioning report was not released as the sharp gains off the early March lows have likely pumped up the net spec and fund long position considerably. From a technical perspective, seeing gold reach the highest level since March 2022 on extremely high trading volume, highlights bullish consensus in the market. In fact, trading volume on March 13th was the highest trading volume since November 9th of 2020. While we see the path of least resistance remaining up, traders should realize this is now a flight to quality issue which usually requires constant signs of worsening to extend significantly.”
On Tuesday gold weakened overnight in Hong Kong and London. And continued lower in the domestic New York cash market. This figures because of at least two reasons. Gold is higher by $100.00 this past month so a profit taking round is almost a sure thing with the next FOMC rate hike just a few days away. Traders bought initial weakness at $1945.00 but these modest gains gave way to lows on the day around 1940.00.
There is fresh news even in the real estate sector which suggests that the financial markets are becoming less apprehensive. If this turns into a trend back towards “normal” the gold and silver bullion rhetoric will cool. And be replaced with a more conservative pricing model. One which questions recent gains even if coming Fed interest rates are modest.
A fresh look at what is happening in the US may be surprising: no banking crisis and economic improvement (things are not falling apart). Under these conditions higher prices in the metals happen over the longer term as inflation continues to grind away at buying power. It was not long ago that this approach to bullion accumulation was the professional model.
On the day gold closed down $41.20 at $1938.00, and silver closed down $0.21 at $22.32.
Zaner (Chicago) – “Without a fresh bank problem added to the recent list a measure of relief in the markets should prompt long profit-taking in gold and silver. Unfortunately for the bull camp, the focus of the trade and the source of triple digit gains off the early March low in gold were primarily flight to quality and this morning the markets are “somewhat relieved” that time is passing without fresh Bank issues. However, even a very minor headline pointing suspicion at another bank would suddenly throw gold and silver prices back toward new highs for the move. On the other hand, even with the dollar showing signs of extending the March slide with a dip below psychological 103.00, gold and silver seemed to have taken little notice. Sentiment in the financial markets has shifted definitively in favor of a “pause” from the Fed tomorrow, but we are not sure gold will see a large rally if the Fed takes a pass on hiking rates. We do believe gold and silver will find some minor speculative buying ahead of the Fed meeting but the reaction in gold prices to the Fed outcome is extremely difficult to predict. In fact, a “pause” could prompt aggressive flight to quality buying off the idea that the banking situation is more threatening than the markets realize, or because inflation might be able to regain momentum because of a pause in the inflation fight. However, a more likely scenario is a pause by the Fed will at least temporarily prompt market confidence which should result in gold and silver falling back toward the recent lows. In a very disappointing development for the bull camp, both gold and silver have seen consecutive days of large ETF outflows with year-to-date gold and silver holdings both down by 1.3% year-to-date. However, a positive development for the bull camp today came from a 32% increase in Swiss gold exports last month with a large amount of those export going to China. In fact, Swiss exports to China increased by 122% to 58 tons while Swiss gold exports to India increased by 22.4 tons. Furthermore, Turkey continues to be a significant gold importer with the purchase of 43.9 tons of Swiss gold last month. In conclusion, traders should not underestimate the size of potential swings in gold and silver prices ahead and we suggest risk averse traders seek put protection against long gold and silver futures positions.”
On Wednesday the gold trade remained apprehensive, but it is interesting that after an initial dip to the downside, traders bought yesterday’s weakness and gold staged a small rally ($1952.00) even though today the FOMC will release information after market close. Most believe the Fed will use a light hand here with perhaps a quarter point rise in interest rates. Whether today’s firmer prices are a “relief rally” or traders did some minor bargain hunting remains to be seen.
Jerome and friends did indeed raise interest rates the expected quarter of a point, despite banking turmoil. And Chief Powell tried to answer questions regarding the failure of Silicon Valley Bank. The quarter point hike was seen as dovish, in the short term. So gold pricing in the aftermarket reached $1975.00 before paper sellers took short-term profits.
The best thing you can make of this latest move is that the FOMC unwinding process is getting more complicated. Wall Street did not like even the small interest rate increase and the public is still worried about banking liquidity. I’m still not overly worried at this point, but the possibility of a mistake, intentional or unintentional is worth considering.
As far as our trading desk is concerned – we continue to sell everything that is not nailed down. A few large sellers have been asking questions, but no has pulled the trigger yet.
On the day gold closed up $8.80 at $1946.80, and silver closed up $0.36 at $22.68.
Zaner (Chicago) – “While financial market uncertainty remains just under the surface, this morning’s newswires are devoid of fresh incendiary developments. However, gold is tracking slightly higher this morning anticipating an expansion of uncertainty following what will be a very critical and perhaps historical decision by the US Federal Reserve later today. The Federal Reserve needs to pause to help the economy but raise rates 25 basis points to continue the inflation battle which leaves a situation where it might accentuate uncertainty and fail to instill confidence. Either decision today will likely injure the Fed’s reputation. However, for the Fed to pause they will have to admit they were wrong, and a pause could send a signal the Fed is worried about the banking sector. Furthermore, a pause probably allows inflation to continue to percolate. Fortunately for the bull camp the dollar index in the early action today sits right on yesterday’s 35 day low and gold ETF holdings yesterday saw an inflow of 85,313 ounces and the trade was also presented with some extremely hot UK inflation readings overnight. Obviously, the uncertainty from the bank sector remains in place with the markets expected to be on high alert again today because of the FOMC meeting. Market expectations for the Fed today are mixed with many economists believing the Fed will pause, while others are thinking the Fed will follow through with a 25 basis point hike. In our opinion, the gold and silver trade reaction to the Fed decision could be extremely difficult to predict with the markets capable of shaping the outcome in a number of ways. If one looks to the recent trade and realizes the $101 gains in gold were primarily the result of the bank crisis, it is clear the bull camp in gold needs further uncertainty to regain its footing. However, if the Fed pauses, that could reduce economic uncertainty from slowing fears, but a hike could also accentuate bank problems. On the other hand, if the Fed pauses, the trade could see that as an opening for inflation to rekindle and that would re-create flight to quality interest. Unfortunately for the bull camp, even if the trade eventually interprets a pause by the Fed as an opportunity to see inflation regather momentum, we expect the initial reaction in gold and silver to be lower. With yesterday’s action, it remains clear that the gold market has detached from the trade with the US dollar, while silver seems to have a little more of a positive correlation with US equities. It will be important for the bull camp to see a significant jump in ETF holdings later this week in the event of a large washout in gold and silver prices today. The June gold contract nearly reached the first retracement of the March rally which sits at $1,954.20 today, with a 50% retracement level today projected at $1,930.35. As suggested in previous coverage this week, those preferring to stick with the long-term uptrend should implement long put and short call positions against long futures positions. The March 14th Commitments of Traders report showed Gold Managed Money traders added 61,256 contracts to their already long position and are now net long 85,362. Non-Commercial & Non-Reportable traders added 48,776 contracts to their already long position and are now net long 168,683. While the lack of significant declines in silver yesterday could indicate the market is less vulnerable than gold to this week’s events, the market was not nearly as overbought and will likely favor its physical commodity market standing in the coming 12 hours. In other words, silver should track tightly with equities. The Commitments of Traders report for the week ending March 14th showed Silver Managed Money traders net bought 14,443 contracts and are now net short 3,762 contracts. Non-Commercial & Non-Reportable traders are net long 10,894 contracts after net buying 6,529 contracts.”
On Thursday the gold bulls were again happy as prices closed on highs. And the aftermarket added another $10.00, increasing the buzz, but this happiness faded. Judging from the increase in bullish sentiment more traders must believe the Fed will at least tap the inflation brakes.
In our corner of this small world, I can say we have never seen such large changes in trading sentiment in such a short time. And for the first time in all this drama a few long-term customers sold larger positions in gold bullion. We are still net sellers by a wide margin, and product premiums have moved lower, but our shipping department is busy all day. I really don’t know how the Fed is going to make everyone happy. So, hold on to your hat, the winds of change are starting to blow harder and harder. Which at some point figures to introduce great volatility if past experience is worth anything in this still upside-down financial market.
Reuters (Seher Dareen) – Gold drifts higher as Fed hints at rate-hike pause – “Gold prices extended gains to a second straight session on Thursday, boosted by a slide in the U.S. dollar and Treasury yields after the Federal Reserve signaled an end to its monetary tightening cycle might be on the cards. The Fed raised rates by a quarter of a percentage point on Wednesday but highlighted that it was on the verge of pausing. “If they truly do pause that clearly has been a green light for the gold market, being a quintessential hedge against inflation. It’s likely that inflation would remain elevated if they’re unable to raise rates any further,” said David Meger, director of metals trading at High Ridge Futures. Gold on Monday hit a one-year high, breaching the key $2,000 level on safe-haven demand, though later ceded some ground as banking sector jitters subsided following the rescue of Credit Suisse. But the outlook remains positive if the Fed pauses or the banking crisis carries on, analysts say. Wall Street bank Goldman Sachs hiked its 12-month gold price target to $2,050 an ounce from $1,950, describing it as the best hedge against financial risks. “A combination of inflation still being at lofty levels, safe haven alternative investment demand, and the weaker dollar – all of these are significant driving factors behind gold’s recent move,” Meger added. The dollar was near early-February lows, sliding for a sixth session and making gold cheaper for holders of other currencies. Benchmark government bond yields also edged lower and improved zero-yield bullion’s allure.”
Jim Wyckoff (Kitco) – “Technically, the gold futures bulls have the solid overall near-term technical advantage. Prices are in a fledgling uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at this week’s high of $2,014.90. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,922.30. First resistance is seen at the overnight high of $1,986.10 and then at $2,000.00. First support is seen at the overnight low of $1,967.30 and then at $1,950.00. May silver futures prices hit a seven-week high today. The silver bulls have the firm overall near-term technical advantage. Prices are in a steep, fledgling uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at $23.50 and then at $23.75. Next support is seen at $23.00 and then at $22.50.”
On the day gold closed up $47.00 at $1993.80, and silver closed up $0.46 at $23.14.
On Friday the gold trade remained anxious but steady, which can be seen if you consider the tight pricing spreads from Friday of last week through the close today. Gold was higher by $12.30 and silver was higher by $0.90! This looks more like a very large yawn than a banking crisis. At the same time the tension in the financial community is palpable. Fresh information favoring either the bulls or bears may create trading volatility. And the more I hear that gold bulls are in the driver’s seat the more I worry about this trade. Enjoy your weekend. rs
Reuters (Ashitha Shivaprasad) – “Gold steadies, Fed pause bets brighten outlook – “Gold steadied into a tight range on Friday after a volatile week so far as support from lower U.S. yields countered a firm dollar, but bets for a pause in U.S. rate hikes brightened the outlook for zero-yield bullion. Prices gained in the last two sessions after the Federal Reserve raised rates by an expected quarter of a percentage point, but signaled it was on the verge of pausing. Lower rates burnish appeal for bullion, which pays no interest. The strong dollar is offsetting support for gold from the decline in yields, but “economic fears will result in lower interest rate expectations, which could continue to boost gold further,” said Craig Erlam, senior market analyst at OANDA. U.S. 10-year Treasury yields fell for the third straight session, while the dollar index rose 0.7%. Commerzbank raised its year-end gold forecasts to $2,000, joining similar upward revisions by Goldman Sachs, Citi and ANZ.”
On the day gold closed down $11.70 at $1982.10, and silver closed up $0.11 at $23.25.
Platinum closed down $9.00 at $982.00, and palladium closed down $18.10 at $1403.30.
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