Gold – Continues to Wobble
Commentary for Friday, July 7, 2023 (www.golddealer.com) – Today gold closed up $17.50 at $1926.20, and silver closed up $0.40 at $23.09. Today’s nice price bounce to the upside in gold surprised everyone, but really it should have been expected. The weak job numbers started the bullish ball rolling and the subsequent dip in the dollar woke up the momentum players. But I suggest this latest “refocus” was not a big deal. The rally in gold, if you want to call it that, was lukewarm and the market closed off highs, in typically neutral trading territory. This is not the result of a fundamental shift in the Fed’s interest rate program. It looks more like an oversold bounce to the upside which ran into a handy headline. The case for higher interest rates continues to hinder higher gold prices – the unfortunate precent reality. Last Friday gold closed at $1921.10 / silver at $22.81 – on the week gold was higher by $5.10 and silver was higher by $0.28. Considering this week’s shifting sentiment, price spreads were surprisingly small.
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On Monday the price of gold in the New York domestic trade opened around $1912.00 and quickly pushed to daily highs of $1930.00. A nice updraft helped by the dollar coming off recent Friday highs and a bit of old-fashioned bullish optimism despite a sagging technical picture. But this happiness was not to last, gold traders, in usual fashion sold the rally and our shiny friend closed almost unchanged on the day. And this being a short trading week, I would expect much of the same “quiet” action after we get back from the Independence Day holiday.
It is easy to see why I’m not on board with the idea that gold has settled at higher levels. And the regular reminders that the Fed will continue to raise interest rates has created this heavy trade in my mind. The smart money is betting that the Fed will continue with higher interest rates. And that is why the paper traders will continue to test support at $1900.00.
There is no reason for the Fed to get aggressive with interest rates. Inflation is trending lower, and Wall Street is not falling out of bed. Other world central banks, however, are raising rates which creates an underlying tension and suggests the US will follow a similar path.
Reuters (Arpan Varghese) – Gold advances on weaker US economic cues – “Gold prices advanced on Monday as the dollar and yields retreated on weaker economic readings, casting doubts over whether the Federal Reserve may stick to its hawkish policy outlook. “Gold has probably found a home around 1900,” said Edward Moya, senior market analyst at OANDA. “There’s some positioning happening here … the market last week seemed to be slowly pricing in more Fed rate hikes, but data going forward might suggest that might not be happening, we could get really get one more rate hike.” Also propping up safe-haven gold, the spread between the 2-year and 10-year U.S. Treasury note yields hit the widest since 1981, reflecting concerns that an extended Fed rate hiking cycle will tip the United States into recession. Futures markets had reflected rate cuts at the Fed’s September meeting as recently as May, and are now projecting that the first cuts will come in January. Lower interest rates tend to lift gold as it reduces the opportunity cost of holding the non-yielding asset. Gold also got a fillip from a dip in the dollar after data showed U.S. manufacturing slumped further in June. Carlo Alberto De Casa, external analyst at Kinesis Money, said that considering gold prices could trade in the $1,900-$1,930 range before the release of the minutes of the Fed’s June 13-14 meeting that could contain further clues on policy.”
On the day gold closed up $0.60 at $1921.70, and silver closed up $0.09 at $22.90.
Tuesday was the 4th of July; US markets were closed.
On Wednesday gold prices were quiet, holding a tight $15.00 range during this short trading week. Gold yawned at Chief Powell’s latest interest rate comments which is surprising – even the Chief sees more interest hikes ahead, but at a slower pace.
Our shiny friend also yawned over rising political intrigue as Secretary of the Treasury Janet Yellen visits China. Gold is not moving higher anytime soon in my mind, but there are enough cross winds to provide some support as traders continue to ponder higher interest rates.
Reuters (Brijesh Patel) – “Gold prices held steady on Wednesday as investors held back from making big bets ahead of the U.S. Federal Reserve’s June policy meeting minutes. “Not a lot of action in the gold market right now, a little bit of volatility in the S&P 500. People are anticipating Fed minutes coming out and a lot of economic data coming out in the next 48 hours,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. The Fed will issue minutes from its June 13-14 meeting at 2 p.m. ET (1800 GMT). Traders are pricing in an 89% chance of a 25 basis point hike from the Fed in the July meeting after last month’s pause, per CME’s Fedwatch tool. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. “A hawkish set of Fed minutes is likely to deal a heavy blow to the zero-yielding metal, sending prices back below $1,900, with $1,893 and $1,858 acting as key levels of support,” Lukman Otunuga, senior research analyst at FXTM, said in a note. “Should the minutes sound more dovish, this could offer the precious metal some support – taking prices beyond the $1,932 resistance level.” Also on the radar, a U.S. jobs report due later in the week will provide more clues on the central bank’s rate outlook. Markets also watched for updates on China’s export controls on semiconductor metals as it ramps up a tech fight with the United States days before U.S. Treasury Secretary Janet Yellen visits Beijing.”
On the day gold closed down $2.10 at $1919.60, and silver closed up $0.30 at $23.20.
On Thursday gold opened choppy but quickly moved to lows on the day. This trading pattern is now typical as traders continue to focus on the short term, and transitory “news”. The ADP job creation number is a good example. It beat expectations, a minus for the gold market. The thinking here is that the more jobs created the better the economy looks, moving away from the “recession” scenario which gets more popular as the Fed continues to raise interest rates. Frankly, I don’t think the ADP data creates much of a stir among paper traders.
Gold is trending lower for three reasons. First, many believe the Fed will continue to raise interest rates. Second, the technical picture, now bearish creates its own world among computer driven trading programs. Third the Dollar Index has trended mildly higher since last Friday.
Now with all that being said, consider that the “testing” of price support for gold during this transition is still in process. This market, at current prices, could already be oversold. Or if there is more downside the likelihood of a complete breakdown is small. The World Gold Council agrees with this assessment, in that they do not see the right conditions for a major selloff in gold. So patience at this point might be rewarding, remembering that the cheaper gold becomes the more interest it creates.
Reuters (Brijesh Patel) – Gold slips as strong US data fuels Fed rate-hike bets – “Gold prices slipped to a near one-week low on Thursday as a better than expected private payrolls report suggested that U.S. labor market remains strong and fueled expectations for more rate hikes from the Federal Reserve. U.S. private payrolls increased more than expected in June, indicating strength in the labor market despite growing risks of a recession from higher interest rates. Two-year U.S. Treasury note yield rose to its highest level since June 2007 after employment data, while the dollar cut losses. “The weakness that we’re seeing in gold is reflective of the expectations for a Fed that is more likely to raise interest rates at the July meeting,” said David Meger, director of metals trading at High Ridge Futures. “We’re seeing continuing jobless claims come down and the ADP private payroll numbers came out better than expected. As a result, we’re seeing yields increasing and hence some more pressure applied to the gold market.” Data showed the number of Americans filing new claims for unemployment benefits increased moderately last week, pointing to only a gradual easing in labor market conditions. Fed Bank of Dallas President Lorie Logan said that there was a case for a rate rise at the June policy meeting, in comments that affirmed her view that more rate increases will be needed to cool off a still strong economy. Investors now see a nearly 95% chance of a 25-basis-point hike in July after last month’s pause, according to CME’s Fedwatch tool. High rates discourage investment in zero-yield gold. Focus still remains on Friday’s U.S. non-farm payrolls report for more clarity on the Fed rate-hike path.”
On the day gold closed down $10.90 at $1908.70, and silver closed down $0.51 at $22.69.
On Friday gold traded between $1914.00 and $1932.00 and settled off highs. Typically, the paper trade has sold these kinds of rallies, but today gold settled just off highs. The rally was not large enough to rekindle the now boring physical trade so pricing spreads for gold this week remained flat. Silver, on the other hand, continues in a mild downtrend.
Reuters (Arpan Varghese) – Gold gains after weaker US jobs numbers – “Gold extended gains on Friday after weaker U.S. nonfarm payrolls numbers cast doubts over the trajectory of interest rate hikes beyond July yet again. Labor department data showed nonfarm payrolls came in well below expectations last month, but the unemployment rate retreated from a seven-month high amid fairly strong wage gains. Giving bullion a fillip, U.S. Treasury yields moved lower and the dollar slipped after the data. Traders stuck to bets the Fed will raise interest rates this month, but were becoming more skeptical of the chance for further hikes beyond that. “Gold remains stubbornly bid – trading higher even before the number. Today’s report has given bulls some relief, at least short term,” said Tai Wong, a New York-based independent metals trader. “Gold should hold above $1,910 but the real test is $1,950-60 level where the 100 and 200 day moving averages are converging. The report wasn’t soft enough to warrant that kind of rally today.”
On the day gold closed up $17.50 at $1926.20, and silver closed up $0.40 at $23.09.
Platinum closed up $5.60 at $910.10, and palladium closed up $5.70 at $1236.50.
Jim Wycoff (Kitco) – “Technically, the gold futures bears have the overall near-term technical advantage. A two-month-old price downtrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close in August futures above 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 $1,938.00 and then at this week’s high of $1,942.90. First support is seen at the overnight low of $1,915.40 and then at this week’s low of $1,908.50. The silver bears have the overall near-term technical advantage. Prices are in a two-month-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing September futures prices above technical resistance at the June high of $24.835. The next downside price objective for the bears is closing prices below support at the June low of $22.34. First resistance is seen at this week’s high of $23.535 and then at $23.75. Next support is seen at this week’s low of $22.72 and then at last week’s low of $22.485.”
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