Gold – Fed Pivot – Yea or Nay?
Commentary for Friday, November 18, 2022 (www.golddealer.com) – Today gold closed down $8.90 at $1751.90 and silver closed up $0.02 at $20.98. Gold looked defensive this morning going into the weekend. And the premiums for physical product fell sharply in China as buying slowed, according to Reuters. This figures, the Asian market has a great price feel and they are patient, long term buyers. Since early November gold has surged, moving from $1630.00 through $1780.00. But this latest bullish drive looks to have peaked, with a tight channel trade, supported at $1760.00. With traders refocusing on the negative aspects of coming interest rates hikes, the possibility of a Fed pivot may be losing some of its bullish trading mojo. Last Friday gold closed at $1766.00 / silver at $21.65 – on the week gold was down $14.10 and silver was off $0.67. We are selling any live physical product which is not nailed down and volume numbers are increasing for delayed delivery, even at these elevated levels.
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On Monday gold steadied itself from last week’s gains, supported by a significantly weaker dollar as traders anticipate a shift in the still hawkish Fed interest rate sentiment. The Dollar Index these past 5 trading days has moved from over 110.00 to approaching 106.00 as the paper trade scramble to the possibility of lower interest rates. Still the Fed plays this new scenario to their advantage as Fed Governor Waller suggests inflation remains a primary concern.
Market Watch (Saefong – Adinolfi) – “Still, prices on Monday did touch an intraday low at $1,755.80. That followed “cautionary comments from Federal Reserve Governor Christopher Waller that policymakers had a “ways to go’ before ending interest-rate hikes,” said Rupert Rowling, market analyst at Kinesis Money, in daily commentary. The remarks “served as a reminder that gold’s huge gains last week were driven by sentiment that the Fed will be less aggressive with its future upcoming interest rate decisions rather than on any firm fact,” he said. Rowling pointed out that pace of last week’s gains, “in which gold climbed more than $100 an ounce, leave gold open to some profit-taking this week as investors reassess where the true value of the precious metal lies.” “While the latest inflation figure out of the U.S. was undoubtedly encouraging, rising consumer prices remain an issue that the Fed looks determined to get back under control through interest rate rises,” said Rowling. Given all of that, “gold’s current price looks dangerously high, and it would only take a slight shift in sentiment on where the Fed will go with its December rate move for the price to come quickly crashing back to $1,700 an ounce.”
I would make a less bearish case for the price of gold both in the short and longer term. There are no guarantees the Fed will slow its interest rate policy. This new “pivot” scenario emboldens the bulls but is only a plausible theory. The fact is that gold is supported by world inflation and rising fundamental tensions between the world powers. But the completely bullish gold scenario also does not work well even in today’s troubled world. Interest rates are not returning to near zero anytime soon. The low interest rate mode, in place for years was a powerful reason gold did so well as the FOMC battled the pandemic. Today, higher interest rates cap higher gold prices because they compete for investor dollars. At this point professional traders anticipate a sideways, but closely watched market. I’m in the “rather bullish” category which believes gold and silver are undervalued. Because central banks, even with their bombast over controlling inflation with higher interest rates, have no plan as to how this massive amount of borrowed money will be repaid. Unfortunately, they still operate on the “free lunch principle”.
On the day gold closed up $7.60 at $1773.60 and silver closed up $0.44 at $22.09.
On Tuesday gold was choppy in the New York cash market, trading between $1768.00 and $1786.00 and managed to finish the day almost unchanged. Trading was a mixed bag reacting to a cooler than expected October inflation snapshot. The producer price index came in lower than expected supporting the theory that the Fed may indeed moderate its coming rate hikes. A “hot” aftermarket was created over an aggressive Russian missile strike in the Ukraine which also hit neighboring UN member Poland. The markets quickly settled back to being unchanged, but this is another reminder of how unstable this region has become as world tension rises.
The Fed “pivot” theory has moved Treasury yields lower this week and the Dollar Index continues weaker but choppy, pointing toward 105.00. With the index off an amazing 5 points since last Thursday I would not be looking for an “overbought” condition. And subsequent bounce to higher ground, creating headwinds for our shiny friend.
Still gold’s technical picture is improving, and the bulls are coming out from under the bed. But are they out of the woods? The key question still to be answered is whether inflation has peaked? The price of gold is holding around 3-month highs and while the Fed may slow rate increases, inflation is still a number one priority. This uncertainty may suggest that the price of gold will continue to struggle against a slower yet steady rise in interest rates into 2023.
Jim Wycoff (Kitco) – “Technically, the gold futures bulls and bears are on a level overall near-term technical playing field but the bulls have momentum. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at last week’s low of $1,667.10. First resistance is seen at $1,800.00 and then at the August high of $1,824.60. First support is seen at the overnight low of $1,770.20 and then at this week’s low of $1,755.80.
The silver bulls have the firm overall near-term technical advantage. A choppy, 2.5-month-old uptrend is in place on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $23.00. The next downside price objective for the bears is closing prices below solid support at $20.00. First resistance is seen at the overnight high of $22.38 and then at $22.80. Next support is seen at this week’s low of $21.37 and then at $21.00.”
On the day gold closed up $0.20 at $1773.80 and silver closed down $0.59 at $21.50.
Zaner (Chicago) – “Gold firmed overnight and the dollar weakened, as the market seems to be forging through some occasionally hawkish Fed commentary without too much damage. It helps that Fed Vice Chair Lael Brainard commented that she thinks it will be appropriate soon to move to a slower pace of rate increases. This contrasted with a statement by the Fed’s Waller earlier in the session that seemed to downplay the significance of last week’s CPI report. The PPI report today will provide another look into inflation prospects, with the trade looking for a slightly lower headline number than September. In another sign that inflation may be easing, Walmart’s
CEO reportedly warned its suppliers that his company is “through” with paying higher prices. Amazon and Target are said to be taking a similar approach. The flare-up in risk anxiety in the cryptocurrency sector following the FTX bankruptcy has diverted investment flows towards precious metals as well. The PPI report today offers the next volatility event. A softer than expected number would add confirmation to last week’s soft CPI number and could inspire more gains in gold and silver. The Commitments of Traders report showed managed money traders were net buyers of 30,659 contracts of gold for the week ending November 8, reducing their net short to 8,219. Non-commercial & non-reportable traders were net buyers of 25,368, increasing their net long to 94,012. In silver, managed money traders were net buyers of 15,961, which moved them from a net short position to a net long of 12,493. Non-commercial & non-reportable traders were net buyers of 13,137, increasing their net long to 24,277. The buying trend in both markets is positive, and neither is overbought.”
On Wednesday gold had a virtual repeat of Tuesday’s pricing action. The early trade dipped in the morning (1772.00) and pushed higher in the afternoon (1784.00) but by market close it came in about unchanged. Yesterday and today, you saw a combination of short covering and mild safe haven buying with some promise of the Fed “pivot” for extra bullish measure. But you can see from the basically “back” and “forth” action. In a short time, the technical picture moved from bearish to a kind of “push” between the bulls and bears. With the momentum in the bull’s favor. But that buzz is now out the window. This market now needs something fresh and more substantial to provide a dominant trade, one way or the other.
On the day gold closed down $0.80 at $1773.00 and silver closed unchanged at $21.50.
(Zaner) Chicago) – “December gold was higher overnight, and it seems capable of taking out Tuesday’s three month high today. The market got another boost on Tuesday from the October PPI report that came in was well below expectations. This came after last week’s soft CPI number. December gold traded to its highest level since August 17 after the report was released but closed near unchanged on the day. This kind of anemic reaction has the bulls concerned that the market is getting a bit toppy. PPI came in at +8% year over year versus expectations for +8.4%. It was the smallest increase since July 2021. Core PPI was +6.7% year over year versus +7.2% expected and +7.1% in October. Having two milder than expected inflation numbers in a row has boosted talk that the Fed could be ready to pull back on its monetary tightening, but comments from Fed members have been mixed. Atlanta Fed President Bostic said on Tuesday that he sees little evidence that the aggressive monetary policy is slowing inflation and that more hikes would be needed to get inflation down to the 2% target. He said that goods price increases have slowed, but we need to see the service price increases slow as well. A report that a missile hit eastern Poland near the Ukrainian border sparked geopolitical jitters and seemed to attract buyers into the metals late in the session yesterday. Later, President Biden commented that it was unlikely that the missile was fired from Russia, which soothed market anxiety. Central bank purchases of gold could hit an all-time high of 750 tonnes in 2022 after a surge to nearly 400 tonnes in the third quarter. The average if the past 10 years is 513 tonnes. ETFs were net sellers of 153,620 ounces of gold on Tuesday, a decline of 0.2% on the day and 3.8% on the year. They were also net sellers of 658,179 ounces of silver, down 0.1% on the day and 15% on the year.”
On Thursday gold pricing was likely the result of what I suggested this past Tuesday. The Dollar Index was indeed oversold early in the week and figured to bounce higher. Creating a downdraft for the gold bulls. Today’s pricing spread was modest – $1755.00 through $1764.00 which is semi-good news. The bullish scenario may have some legs into year end.
Next week will be a short trading week because of the Thanksgiving holiday. And we will be closed on the 24th and 25th. I expect a continued “sleepy” trade if such a thing is possible in this unwinding mess. Russian world tension remains an underrated plus for safe haven support.
But in the shorter-term traders will focus on the FOMC. It is old news that the oddsmakers are suggesting a half point hike for the December 13th and 14th meeting. The next FOMC meeting will be held on March 21st and 22nd and is the more interesting of these two seminal gathers.
The Fed interest rate choices made at the March meeting are more definitive. And may even set the stage for 2023 as to what the Fed has in mind. Stay tuned as they say, the question of how liberal the Fed can be and still stay on the right side of this political football remains to be seen.
On the day gold closed down $12.20 at $1760.80 and silver closed down $0.54 at $20.96.
On Friday the gold and silver trade looks like it’s settling into a quiet weekend. And the anticipation of a short trading week for the coming Thanksgiving holiday. There is something to the notion that traders are beginning to worry about an aggressive Fed interest rate policy. But this may be an overaction if you consider today’s tight pricing range between $1750.00 and $1764.00. Still the price of gold technically must push through tough overhead resistance between $1750.00 and $1800.00 before the computer trade will ring the bell. And the overhead resistance between $1800.00 and $2000.00 is ferocious going back to 2020. The bullish sentiment has improved considerably as the Fed pivot is considered. And this is the big bullish plus to take away from this week’s trading. But until the world focuses on long term debt, and recognizes gold is undervalued I suspect making new real highs will remain challenging.
Reuters – “The slight pullback in gold after the recent rally has been through a technical retracement in the gold market, said David Meger, director of metals trading at High Ridge Future. The pullback could continue going into next week’s December option expiration, which could cause a further consolidation in gold, Meger added, and that the market overall seems focused on interest rate expectations from the Fed. Federal Reserve Bank of Boston leader Susan Collins said on Friday the central bank has more rate rises ahead of it as it seeks to lower inflation, adding that a 75-bps hike was still on the table. The dollar index firmed, making gold more expensive for other currency holders, while benchmark U.S. Treasury yields also edged higher. While gold has shed 15% since its March peak after the Fed began tightening monetary policy, it has gained about 7% since the beginning of November as markets started pricing in a slower pace of rate hikes. Markets currently see an 87% chance of a 50-basis point hike at the Fed’s December meeting.”
Platinum closed up $1.20 at $1002.00 and palladium closed down $71.10 at $1936.30.
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