Gold – Higher Highs or Lower Lows?
Commentary for Friday, August 9, 2024 (www.golddealer.com) – Today gold closed up $9.90 at $2432.10, and silver closed down $0.01 at $27.49. The trading theme at the end of this week is simply that gold needs fresh news or may be stuck in a trading range which favors the bulls but offers downside depending on possible changes in Fed interest rate policy. This is an old story but until the Fed makes up its mind gold prices are dancing between higher highs and lower lows. Last Friday gold closed at $2425.70 / silver at $28.25. On the week gold was higher by $6.40 and silver was down $0.76.
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On Monday the price of gold collapsed, moving from $2440.00 to $2370.00 in a matter of minutes as the bulls panicked because the possibility of a US recession created a sharp decline in global equities according to Ernest Hoffman (Kitco). That was the bad news, the better than expected result however is that gold managed to bounce off lows for the day of $2368.00 and recover above the vaulted $2400.00 mark. Which should provide relief to help traders get back on their feet. This drop was large enough, however, to undermine basic bullish sentiment. Which in my opinion created this out of the blue profit taking round. At the end of last week traders expected a lower interest rate picture. Today that scenario has lost its balance, so expect further uncertainty, some liquation and asset rebalancing as storm clouds threaten.
FXEmpire (James Hyerczyk) – Balancing Safe-Haven Demand and Liquidation Pressure – “The recent global market crash has created a complex landscape for gold prices, pitting its traditional safe-haven appeal against the pressures of widespread liquidation. As stock markets tumble worldwide, with Japan’s Nikkei 225 experiencing its worst day since 1987, gold finds itself caught in the crossfire of conflicting market forces. At 11:39 GMT, XAU/USD is trading $2391.95, down $50.55 or -2.07%. Unemployment Shock Fuels Recession Fears – The unexpected jump in U.S. unemployment to 4.3% in July has sent shockwaves through financial markets, intensifying fears of an impending recession. This economic uncertainty typically bolsters gold’s appeal as a wealth preservation tool. However, the metal’s price action remains volatile as investors grapple with a rapidly changing economic outlook. Treasury Yields Plummet, Fed Rate Cuts Loom – The 10-year Treasury yield’s dramatic fall to 3.744%, its lowest level since July 2023, paints a grim picture of investor sentiment. This drop, coupled with market expectations of a 50 basis point rate cut by the Federal Reserve in September, creates a supportive environment for gold. Lower yields reduce the opportunity cost of holding non-yielding assets like gold, while potential rate cuts could weaken the dollar, further boosting gold’s attractiveness. Currency Markets: Yen Surges as Dollar Wavers – The strengthening of the Japanese yen against the dollar reflects a broader flight to safety in currency markets. This trend often coincides with increased demand for gold. However, the dollar’s performance against other currencies remains a key factor to watch, as dollar strength can put pressure on gold prices. Liquidation Pressure: Gold’s Double-Edged Sword – Despite its safe-haven status, gold faces selling pressure as panicked investors liquidate profitable positions to cover losses elsewhere or meet margin calls. This phenomenon highlights the interconnectedness of modern financial markets and challenges gold’s traditional role as a crisis hedge. Looking Ahead: Gold’s Delicate Balance – The short-term outlook for gold remains cautiously bullish, though volatility is expected to persist. Traders should closely monitor U.S. economic data, Fed policy signals, global stock market performance, and geopolitical tensions, particularly in the Middle East. These factors will likely determine whether safe-haven demand or liquidation pressure prevails, shaping gold’s performance in the coming weeks and months. As markets face heightened uncertainty, gold’s role as both a safe haven and a liquidity source will be put to the test. Its performance may well serve as a barometer for the broader market’s risk appetite and economic outlook. Technical Analysis – “Gold is falling hard on Monday after crossing to the weakside of a pivot at $2418.47. This level is new resistance. The next target is a pivot at $2380.54, followed by the 50-day moving average at$2365.84. The 50-day moving average is a significant indicator because it can be the trigger point for heightened volatility. In this case, that volatility is expected to be to the downside. Taking out the 50-day moving average with conviction could lead to a quick test of the recent bottom at $2353.19. If this fails, prices are likely to plunge toward $2293.69 to $2286.83.”
On the day gold closed down $24.00 at $2401.70, and silver closed down $1.17 at $27.08.
On Tuesday the price of gold held above the $2400.00 level for a short time, but once again weakened, pushing to session lows of $2380.00. Yesterday’s weakness has moved into today’s mindset as traders brace for perhaps even lower prices. But this most recent test of support is not all bad because the degree of this dip to the downside will provide insight into whether this market is stable or unstable. Also worth noting is that gold pricing is bolstered by a weaker dollar which can be seen in the Dollar Index moving lower by a full point since Friday.
Also front and center is the wider potential for profit taking. On the short term gold this past month is about a push, but on the longer term (year over year) gold is higher by a hefty $475.00. If gold stabilizes around current levels, you will likely not see more longer term liquidation. If it does not stabilize the bulls may decide to run for the hills. My feeling is that the latter worst case scenario is not likely because the world geopolitical scene is a mess, inflation remains a problem, and the Fed while almost promising to lower interest rates still has not delivered.
Reuters (Anushree Ashish Mukherjee) – Gold eases as dollar firms, Fed rate cut hopes lend support – “Gold prices eased on Tuesday as the dollar firmed, although expectations of a U.S. rate cut in September and escalating geopolitical tensions in the Middle East kept bullion above the key $2,400 per ounce level. Spot gold fell 0.2% at $2,401.75 per ounce by 10:09 a.m. ET (1409 GMT). The metal fell 1.5% in the previous session, driven by global sell-off as fears of the U.S. tipping into recession lingered. U.S. gold futures lost 0.1% to $2,442.90. The dollar index was up 0.3%, in its first day trading higher against the Japanese currency this month, making greenback-priced bullion less affordable for overseas buyers. “There’s still some weakness in gold mainly driven by dollar strength … but the macro environment for gold is relative positive so we’ll probably see some range-bound activity in gold over the near term,” said Amelia Xiao Fu, head of commodity markets at BOCI. Lebanon’s armed group Hezbollah launched a series of drone and rocket attacks into northern Israel. Fed policymakers pushed back against the notion that weaker-than-expected July jobs data means the economy is in recessionary freefall, but also warned that rate cuts will be needed to avoid such an outcome. Bullion is considered a safe asset amid economic uncertainties and benefits from a low interest rate environment. Investors expect central banks to cut interest rates, which should limit the downside potential for gold, if not lift it to new record highs, said Fawad Razaqzada, market analyst at Forex.com, adding that he expects gold to hit $2,500 in the short term. Markets see a 100% chance of a rate cut in September, according to the CME FedWatch Tool. Spot silver fell 0.1% to $27.24 per ounce while platinum rose 1.4% to $919.30. “The trend towards climate-neutral generation of solar power is likely to continue regardless of economic developments. However, headwinds are coming from falling sales of electric vehicles, in which silver is also used,” Commerzbank said. Palladium gained 2.4% to $870.00 after hitting its lowest levels since 2017 on Monday due to recession fears.”
On the day gold closed down $12.60 at $2389.10, and silver closed up $0.02 at $27.10.
On Wednesday gold moved to session highs of $2404.00 in the early trade and settled almost unchanged on the day. I would not call this market hot in any way, but the bulls are not exactly falling out of bed. The big question is, can they maintain pricing near $2400.00 in the face of higher interest rates? This is a possibility because the technical picture favors the bulls, but the price of gold has moved up and down these past few months a few hundred dollars. This tightening channel may suggest momentum and buzz are cooling. If this trend continues some caution may prove rewarding.
Whatever the outcome, consider using this time to reorganize your thinking. Perhaps a rebalance of assets makes sense? There is no rush here in my mind, because there is enough support to make any downside move a gradual drift as opposed to a frightful free fall. The reason this is true is because safe haven demand worldwide is not going anywhere anytime soon. And when interest rates eventually move lower many experts believe higher prices in gold are inevitable.
FXEmpire (James Hyerczyk) – Will Rate Cut Hopes Drive a Gold Rally to $2500? – “Gold Prices Seek Support Amid Mixed Market Signals – Gold prices are slightly better on Wednesday as traders attempt to establish new support at a key pivot of $2380.54. The major support remains the 50-day moving average at $2367.89. Investors are closely watching the Federal Reserve, anticipating a potential rate cut in September, which has stirred speculation about gold’s trajectory towards the record high of $2483.74 and possibly reaching the psychological $2500 level. Rate Cut Speculations and Gold’s Performance – The prospect of a September rate cut by the Federal Reserve is seen as a certainty, with traders adjusting their expectations following a soft jobs report last week. According to the CME FedWatch Tool, a 100% chance of a rate cut in September is anticipated, with nearly 105 basis points of cuts expected by year-end. This outlook for looser monetary policy provides a supportive environment for gold, a non-yield-bearing asset, bolstered further by strong central bank buying. Safe-Haven Demand and Market Rebound – Gold prices inched up on Wednesday, driven by safe-haven demand amid rising bets on the Fed reducing interest rates. This increase followed a dip in prices over the previous four sessions, with U.S. gold futures also gaining. Earlier in the week, gold prices fell by as much as 3% amid a global sell-off fueled by U.S. recession fears. Despite these fluctuations, some distressed sellers from the weekend/Monday may be looking to re-establish their positions as gold continues to offer liquidity ahead of potential margin calls. Dollar and Treasury Yields Influence – The dollar index moved away from a seven-month low touched on Monday, and the 10-year U.S. Treasury yield also rose, reflecting sentiments that fears of a U.S. economic downturn were overdone. Higher Treasury yields, which saw the benchmark 10-year yield climb over 4 basis points to 3.9354%, and the 2-year note rise to 4.0282%, may cap gains in gold. Nonetheless, bullion remains a preferred hedge against geopolitical and economic uncertainties, thriving in low-interest-rate environments. Market Volatility and Global Trends – Global stock markets experienced a significant rebound on Wednesday, recovering from dramatic sell-offs on Friday and Monday. This recovery was evident in the gains seen in Asia-Pacific and European markets, along with U.S. futures. The U.S. Treasury Department’s auction of $42 billion in 10-year government notes and the dollar’s steady performance against other currencies also played roles in shaping market movements. Market Forecast: Bullish Outlook for Gold – Given the current market conditions and the high probability of rate cuts by the Federal Reserve, gold prices are expected to maintain a bullish trend. The supportive environment created by expectations of looser monetary policy, combined with safe-haven demand and strong central bank buying, suggests that gold may continue its upward momentum, potentially testing the $2500 level in the near term. Traders should remain vigilant for any new catalysts that could further drive prices higher. Technical Analysis – The first support is a 50% level at $2380.54. The major support is the 50-day moving average at $2367.87. A break below this level could lead to a quick test of the main bottom at $2353.19. This is a potential trigger point for an acceleration to the downside. This could lead to a test of the triple-bottom at $2293.69 to $2277.34. If this zone fails then we’re likely to see a plunge into $2234.02. Establishing support at $2380.50 will signal the presence of buyers. This could lead to a test of the pivot at $2418.47. Traders have to overcome this level in order to set up a test of the double-top at $2477.73 and $2483.74. Other thoughts: Taking out $2353.19 will confirm the double-top with $2222.64 the downside target.”
On the day gold closed up $1.40 at $2390.50, and silver closed down $0.27 at $26.83.
On Thursday the price of gold moved to session highs in early trading ($2420.00) as US weekly jobless claims moved lower. The idea here being that any improvement in the number employed would lessen recession talk and give the Fed more latitude to lower rates. Professionals also believe that a wobbly stock market, weaker dollar, and favorable technical picture will continue to support higher gold prices. So, when many are looking for higher prices in expectation of lower interest rates it makes for a nervous market. Still, today’s early push above $2400.00 is worth noting. Unfortunately, political tension worldwide may surge, and this possibility alone will support safe haven demand. So, the downside at present may be overstated.
FXEmpire (James Hyerczyk) – Gold Firms on US Rate-Cut Bets, Focus on Data – “Gold prices firmed on Thursday as the dollar and Treasury yields retreated on rising bets that the U.S. Federal Reserve may begin an interest rate cut cycle in September. Spot gold increased, positioning itself to end a five-session losing streak, while U.S. gold futures also climbed. Investors are cautiously monitoring the 50-day moving average at $2368.80, which has been a key support level since March. A breach below this level could lead to a significant price drop of $50 or more. At 11:19 GMT, XAU/USD is trading $2411.32, up $28.41 or 1.19%. Dollar and Treasury Yields Retreat – The dollar index fell by 0.1%, making gold more affordable for international buyers. Concurrently, the 10-year U.S. Treasury yield slipped, easing the cost of holding non-yielding bullion. Gold prices had previously dropped by 3% on Monday due to a global sell-off triggered by U.S. recession fears. Despite this, the shallow correction in gold prices has bolstered investor confidence, leading to renewed long positions. Rate-Cut Expectations and Jobless Claims – Major brokerages, including J.P. Morgan, Citigroup, and Wells Fargo, have forecast a 50-basis-point interest rate cut by the Federal Reserve in September following last week’s U.S. jobs data. Market participants are now awaiting the weekly U.S. jobless claims data, which could further influence gold prices. The data is anticipated to show a decrease in initial jobless claims to 240,000 from the previous week’s 249,000, signaling potential economic stability. Impact of Geopolitical and Economic Uncertainties – Gold, often considered a safe-haven asset, thrives during geopolitical and economic uncertainties. Recent events, such as the killing of senior members of Hamas and Hezbollah, have raised concerns about potential retaliatory actions, adding to gold’s appeal. Additionally, ongoing concerns over U.S. economic data and debt issues are likely to provide further support for gold prices. Market Forecast: Bullish Outlook – In the short term, gold is expected to trade higher, driven by the anticipation of rate cuts and ongoing economic uncertainties. If the Federal Reserve signals a dovish shift in its upcoming meetings, gold prices could post new record highs. However, a substantial drop in prices may be necessary to attract fresh investments into the market. Overall, the current environment suggests a bullish outlook for gold as traders position themselves ahead of key economic data releases and Fed decisions. Technical Analysis – XAU/USD is edging higher on Thursday. The intermediate-term support is being provided by the 50-day moving average at $2368.97. The short-term support is a pivot at $2380.54. The critical support is the 50-day MA. If it fails to hold, prices could eventually collapse to $2293.69 to $2277.34. Despite establishing support at $2380.54 to $2368.97, XAU/USD is still facing resistance. One key level to overcome is the pivot a $2418.47. Overtaking this level will open the door to a test of the double-top at $2477.73 and $2483.74.”
On the day gold closed up $31.70 at $2422.20, and silver closed up $0.67 at $27.50.
On Friday the gold bulls must be disappointed after yesterday’s big move to the upside, as the momentum trade evaporated. I don’t even see much upside in the shorter term even through there are more positives than negatives, which suggests higher prices over the longer term. At the same time the difference between “happy” and “sad” for the bulls is a short road so downside possibilities should at least be considered. Our presidential process has stood the test of time and I don’t see any real storm clouds on the horizon. So only expect the usual amount of drama regardless of who wins. The next president will inherit a growing pile of debt. And in my mind neither party appreciates that this “free lunch” approach to politics is risky. While this process has no chance of blowing up it makes sense to plan for a bumpy ride. And this includes gold and silver bullion hidden from the usual banking system. You may never need to raise cash in a hurry but the fact that you could, if necessary, will provide a better night’s sleep.
Ernest Hoffman (Kitco) – Gold prices outperform in July, but Jackson Hole, market volatility and election noise create August risks – World Gold Council – “While seasonal factors generally provide a tailwind for gold prices in August, the precious metal faces powerful crosswinds from Jackson Hole, the U.S. election, and ongoing equity volatility, according to the latest monthly report from the World Gold Council (WGC). “Following a small drop in June, gold posted a strong monthly gain in July to finish 4% higher at US$2,426/oz. Another all-time high was reached mid-month before a modest decline into month end. A strong Japanese yen rally, likely fueled by a carry trade unwind, ensured it was the only major currency in which gold did not gain during the month.” “According to our Gold Return Attribution Model (GRAM), gold was propelled higher by lower 10-year Treasury yields and, to a lesser extent, a weaker US dollar,” they said. “The main negative contribution came from COMEX futures, where an increase in open interest was larger than the increase in net longs, leading to a decrease in the ratio – one of our model inputs.” The WGC noted that the beginning of August saw the third-highest spike in the volatility index (VIX) on record as multiple factors – including a Bank of Japan rate hike, de-leveraging across financial markets, and the weak U.S. nonfarm payrolls report – drove risk assets sharply lower. “Some of the ground has since been made up, but a return to pre-selloff exposure might take time,” they said. “Market positioning is turning increasingly dovish following recent weak US data prints,” they said. “However, the one-sided bet on cuts leaves some room for disappointment, given a still healthy economy and the Fed’s historical reticence ahead of elections. This could translate to a downside risk for gold should the Fed language not deliver as the market expects.” August is typically kind to gold prices, but the WGC noted a number of significant risk factors that could disrupt gold’s potential gains. The first of these is the Federal Reserve’s policy tilt coming out of their annual summer symposium. “Jackson Hole hosts the 47th annual symposium (August 22-24) and comes just weeks before the first expected cut(s) by the Fed (September 18),” the WGC said. “Language will be key as will data leading up to the event. The 31 July FOMC meeting appeared to embolden that a cutting cycle will start in September. Confidence can also be derived from the fact that the Fed very rarely likes to surprise, outside of an exogenous shock.” But they noted that upcoming data could still steer the Fed in a different direction. “The last few weeks have seen a seesawing of data – alongside huge volatility in equities – with good retail sales, strong GDP and PCE inflation data, as well as PMIs (from S&P) firmly in expansion territory,” they wrote. “But this was followed by much weaker data from the ISM as well as softer non-farm payrolls, leaving a measure of uncertainty on the table.” “For gold, the symposium has – on average over the last decade – been followed by initial strength then a weakening a few weeks later as bond yields have tended to trend higher.” They noted, however, that these trends could also reflect an unwind from the previous month’s price action. “Since the Fed pivot in late December 2023, the Street and broader media have continued to clamor for rate cuts, likely reflecting on one hand a desire to keep the risk-asset party going, and on the other, concerns that the Fed is once again falling behind the curve,” they noted. “Current pricing leaves little room for disappointment. Following the weak August data prints, two cuts are now priced with almost 100% certainty, according to the CME. Speculative positioning in 2-year and 10-year Treasury futures are at multi-year highs. Equities have delivered a stellar expansion in valuations so far this year and we don’t know whether the current pullback will be material. Gold net long positioning is not extreme, but it’s reasonably high.” “It appears that the Fed has historically been reticent in delivering on expectations ahead of elections, perhaps in an attempt to ward off accusations of political interference,” the WGC said. “A small measure of caution is therefore warranted. If speeches at Jackson Hole hint that expectations are too dovish; equities, bonds and gold are at risk of a downward lurch.” The second factor U.S. politics, also has the potential to cause significant crosswinds to precious metals prices this month. “Since President Biden stepped aside for Kamala Harris to carry the torch as the Democratic candidate, polls have dramatically tightened and some forecasts now favor a Democrat victory,” they said, noting the upcoming Democratic National Congress on August 19. “The distinction between policies is not as clear as it has been historically,” the WGC said. “The fiscal largesse of which Democrats are normally accused is likely to be similar under a Trump administration. To boot, under Trump, materially higher tariffs, preference for a weaker US dollar and anti-immigration are some of the policies that present upside risks to inflation and downside risks to growth.” “Our view is that gold is likely to benefit from uncertainty more than any political proclivity, and the running mate (VP) confirmation for Harris, is likely to further stir the pot,” they said. “Post the election, the level of national debt and deficit will probably continue to concern investors and keep interest in gold high.” The third risk factor for gold prices this month comes from stocks, and the tech sector in particular, which has come under considerable pressure recently. “Q2 earnings for Nvidia, the AI darling and top performer of US equity markets, will be released at the end of August and will cap some poor results from other sector leaders alongside the recent sell off in other indices,” the WGC noted. “For the first time in a while, the market appears nervous. Despite an expectations-beating Q1, two events have dampened the euphoria: a large sale of stock by the CEO Jen-Hsun Huang in June and July, and poorly received guidance from Tesla, Google, Amazon and Intel. NVDAs share price has dropped 28% since peaking in June, while the Nasdaq composite is 12% off its July highs (as of 5 August).” “Our take is that these events will keep uncertainty high rather than providing any definitive resolution,” the WGC concluded. “The start of Fed rate cuts is largely premised on normalizing economic data. While the employment report and ISM data surprised to the downside, other data has come in quite hot. Suffice to say, the type of economic landing we can expect remains unclear, as such markets pricing two cuts with almost 100% certainty has its risks; for risk assets but also bonds and gold.” “For gold, elevated uncertainty and event risk is likely to keep interest from investors high,” they added. “So far, it has done a good job in protecting portfolios.” “Nvidia’s earnings call could be make or break for stocks,” they warned. The WGC analysts pointed out that while September is usually a weak period for U.S. equities, August tends to be flat with lower volumes as traders go on holiday. “So far this year, August appears to be front-running September weakness.” “Gold’s typically strong negative correlation during equity sell offs should sustain investor interest and their capacity to respond will likely remain, given that positioning isn’t stretched. So far it has done its job.”
On the day gold closed up $9.90 at $2432.10, and silver closed down $0.01 at $27.49.
Platinum closed down $6.70 at $927.60, and palladium closed down $12.40 at $893.50.
Jim Wycoff (Kitco) – “Technically, December gold bulls have the firm overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at the contract high of $2,537.70. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,350.00. First resistance is seen at $2,475.00 and then at $2,500.00. First support is seen at $2,450.00 and then at $2,500.00. September silver futures bears have the overall near-term technical advantage. Prices are in a 2.5-month-old downtrend on the daily bar chart. Silver bulls’ next upside objective is closing prices above solid technical resistance at last week’s high of $39.355. The next downside price objective for the bears is closing prices below solid support at $26.00. First resistance is seen at $28.00 and then at $28.50. Next support is seen at $27.00 and then at this week’s low of $26.50.”
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