Gold – Interest Rates and Metals
Commentary for Friday, September 22, 2023 (www.golddealer.com) – Today gold closed up $6.20 at $1925.40, and silver closed up $0.16 at $23.60. Week over week the price of gold and silver has yawned over the most reliable data points. But there is an overall theme that has developed, which has traders’ attention. Interest rates will remain higher for longer and so will both gold and silver bullion. This market requires a great deal of patience, which has also been a consistent recent theme. Higher for longer works for the Fed because it gives it more time to create that soft landing. At the same time, the longer gold and silver stay around current levels the less ultimate downside for both in my opinion. Investors still have the dice, and they are still at the table – an overall plus for the metals. Last Friday gold closed at $1923.70 / silver at $23.13 – on the week gold was up $1.70 and silver was up $0.47.
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On Monday the price of gold opened choppy but managed to settle on daily highs ($1932.00) with a positive aftermarket, which suggests tomorrow’s meeting may turn dovish. The Federal Reserve Open Market Committee will meet Tuesday and Wednesday. Chief Powell will talk on Wednesday, but it is difficult to say what the FOMC has in mind. The way he presents his thoughts may produce lighting but that is not his typical style. My bet is that Jerome will keep the lid on things, buying time to see if there are tangible signs that inflation is moving lower.
If you want something outside the box, consider the price of crude oil. In the past few months, it has moved from $70.00 to $90.00 a barrel. There are analysts who see this trend continuing as the world competes for resources. An active trend which will even challenge dollar hegemony.
I’m not keen on any of these radical ideas at present. But this kind of thinking presents Black Swan possibilities (real or imagined) which would greatly enhance the bullish gold scenario.
Reuters (Brijesh Patel) – Gold steadies as investors brace for key cenbank verdicts – “Gold was little changed on Monday as investors stayed on the sidelines, positioning for a series of key central bank policy meetings this week, with the U.S. Federal Reserve widely expected to hit pause on interest rate hikes. “The market is becoming very focused on central bank requisitions… the expectations are that they (Fed) will push the higher for longer narrative and that should keep investors concerned,” said Edward Moya, senior market analyst at OANDA. The Fed’s policy decision is due on Wednesday, with traders pricing in a 99% chance of the central bank keeping interest rates steady in the 5.25% to 5.5% range, according to CME’s FedWatch Tool. The Bank of England is seen raising rates by 25 basis points to 5.5% on Thursday. The Bank of Japan’s meeting is on Friday, with investors seeking more cues on outlook from Governor Kazuo Ueda after recent comments on ending negative rates. Non-yielding gold tends to fall out of favor among investors when interest rates rise. Keeping gold gains in check, the U.S. dollar hovered near a six-month high against its rivals, while benchmark 10-year U.S. Treasury yields stay elevated near a multi-year peak. Chinese gold prices hit record highs last week, extending a months-long rally as consumers snap up the safe-haven asset to offset a depreciating yuan. Physical gold premiums also soared to new highs. “While the developments in China are worth watching, we currently do not believe that this will change the outlook for the gold market,” said Julius Baer analyst Carsten Menke.”
On the day gold closed up $7.80 at $1931.50, and silver closed up $0.10 at $23.23.
On Tuesday the price of gold was a carbon copy of yesterday’s pricing action. Gold dipped on the open ($1930.00) and quickly firmed ($1936.00) but again settled almost unchanged on the day. This market is so super focused on this next Fed decision that pricing will likely remain boxed in if Powell tries to make everyone happy. Still, higher interest rates are coming, and will probably be in place before Christmas. The question at that point is whether physical demand can compete with higher real interest rates.
The jury is out on that question. The optimistic view is that this later hike may not happen or will be a small quarter point. That would be a plus for gold. Perhaps a big plus considering that gold prices today are still holding up rather well, all things considered.
FXStreet.com – (Bullish Gold Factors) + Gold miners’ pain may be bullion investors’ gain. + Silver supply inadequate amid monstrous industrial and investment demand. + Interest rate cuts to boost gold. + Summer sweet spot for silver. + Gold should benefit from negative real yields in Q2. + Anyone say stagflation? Gold has more to go. + US recession risks to keep gold well in demand. + One of the warning signs of a collapsing currency would be a spike in gold prices. + Fed policy should support the gold price. + US banking system faces worsening crisis in confidence. + Sudden reemergence of a dovish Fed could be extremely bullish for hard assets. + Silver used in solar panels, will be in high demand going forward. + Demand for physical bullion from people concerned about emergency preparedness and barter to keep growing. (Bearish Gold Factors) – It is becoming increasingly difficult for Gold to compete on yield. – March is seasonally weak for gold. – nickel surplus to build – Macro headwinds to keep pressure on copper prices – S&P 500’s suffering should weigh heavily on the gold price. – Aluminum faces macroeconomic headwinds. – Recession in Europe and persisting problems in China’s property sector to heavily impact iron ore demand. – While inflation refuses to go away, gold refuses to go up. – FOMC Minutes don’t offer any hope for gold. – Every news is bad news for gold. – Strong dollar weighs on gold. – Demand for gold as insurance against inflation promises to decline. – Expectations of higher yields to weigh on gold.
FXStreet.com – Gold/Silver Ratio – This ratio normally goes well during risk aversion, while it falls off during times of risk-on. If this ratio is about to turn, or at key levels where it could turn, the trader looks to the Equity indices if the risk has indeed been on and if it is about to turn as well. When the ratio is rising, it means gold is outperforming silver, and when the line is falling, the first term is doing worse, i.e., silver is doing better. In other words, when the ratio is high, the general consensus is that silver is favored. Conversely, a low ratio tends to favor gold and may be a signal it’s a good time to buy the yellow metal. Despite the gold-to-silver ratio fluctuating so wildly, another way of using it is to switch holdings between silver and gold when the ratio swings to historically determined “extremes.”
On the day gold closed up $0.50 at $1932.00, and silver closed down $0.04 at $23.19.
On Wednesday gold opened choppy with a positive upward bias, moving to daily highs ($1947.00). Today’s dollar weakness led to higher prices and created a small amount of needed buzz within bullish scenario. Chief Powell’s speech today may be the beginning of a long process which will create higher prices in the metals. That is the good news. The bad news is that both gold and silver fell out of bed in the aftermarket suggests that indecision remains in place.
Washington (AP) – “The Federal Reserve left its key interest rate unchanged Wednesday for the second time in its past three meetings, a sign that it’s moderating its fight against inflation as price pressures have eased. But Fed officials also signaled that they expect to raise rates once more this year.” Consumer inflation has dropped from a year-over-year peak of 9.1 percent in June 2022 to 3.7 percent. Yet it’s still well above the Fed’s 2 percent target, and its policymakers made clear Wednesday that they aren’t close to declaring victory over the worst bout of inflation in 40 years. The Fed’s latest decision left its benchmark rate at about 5.4 percent, the result of 11 rate hikes it unleashed beginning in March 2022. The Fed’s hikes have significantly raised the costs of consumer and business loans. In fine-tuning its rate policies, the central bank is trying to guide the U.S. economy toward a tricky “soft landing” of cooling inflation without triggering a deep recession. Besides forecasting another hike by year’s end, Fed officials now envision keeping rates high deep into 2024. They expect to cut interest rates just twice next year, fewer than the four rate cuts they had predicted in June. The Fed’s moves underscore that even while the policymakers approach a peak in their benchmark rate, they intend to keep it at or near its high for a prolonged period. They expect the rate to still be 5.1 percent at the end of 2024 — higher than it was from the 2008-2009 Great Recession until May of this year. The policymakers’ inclination to keep rates high for an extended period suggests that they remain concerned that inflation might not be falling fast enough toward their 2 percent target. The job market and the economy have remained resilient, confounding expectations that the Fed’s series of hikes would cause widespread layoffs and a recession.”
Reuters (Harshit Verma) – Gold gains on dollar dip; traders brace for Powell – “Gold popped higher, hitting an over two-week high, on Wednesday as the dollar and Treasury yields retreated, while traders positioned for U.S. Federal Reserve Chair Jerome Powell’s remarks on whether more interest rate hikes are needed. “The key is going to be what are Powell’s comments after the actual (rate) announcement,” with the markets expecting rates to be kept steady, said Bob Haberkorn, senior market strategist at RJO Futures. “There are concerns about energy getting too high,” and whether the Fed would have to stay aggressive, Haberkorn added. Surging oil prices add to inflationary pressures, in turn raising expectations that the Fed will keep rates higher for longer. While gold is considered a hedge against rising inflation, higher rates boost competing Treasury yields, dulling bullion’s appeal. The Fed’s rate-setting committee will release its decision and updated projections at 1800 GMT, with Powell scheduled to hold a press conference at 1830 GMT. The Fed is widely expected to keep rates on hold for now, but may also factor in new economic projections in its view on future hikes. If it holds rates steady with a more hawkish view delivered by Powell, gold should hold its current range, said Chris Gaffney, president at EverBank World Markets. The dollar and Treasury yields fell before the decision, while markets saw a roughly four in 10 chance of another hike before 2024, according to the CME FedWatch tool. “What is still keeping the gold price supported is solid demand from central banks, which continue to diversify into gold,” said UBS analyst Giovanni Staunovo.”
On the day gold closed up $13.60 at $1945.60, and silver closed up $0.39 at $23.58.
On Thursday the price of gold dipped towards the big $1900.00 support, reflecting yesterday’s terrible aftermarket. While gold struggles back and forth within this current trading range the investor is caught between opposing Federal forces. Potential buzz flies out the window. This dilemma takes the fun out of longer-term accumulation and can even drive our walk-in trade to the sidelines until a reasonable trend is again developed. Reuters – “The U.S. central bank delivered a widely anticipated pause on Wednesday and revised economic projections higher with warnings that the battle against inflation was far from over, prompting a weak session for Wall Street. The benchmark interest rate could be hiked one more time in 2023 to a peak range of 5.50%-5.75%, while monetary policy could stay tighter than was expected through 2024, the Fed’s updated quarterly projections showed. “Our economists were expecting cuts in each of the four quarters of next year, but now they think the first cut will be delayed until sometime in the second quarter,” said Sam Stovall, chief investment strategist at CFRA Research in New York Adding to rate jitters, U.S. jobless claims unexpectedly fell last week, while the Philadelphia Fed’s business conditions index reading showed a worse-than-expected drop in September, fueling recession concerns. “With interest rates like that and with other measures of the economy showing weaker-than-expected readings, the concern is that we are headed for a recession.”
Reuters (Deep Kaushik Vakil) – Gold slides as Fed reinforces higher-for-longer rates outlook – “Gold extended its decline on Thursday, weighed by the surge in the U.S. dollar and U.S. bond yields after the Federal Reserve hardened its hawkish posture on interest rates. The Fed held interest rates steady on Wednesday, but its updated quarterly projections showed that rates may be lifted once more this year and kept tight through 2024. “Gold traders took to heart the Fed’s higher-for-longer messaging… forcing bullion bulls to temper their enthusiasm,” said Exinity chief market analyst Han Tan. The dollar climbed over a six-month peak, while benchmark 10-year Treasuries sat atop an 18-year high, weighing on greenback-priced bullion that bears no interest. But “spot gold has so far only witnessed limited post-FOMC declines, as bullion bulls are apparently clinging on to Fed Chair Powell’s words that a US rate cut ‘will come’ eventually,” Tan added. While markets penciled in a 45% chance of another rate hike this year, they also bet on roughly a 40% chance that the Fed will ease in the first half of 2024, according to the CME FedWatch tool. “The precious metal will probably need to rely on some slowing momentum in Treasury yields in order to post gains of any significance to the upside,” said KCM Trade Chief Market analyst Tim Waterer. On investors’ radar later in the day will be the Bank of England’s policy decision on whether it is halting a run of interest rate hikes that stretches back to December 2021.”
On the day gold closed down $26.40 at $1919.20, and silver closed unchanged at $23.44.
On Friday the price of all the metals ended on a positive note, which is a plus considering we have sat through another week of outright speculation as to what the Fed might have in mind. But the now famous “pause” is again in place, so the Fed did indeed duck. Powell’s comments carry more weight than is warranted, what would you expect him to say?
In some sense the “pause” helped both the bulls and the bears develop the additional patience needed in this unwinding mess. In my view gold is not cheap at these levels but is without question necessary. Silver looks like it has settled nicely, there could be upside here relative to old highs and new developments in the green trade. Platinum and palladium have little downside and big upside potential, but it may take years for these metals to sort out worldwide distribution.
Reuters (Brijesh Patel) – Gold ekes out gains as US dollar, yields ease – “Gold prices edged higher on Friday, helped by a slight pullback in the dollar and bond yields as investors digested a hawkish stance from the Federal Reserve and waited for more comments from policymakers for clues on the rate outlook. The dollar retreated from a six-month peak against a basket of major currencies, making gold less expensive for other currency holders, while benchmark 10-year Treasury yields slipped from 16-year highs. “The main focal point is the idea that Fed will keep rates higher for longer and that has driven the dollar, yields higher and has applied pressure to not just gold, but commodity markets across the board,” said David Meger, director of metals trading at High Ridge Futures. The U.S. central bank held interest rates steady this week, but they could be raised one more time by 25 basis points before the end of year, according to the Fed’s updated quarterly projections. Investors are now looking to comments from Fed policymakers, including Minneapolis President Neel Kashkari and board Governor Lisa Cook, who are set to speak at events on Friday. Non-yielding gold tends to fall out of favour among investors when interest rates rise. “There is going to be a huge amount of emphasis now on the economic data, which is going be a massive driver now for the next six weeks in the run-up to the next (central bank) meetings,” said Craig Erlam, senior markets analyst at OANDA. U.S. business activity showed little change in September, with the vast services sector essentially idling at the slowest pace since February, a survey published on Friday showed.”
Jim Wycoff (Kitco) – “Technically, the gold futures bears have the firm overall near-term technical advantage. Prices are in a four-month-old downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at the September high of $1,980.20. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the August low of $1,913.60. First resistance is seen at Thursday’s high of $1,952.20 and then at this week’s high of $1,968.90. First support is seen at the overnight low of $1,939.60 and then at this week’s low of $1,933.10. The silver bears have the overall near-term technical advantage. However, there are stiff technical support layers just below the market that may well halt the decline. Silver bulls’ next upside price objective is closing December futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at $24.25 and then at $24.50. Next support is seen at the overnight low of $23.665 and then at $23.32.”
On the day gold closed up $6.20 at $1925.40, and silver closed up $0.16 at $23.60.
Platinum closed up $9.50 at $934.10, and palladium closed down $14.80 at $1245.20.
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