Gold – Rate Expectations Hold Sway
Commentary for Friday, Feb 16, 2024 (www.golddealer.com) – Today gold closed up $9.40 at $2011.50, and silver closed up $0.53 at $23.46. The story of interest rates driving gold prices, either up or down, is an old story, but traders should be used to this dynamic considering the length of this economic transition. And if you look at interest rates over the past year the rise has been gradual, no surprises. This is yet another reason traders should not be confused over the latest gossip. Yet this week, even the expectation of future changes created a nervous trade, despite the fact that gold prices were slightly boring. The reason for the dip in gold this week was poor US retail sales in January. Today it again slipped below $2000.00 before reversing direction and finishing the day mildly in the green. So, is everyone making a mountain out of a molehill when it comes to market data? Of course, and this is especially true in the physical market. Last Friday gold closed at $2023.30 / silver at $22.53 – on the week gold was down $11.80 and silver was higher by $0.93.
A reminder that we will be closed this Monday, February 19th President’s Day. Banks, the Post Office, Wall Street and the commodity markets are also closed.
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Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on a new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for understanding.
On Monday the price of gold was weaker, and the price of silver drifted mildly higher. The technical guys still give gold the green light but expect lower prices for silver. Gold opened at $2026.00, wobbled, recovered, and then moved to session lows $2010.00. It closed just mildly in the red for the day. This type of pricing pattern has been typical as gold waits for fresh news which is strong enough to move the needle one way or the other. The price of our shiny friend seems capped to the upside by a strong dollar, the Dollar Index comfortable above 104.00. It is worth noting that some professionals are not expecting an interest rate cut anytime soon as US inflation remains stubbornly high. Today’s higher gold pricing may be the result of that expected rate cut. If the Fed dilly dallies or remains hawkish gold will dip below $2000.00.
Reuters (Anushree Ashish Mukherjee) – Gold drops as traders eye US CPI data for Fed cues – “Gold prices slipped on Monday as the dollar edged up as investors looked toward U.S. inflation data that could offer insight into the Federal Reserve’s interest rate cut plans. Spot gold was down 0.5% to $2,014.70 per ounce at 9:28 a.m. ET (1428 GMT). U.S. gold futures also fell 0.5% to $2,028.60 per ounce. The dollar index was up 0.1%, making greenback-priced bullion more expensive for overseas buyers. Jim Wyckoff, senior analyst at Kitco Metal, said interest rate cuts will probably be pushed to the second half of the year as U.S. economic data has been too strong lately to see a rate cut by May. He added there is limited buying interest in gold due to the recent rally in the stock market. “We are expecting some cooling inflation and if we don’t get it, it will put some pressure on prices,” he said. The Reuters poll for U.S. January CPI projects a 0.2% monthly rise while core CPI is expected up 0.3%. The U.S. CPI data is due on Tuesday, followed by U.S. retail sales data on Thursday and producer price index (PPI) data on Friday, while markets also await comments from at least seven Fed officials this week. Last week, several Fed policymakers, including Chair Jerome Powell said they would wait to cut rates until they were more confident that inflation would fall to 2%.” Traders see about a 62% chance of a rate cut in May, according to the CME Fedwatch tool. Pending Fed rate cuts, strong physical demand and official sector buying are projected to lift prices to an average of $2,200/ounce next quarter, said Bart Melek, head of commodity strategies at TD Securities in a note. Spot platinum gained 0.9% to $879.13 per ounce, while palladium climbed 3.3% to $887.07, and silver was down 0.2% to $22.55 per ounce.”
On the day gold closed down $5.10 at $2018.20, and silver closed up $0.18 at $22.71.
On Tuesday the price of gold dipped dramatically, falling to $1990.00 as inflation data for January came in hotter than expected. This is obviously a disappointment to the bullish gold scenario because it was the cause which pushed gold below $2000.00 support.
For gold to steady itself above $2000.00 the bulls were relying on a continued cooling trend in inflation. This would allow the Fed to lower interest rates, which would be a tonic to the existing gold market. The bulls now face higher interest rates and a deteriorating technical picture. It is too soon to read more into these tea leaves than is necessary. In the past such drops have been buying opportunities and even with this fresh news gold is not exactly falling out of bed.
Reuter (Anushree Ashish Mukherjee) – Gold slides below $2,000/oz for first time in two months after US inflation data – “Gold prices fell below the key $2,000 per ounce level to a two-month low on Tuesday, as a stronger-than-expected U.S. inflation report tempered prospects of an early interest rate cut from the Federal Reserve. Spot gold was down 1.4% at $1,990.79 an ounce by 10:10 a.m. ET (1510 GMT), its lowest since Dec. 13. U.S. gold futures also fell 1.4% to $2,003.60. Data showed U.S. consumer prices increased more than expected in January amid an increase in the costs of shelter and healthcare. “That was not the report that the market wanted to see,” said Tai Wong, a New York-based independent metals analyst. “Fed doves are looking for shelter today as surprisingly stubborn inflation has dropped the chances of a May rate under 50% for the moment,” Wong added. Fed policymakers will probably wait until June before cutting interest rates, traders bet after the U.S. CPI data. Higher interest rates increase the opportunity cost of holding bullion. Following the inflation data, the dollar jumped 0.7% to a three-month high against its rivals, making gold more expensive for holders of other currencies. The U.S. 10-year Treasury yield also rose. The CPI print triggered “large-scale Commodity Trade Advisor (CTA) liquidations in gold markets, but prices would need to revisit the $1,950 per ounce range to spark the next algorithmic selling program,” TD Securities wrote in a note. Investors will now focus on retail sales data on Thursday and producer price index (PPI) on Friday. The market will also listen to comments from a slew of Fed officials this week. Several U.S. Fed officials, including Chairman Jerome Powell, said last week they want to see more evidence inflation will continue to decline before cutting rates. Elsewhere, spot platinum was down 1.9% at $871.55 an ounce, palladium fell 4.2% to $854.40 and silver lost 2.9% at $22.02.”
On the day gold closed down $25.30 at $1992.90, and silver closed down $0.61 at $22.10.
On Wednesday gold traded between $1992.00 and $1986.00 but managed to finish the day almost unchanged, which is a plus. Still, the bad news is out, and this market favors lower gold numbers. Consider this process constructive because traders will get a chance to study support levels while using fresh information to assess damage control. Technically the experts expect to see support for gold in the $1980.00 range. I do not see much interest in these new lower levels across our trading desk, so my bet is that the public is waiting for a better deal.
Given the state of the world and the unending climb in world debt I would not expect a large price discount from current levels. We could again be above $2000.00 by the summer months. But the prime moving force for now is to expect more inflation not less, and therefore higher interest rates, which generally tends to tap down prices even for popular bullion products.
Reuters (Anushree Ashish Mukherjee) – Cooling Fed rate-cut bets pin gold below $2,000 level; palladium jumps – “Gold prices extended their dip and traded below the key $2,000-per-ounce level on Wednesday, a day after hotter-than-expected U.S. inflation data prompted investors to lower bets for early Federal Reserve interest rate cuts, while palladium jumped 7%. “Gold is trading lower on the heat of the CPI data. It’s going to be hard for gold to rally because part of its rally north of $2,000 was on the expectation of Fed rate cuts coming sooner,” said Bob Haberkorn, senior market strategist at RJO Futures. The catalyst for gold to trend even lower would be more confirmation that the Fed might not be able to cut rates soon, he added. Data on Tuesday showed U.S. consumer prices rose more than expected in January, at a 3.1% annual rise, above economists’ forecast in a Reuters poll for a 2.9% increase. Traders now see three 25-basis-point rate cuts in 2024, down from four, in line with the Fed’s “dot plot” released in December. The U.S. central bank may wait until June before cutting rates. Higher interest rates increase the opportunity cost of holding bullion. Investors will now focus on U.S. retail sales and producer price index data due to be released on Thursday and Friday, respectively. At least five Fed officials are due to speak this week. Spot palladium jumped 6.8% to $922.56 and platinum rose 2.1% to $889.68. Earlier this month, palladium prices had fallen below those of sister metal platinum for the first time since April 2018. “Physical consumers are likely buying palladium on dips as prices have been trending lower for the last several months,” said Daniel Ghali, commodity strategist at TD Securities. Silver gained 0.2% to $22.13.”
On the day gold closed down $2.60 at $1990.30, and silver closed up $0.23 at $22.33.
On Thursday the bulls were smiling as the price of gold moved from $1994.00 through session highs of $2006.00, worked its way through a profit taking round and then bounced higher, finishing the day mildly in the green. This trading pattern suggests that gold’s most recent selloff was bought by the futures trade – a plus. Regaining the $2000.00 foothold does not mean the end of troubles for the gold market but it does suggest that pricing is stabilizing in the shorter term.
Reuters (Sherin Elizabeth Varghese) – Gold near two-month low, investors eye US data for rate cut cues – “Gold prices languished near a two-month through on Thursday as traders lowered expectations of sooner and deeper rate cuts by the Federal Reserve this year, while markets await a slew of U.S. economic data for further clarity. The dollar index slipped 0.1%, making bullion cheaper for other currency holders. “The (U.S.) inflation data this week was the story that broke the camel’s back and tipped gold prices below the $2,000 range,” said Craig Erlam, senior markets analyst at OANDA. Data on Tuesday showed an unexpected spike in U.S. consumer prices, which caused bullion to fall 1.4% on Tuesday. Fed policymakers will probably wait until June before cutting rates, traders bet after the CPI data. Higher interest rates increase the opportunity cost of holding bullion. Fed Vice Chair for Supervision Michael Barr on Wednesday said the path back to 2% inflation “may be a bumpy one”. Meanwhile, Chicago Fed President Austan Goolsbee cautioned against delaying rate cuts for too long. All the negative factors are already priced in, so not expecting further sharp downward move for gold, said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai. The focus is now on U.S. retail sales and initial jobless claims data, due at 1330 GMT, and the producer price index numbers, due on Friday. At least three more Fed officials are scheduled to speak later this week. If retail sales data shows signs that the U.S. economy is cooling, then that could be ultimately beneficial for gold, OANDA’s Erlam said. Palladium gained 2.4% to $956.81 an ounce. It surged over 8% on Wednesday on short-covering, reclaiming its premium over platinum. Spot platinum climbed 1% to $897.95 and silver rose 1.2% to $22.64.”
On the day gold closed up $11.80 at $2002.10, and silver closed up $0.58 at $22.91.
On Friday it would be an understatement to say that the price of gold has been erratic these past 5 trading days. On Feb 13th it moved from $2030.00 through $1995.00 in short order, surprising even insiders. It held around lows of $1990.00 for several days. As analysts tried to sort out what happened. Why did traders turn jittery over short term data, which next week will be outdated? Before the week was over the price of gold was again above $2000.00, so the best conclusion that can be made going into the weekend is that support at $1990.00 was tested and proved to be stronger than expected. I was curious enough to check our sales log and found that the public turned out to be a strong buyer on this most current dip – a plus for the physical market. Remember next week is a short trading week, commodity markets are open 4 days.
FXEmpire (Christopher Lewis) – Gold Price Forecast – Gold Continues to Bounce From Major Low – “Gold has shown itself to be somewhat resilient during the last couple of days as we have bounced from the $1,980 level. This is an area that of course will attract a lot of attention as it had been support previously. And you’ll notice on the chart that I have colored it darker as I think it’s an area that extends up to the $2,000 level for support as a range, not necessarily something that is like a brick wall. So, in other words, traders will have to pay close attention to how prices behave in that area and so far, it has shown its proclivity to bounce. It’s also worth noting that the 200-day EMA is sitting near the $1,980 level. So therefore, it adds even more credence to this area being important. At this point it looks like gold is going to try to get to the 50 day EMA above, which sits right around the $2,020 level. If we can break above there, then I think we’ve got a real shot at going higher. That doesn’t mean that it’ll be easy, and it doesn’t mean that it has to happen, but I do think it’s something that the market participants are currently eyeballing, so at this point, you have to look at it through that prism. Given enough time, if we can break above there, then we could go to the $2,060 level, possibly even the $2,075 level. If we were to turn around and break down below the 200-day EMA, then it could send the market down to the $1,940 level. In general, this is a market that I think continues to be very noisy, but it’s also a market that has well-defined support that a lot of traders are starting to lean into. Another thing to keep in mind is that there are plenty of geopolitical concerns out there that could drive gold higher as well, and of course if central banks around the world are going to cut rates, it makes a lot of sense that gold should do well.”
On the day gold closed up $9.40 at $2011.50, and silver closed up $0.53 at $23.44.
Platinum closed up $8.50 at $907.60, and palladium closed unchanged at $948.70.
Jim Wycoff (Kitco) – “Technically, the gold futures bears have the slight overall near-term technical advantage. Prices are in a 2.5-month-old downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at the February high of $2,083.20. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,950.00. First resistance is seen at $2,023.30 and then at $2,035.00. First support is seen at $2,000.00 and then at this week’s low of $1,996.40. The silver bears have the firm overall near-term technical advantage. Prices are in a nine-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing March futures prices above technical resistance at $23.445. The next downside price objective for the bears is closing prices below support at the October low of $21.17. First resistance is seen at this week’s high of $23.15 and then at $23.445. Next support is seen at $22.50 and then at $22.00.”
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