Gold – Steady Eddie – For Now
Commentary for Friday, July 21, 2023 (www.golddealer.com) – Today gold closed down $4.00 at $1964.30, and silver closed down $0.11 at $24.70. Can’t say gold was impressive this week because it failed to deliver on what looked like a promising break to the upside. Still the trade was steady, even consistent considering all the chatter, and the developing notion that it was “reasonable” for the Fed to not raise interest rates next week. In my book, wishful thinking has crept back into the bullish dialogue. The Fed will raise interest rates sooner or later, the real question then is whether higher interest rates and higher gold prices can be happily married. The fact that gold pricing is still north of $1900.00 is a plus for the bulls. And all things considered our shiny friend is holding up rather well, in what continues to look like a sleepy summer trade. Last Friday gold closed at $1960.10 / silver at $25.01 – on the week gold was up $4.20 and silver was off $0.31.
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On Monday the price of gold moved between $1945.00 and $1960.00 in early trading with a mild downward bias as analysts eyed the latest Chinese economic data with a frown. The Dollar Index has been flat since Friday and looks to have settled (100.00). The 2-point selloff since last Tuesday has supported the current trading range but has failed to create much bullish buzz.
This mild dip in prices feels like profit-taking to me and if you consider gold’s 30-day pricing chart this makes sense. A month ago, gold peaked at $1960.00, then traded sharply lower eventually reaching $1910.00 in 2 weeks. The bounce to higher ground took an additional 2 weeks but gold finally worked its way back to $1960.00, and again stalled.
For now, it looks like we are channeling between $1910.00 and $1960.00. Both limits work, but neither is strong enough to dominate. Until the FOMC is more definite about their interest rate intentions this market may drift within these limits. According to the experts, gold’s technical picture is now a push between the bulls and bears. The technical outlook for silver on the other hand favors the bulls, but I expect further volatility in both markets.
Reuters (Ashitha Shivaprasad) – Gold struggles for traction on doubts about Fed pause – “Gold eased on Monday as the dollar ticked up, with bullion traders still doubtful about whether the Federal Reserve may soon signal an end to its monetary tightening path. The dollar ticked up from a more than one-year low, making gold more expensive for other currency holders. Benchmark Treasury yields also edged higher. “(Gold) investors at this point are quite reluctant to go fully bullish despite last week’s inflation data,” said Bart Melek, head of commodity strategies at TD Securities. Bullion posted its biggest weekly gain since April last week on bets that the Fed could pause rate hikes after July after U.S. data hinted at a disinflationary trend as consumer prices grew at their slowest pace in over two years. Traders largely expect the central bank to hike rates in its July 25-26 meeting. “Gold is likely to be under pressure as the U.S. economy continues to be quite firm, particularly on the employment front. In my view it is very unlikely that the Fed is going commit to a tilt towards a more dovish policy stance,” Melek added. Higher interest rates dull gold’s allure as they increase the opportunity cost of holding the non-yielding asset. Investors also took stock of data from China that showed the top bullion consumer’s economy grew at a frail pace in the second quarter. “While sentiment may be good towards silver investment, industrial applications retain the majority of market share,” Heraeus analysts wrote in a note. “An improvement in activity in China and Europe may be needed to see the (silver) price rise much further in second half of 2023.”
On the day gold closed down $7.70 at $1952.40, and silver closed down $0.17 at $24.84.
On Tuesday the strength in the price of gold surprised even veteran traders. The Dollar Index was mildly weaker but not enough to create another round of positive buzz. My theory yesterday of gold being range bound and subject to profit taking is becoming a busted flush.
The technical picture has shifted from a push between the bulls and bears, to favoring the bulls. The shift in the technical picture has refueled the momentum players to the upside, but there is an underlying force here that is difficult to define. But powerful enough to get everyone’s attention.
Consider that the price of gold has quickly moved from struggling around $1900.00 to challenging $2000.00. Creating trader whiplash and sending the “short paper” to the woodshed.
A few analysts have been theorizing about how higher gold and rising interest rates may not be mutually exclusive. The thinking being that, considering the huge number of dollars still sloshing around the world, the price of gold is cheap in a relative kind of way.
This reasoning has been a core belief in the physical market but how the price of gold can compete with a 5% interest rate requires a leap of faith. Perhaps we will need Sherlock Holmes to figure out what is creating this excitement. At the beginning of “The Adventure of the Abbey Grange,” he awakens Watson by saying, “Come, Watson, come. The game is afoot. Not a word!
But let’s not get carried away with this pop to the upside, without seeing a shift in Fed policy or something similarly important. Recent overhead resistance for gold is more than challenging between $1950.00 and $2050.00. Short term upside gains should be approached with caution.
Reuters (Ashitha Shivaprasad) – Gold scales more than one-month high on softer dollar, lower yields – “Gold scaled more than a one-month high on Tuesday, bolstered by a softer dollar and lower Treasury yields, while investors focused on the outlook for the Federal Reserve’s monetary policy path beyond its July 25-26 meeting. The dollar index wobbled near more than a one-year low, making bullion more affordable to buyers holding other currencies. Benchmark Treasury yields ticked lower for the second straight day.”
On the day gold closed up $24.80 at $1977.20, and silver closed up $0.24 at $25.08.
On Wednesday the gold bulls were disappointed that the momentum fizzled after all the hoopla on Tuesday. And I will leave it up to the reader to decide if Tuesday’s nice jump to the upside was technically driven or simply a short-covering rally in disguise.
This trading pattern is very familiar and highlights opposing bullish and bearish forces, still looking for solutions. The two most important short-term factors in my mind being the interest rate variable and gold’s stubborn overhead resistance.
Gold dipped mildly in early trading, but the bulls managed to claw their way back to unchanged on the close. And this resilience continues to be a plus for the gold enthusiast.
Still, you can see that overhead resistance and underlying support are being tested. The range on both sides of $1975.00 is small but this price still places us in no man’s land – so uncertainty rules. The public remains sidelined to some degree so from a practical standpoint this stalling of prices as traders test overhead resistance is slowing physical action across our trading desk.
Reuters (Ashitha Shivaprasad) – Gold stalls near 8-week highs on Fed pause hopes – “Gold prices hovered on Wednesday near an eight-week peak hit in the previous session after recent economic data re-ignited hopes that the U.S. Federal Reserve may soon hit pause on its interest rate hiking cycle. On Tuesday, gold hit its highest since May 24 at $1,984.19 before settling about 1.2% higher after U.S. retail sales rose less than expected in June. “The market is very confident that rate hikes will end soon and disinflation is in place. After the Fed meet, if the market is convinced the Fed will no longer maintain the extremely hawkish stance, gold prices could reach $2,000,” said Edward Moya, senior market analyst at OANDA. A Reuters poll predicted the Fed will raise its benchmark overnight interest rate by 25 basis points on July 26, with most economists expecting that will be the last increase of the current tightening cycle. Higher rates make interest bearing investments more attractive than zero-yield bullion. Investors will also keep a tab on weekly jobless claims data due on Thursday. But “with the Fed set to hike next week, and a level of uncertainty and data dependence thereafter, speculators have been unwilling to fully buy-in to the bullish gold narrative,” TD Securities wrote in a note. “Until there’s more confidence in China’s recovery and an improved demand outlook, the industrial metals market might struggle in the near-term,” Moya added. Data showed China’s fiscal revenue grew at a slower annual pace in the first six months, signaling broadening economic pressures that have fanned expectations of fresh stimulus.”
On the day gold closed up $0.30 at $1977.50, and silver closed up $0.14 at $25.22.
On Thursday gold sold off from recent highs, touching $1966.00 before seeing a round of mild bargain hunting. The dip was likely the result of a bounce in the dollar’s strength. The Dollar Index, steady around 100.00, moved to 100.76 – a mild upturn but enough to draw attention.
And perhaps encourage a round of profit taking considering gold made 8-week highs yesterday. The next FOMC meeting is less than a week away (July 25th and 26th) and expectations are a mixed bag, at best. Some believe the Fed will “wait” to assess the current situation to see if higher interest rates are warranted. Some believe they will “settle” for a small increase just to keep still rising inflation at bay, with the hope that the general inflation trend is heading lower in the United States. What makes this a difficult decision for everyone is that foreign banks remain interest rate aggressive, taking current rates of inflation seriously.
Reuters (Brijesh Patel) – Gold eases off 2-month peak as US dollar, yields edge up – “Gold eased from a two-month high on Thursday as the dollar and bond yields ticked higher, although hopes for a pause in rate hikes by the U.S. Federal Reserve after July meeting limited the decline. “The yields and dollar have actually bounced a little, so we’re seeing a slight reverse effect in gold. Also this $2,000 area is going to be a bit of a challenge for the gold market in the short-term,” said David Meger, director of metals trading at High Ridge Futures. The dollar gained 0.2% against its rivals after the U.S. jobless claims data, making gold more expensive for other currency holders. Benchmark 10-year U.S. Treasury yields rose to 3.828%. Data showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, touching the lowest level in two months amid ongoing labor market tightness. Investors focus now shifts to the U.S. central bank policy meeting next week, with markets pricing in a 25 basis-point rate hike from the Fed. Most economists polled by Reuters expect that a hike at July meeting would be the last increase of the current tightening cycle from the Fed. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. “The recent reversal in gold prices is very much driven by the expectation that the Fed is almost done in terms of interest rate hikes,” said Julius Baer analyst Carsten Menke. “That said, we believe interest rates are set to stay high and a rapid reversal of monetary policy is not imminent due to the resilience of the U.S. economy.”
On the day gold closed down $9.20 at $1968.30, and silver closed down $0.41 at $24.81.
On Friday gold trended lower, moving between $1967.00 and $1958.00 without fanfare or drama, in a week which could have been interesting but failed to deliver. Gold stumbled most likely because of the nice rebound in the dollar.
Since Monday the Dollar Index moved up a full point, which suggests traders believe the Fed will raise interest rates next week. Higher interest rates are in transition so the smart money will bet that the coming hike is already priced into this trade. Which should encourage the bulls and may be the fundamental reason gold has been steady this week.
Patience should prove rewarding. The physical trade in metals really has a life of its own. We are not seeing much in the way of large sellers of gold bullion even at these higher levels. Which is surprising. You might also think the public is not going to stand in line to invest in silver bullion above $24.00 an ounce. But surprisingly the public remains a net buyer in both areas. It might be that they will continue to ignore interest rates and the traditionally slower summer months.
Reuters (Brijesh Patel) – Gold slips as dollar firms, focus on US Fed meet next week – “Gold fell on Friday, moving further away from a two-month peak hit in the last session, due to a stronger dollar and as investors remained cautious ahead of the Federal Reserve policy meeting next week. The dollar index rose 0.2% to a more than one-week high after a positive weekly U.S. jobless claims data, making gold more expensive for other currency holders. “Usually, we will see a softer gold market ahead of the interest rate decision and we’re seeing the metals in a softer environment ahead of that – I think rates are going to be somewhat strong for the foreseeable future,” said Daniel Pavilonis, senior market strategist at RJO Futures. “Also, gold is having trouble getting above $2,000 per ounce level and we’re stuck right in the middle of the $1,900-$2,000 range for quite some time here.” The Fed is widely expected to raise rates by 25 basis points on July 26, and hopes that this increase would be its last had driven gold to its highest in about two months on Thursday. Rising U.S. interest rates increase the opportunity cost of holding non-yielding bullion. “If the Fed pours cold water on the notion that its rate hikes are coming to an end, that could prompt bullion to unwind some of its recent gains and falter back into the mid-$1,900s,” Exinity Chief Market Analyst Han Tan said.”
On the day gold closed down $4.00 at $1964.30, and silver closed down $0.11 at $24.70.
Platinum closed up $8.40 at $963.10, and palladium closed up $11.20 at $1281.60.
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