Gold – Stubborn Overhead Resistance
Commentary for Friday, July 14, 2023 (www.golddealer.com) – Today gold closed up $0.90 today at $1960.10, and silver closed up $0.24 at $25.01. It is surprising that the price of gold did not move considerably higher this week considering the Dollar Index tested recent lows. Last Friday the index was steady around 103.00 and today it dipped below 100.00. An impressive drop which supports the notion that traders believe the Fed will be less aggressive with interest rates because the economy is slowing. The bullion buying public is even back to kicking the tires during these quiet summer months. Based on the 60-day pricing chart, gold becomes a crowded trade at $1960.00 and will have to push above $1980.00 before drawing further attention. Since July of 2020 the price of gold has attempted to move above $2000.00 on three separate occasions. And failed in each attempt. Which should be a classic reminder as to why overhead resistance remains challenging. Last Friday gold closed at $1926.20 / silver at $23.09 – on the week gold was higher by $33.90 and silver was higher by $1.92.
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On Monday the price of gold dipped on the New York domestic open, reaching $1912.00 before a short covering rally pushed prices back into the $1922.00 range. The Dollar Index has helped the bulls fend off these bear raids in that since last Thursday it has generally trended lower, moving from 103.50 through 102.16 – a short term plus for the bulls.
But gold’s bearish technical picture and the growing belief that the Fed will continue to raise interest rates has created a heavy trade. The bullish scenario is in need of fresh information.
The slide in palladium prices does not help the tenor of this market. And gold’s testing of $1900.00 support suggests the old story of Fed interest rate intervention has moved to the back burner. The focus this week will be on the US CPI (Consumer Price Index) due out on Wednesday according to Reuters. They also note that last week’s Fed minutes indicated that a vast majority of the policy makers expected further policy tightening.
Reuters note that bullion prices have dropped more than 7% since reaching near-record levels in early May as investors scaled back expectations of an end to the Fed’s rate hiking cycle may be a blessing in disguise. This market may already be oversold, which helps soften this downward trend. It also gives the world time to realize that there is no substitute for physical gold.
On the day gold closed down $1.20 at $1925.00, and silver closed up $0.06 at $23.15.
On Tuesday the price of gold was choppy in the domestic trade between $1936.00 and $1929.00, basically moving opposite the dollar. The $7.00 spread supports the notion that gold traders are waiting for fresh news and the bearish pull, while still a big threat is to some degree offset by outside market forces, such as dollar weakness and foreign safe haven buying.
These factors, at present, do not carry enough weight to signal a clear change in the direction or price of gold. They are transitory but do make up a big part of the trader’s playbook so gather worldwide attention.
The practical truth here is that we are stuck in a slow and perhaps even uneventful summer trade. Waiting for the Washington Deep Thinkers to supply interest rate solutions. Their original plan is still in place and centers around the idea that higher interest rates will eventually slow inflation giving the Fed more options. But there is a mountain of misplaced economic mistakes still in the wind created by years of loose monetary policy. The outcome is still very uncertain, and the price of gold and silver could push in either direction over the next few years.
Reuters (Brijesh Patel and Ashitha Shivaprasad) – Gold gains on softer dollar, yields; US inflation data in focus – “Gold prices edged higher on Tuesday, helped by a pullback in the dollar and bond yields as investors looked forward to U.S. inflation data that could offer more cues on the Federal Reserve’s rate hike path. Making gold cheaper for holders of other currencies, the dollar index (.DXY) was down 0.1% after hitting its lowest level since May 11 earlier in the session. Benchmark 10-year U.S. Treasury yields also slipped. “If we have a soft inflation reading, it will be positive for gold and prices might go up to $1,950. I think it will be tough for gold to break below $1,900 level on a hot report,” said Edward Moya, senior market analyst at OANDA. “There are concerns that central banks might tighten this economy into a much harder recession. Rate hikes are not going to break gold’s back, but it might kill the economy. So there is some support for gold due to this reason.”
On the day gold closed up $6.30 at $1931.30, and silver closed down $0.06 at $23.09.
On Wednesday gold surprised traders again by moving higher as the Dollar Index crashed, losing a full point in two hours of early trading. We have seen this before and it should be a reminder of how uncertain these markets have become. Building bearish sentiment can turn into bullish sentiment quickly these days, with just about any plausible story.
Still, overhead resistance for gold remains a big obstacle yet long-term support builds.
The heavy technical picture is also improving, but I think it is a stretch to look at this short-term trading snapshot and conclude the Fed will again embrace the now famous “pivot”. Today’s jump in silver prices recreated a “short squeeze” dialogue overnight, which is also a stretch.
Reuters (Brijesh Patel) – Gold climbs over 1% as cooling U.S. inflation boosts Fed pause bets – “Gold prices jumped more than 1% on Wednesday after signs of cooling inflation in the United States boosted hopes that the Federal Reserve could hit the breaks on its rate hike cycle sooner than previously thought. U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation continued to subside. In the 12 months through June, the CPI advanced 3.0%, compared with Reuters estimates of 3.1%. “Gold gapped $10 higher on the softer-than-expected CPI print on hopes that a July hike might be the last one of the cycle,” said Tai Wong, a New York-based independent metals trader. “If gold can break above the 50-day moving average at $1,960, it will trigger more bullish bets.” The dollar tumbled 1% to a more than one-year low against major peers after the U.S. inflation print, making gold more attractive for other currency holders. Benchmark 10-year U.S. note yields dropped to 3.8770%. Inflation is slowing fast enough to allow the Fed to stop tightening U.S. monetary policy after what is still widely expected to be an interest-rate hike at its meeting in two weeks time, traders bet on Wednesday. Markets see a 91% chance of a 25-basis-point Fed rate hike later this month. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. This week, several U.S. central bank officials said that the end to the Fed’s current monetary policy tightening cycle is getting close.”
On the day gold closed up $24.90 at $1956.20, and silver closed up $1.03 at $24.12.
On Thursday gold opened choppy between $1962.00 and $1952.00 which is not usual as most traders will now expect some profit taking and settling after yesterday’s jump to new recent highs. But today’s failure to capitalize on yesterday’s momentum hinders the bulls.
I believe the bullish tone created over the possible slowing of the FOMC interest rates will vanish in the reality of persistently high inflation numbers. But who knows? The US economy is still open for business and recession fears are fading in the bargain.
A better question, at this point is whether the price of gold can move to all-time highs despite high interest rates? Actually 5% is in the “normal” longer term range. It seems high because we are coming off a free money binge. Which provided zero interest rates lasting for years. And respect the FOMC for creating an unorthodox program which got us through the pandemic.
Also consider the price of gold today adjusted for inflation. This is an old argument for gold ownership, but it still carries weight. DollarTimes.com has a neat ap which allows you to calculate this relative value. According to their website gold was worth $614.75 in January of 1980. An equivalent price in 2023 dollars would be $2378.83.
This suggests that today’s close ($1959.20) offers a bargain. It should be $419.63 higher. Still even this number seems lukewarm, what happened to $10,000 gold and the failure of the dollar? That too is a story for another day, the dollar is not collapsing, and in fact is doing rather well.
Reuters (Seher Dareen) – Gold hits 4-week peak as Fed seen nearing end of rate hikes – “Gold prices climbed to their highest in about a month on Thursday on a weaker dollar after U.S. inflation data raised investor hopes that the Federal Reserve would soon stop tightening its monetary policy. The dollar slid to its lowest in more than a year, making bullion more affordable to holders of other currencies. Benchmark U.S. yields were also at their lowest in more than a week, cutting the opportunity cost of holding non-yielding gold. With two weeks left before the Fed’s next meeting, and data showing fewer jobs being added and inflation slowing in June, there are expectations that the next rate hike could be the last, Carlo Alberto De Casa, external analyst at Kinesis Money, said. U.S. consumer prices rose modestly in June, registering their smallest annual increase in more than two years as inflation continued to subside. Investors’ focus turns on Thursday to initial jobless claims data for the week to July 8 – which is expected to deliver a reading of 250,000 versus 248,000 the prior week – and June’s producer price index data. Additionally, markets will parse remarks by Fed Board Governor Christopher Waller to gauge the central bank’s tone on monetary policy tightening. “If, in the coming year, a further decline in inflation and the weakness of the economy even make rate cuts more likely, gold should head for its all-time high,” said Commerzbank analysts in a note. In the wider markets, European shares gained, yet weak trade data from China kept a lid on sentiment. Most base metals rose.”
On the day gold closed up $3.00 at $1959.20, and silver closed up $0.65 at $24.77.
On Friday gold prices remained steady in what now seems to be a stalled upward move, as traders ponder overhead resistance. The optimist will see this as a typical pause in a market generally moving higher and the pessimist will claim gold is stuck in “no man’s land” waiting the for grim reaper. I believe both positions should be avoided. For sure gold is stalled, that was apparent on Thursday when momentum traders failed to create follow through buzz.
Traders, however, have consistently bought weakness, waiting for some mystical sign which might clarify FOMC interest rate direction. This has created reasonable support for the price of gold at current levels. My point here is that the imagined downside here for our shiny friend might be far less than imagined. I’m commenting on the “higher or lower” scenario to the degree that it will likely be a gradual price change, not a decisive lightning bolt.
Reuters (Ashitha Shivaprasad) – Gold poised for best week in 3 months on Fed pause bets – “Gold eased on Friday but was on track for its biggest weekly gain since April after signs of cooling inflation this week sparked some hopes of a pause in the U.S. interest rate hikes. Bullion hit its highest since June 16 earlier this week after data showed U.S. consumer prices in June registered their smallest annual increase in over two years, prompting bets the Federal Reserve could soon end its rate-hike cycle. “With inflation backing off, anticipation of further rate hikes has slightly declined, helping gold this week. But prices are lower today as yields are ticking up,” said Daniel Pavilonis, senior market strategist, RJO Futures. “Prices are going to be range-bound near term. If the Fed begins to say we don’t need to raise rates any further, we can see gold rise further.” Benchmark U.S. yields edged up, making non-yielding bullion less attractive to investors. But cushioning the fall in gold prices, the dollar was on track for its biggest weekly decline since November. On Thursday, Fed Governor Christopher Waller said he was not ready to call an all-clear on inflation and favors rate hikes this year – the sentiment reflected in June’s FOMC minutes. Higher interest rates increase the opportunity cost of holding zero-yield gold. While the long-held bullish view on precious metals has been strengthened, “we remain cautious” considering the risk the Fed may throw another spanner in the works by sticking to its hawkish view, Saxo Bank head of commodity strategy Ole Hansen wrote in a note.”
On the day gold up $0.90 at $1960.10, and silver closed up $0.24 at $25.01.
Platinum closed down $1.30 at $974.00, and palladium closed down $25.40 at $1257.80.
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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. A nine-week-old price downtrend on the daily bar chart has been negated. Bulls’ next upside price objective is to produce a close in August futures above solid resistance at $2,000.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at this week’s high of $1,968.50 and then at $1,975.00. First support is seen at Thursday’s low of $1,956.60 and then at $1,950.00. The silver bulls have the firm overall near-term technical advantage. A three-week-old uptrend is in place on the daily bar chart. Silver bulls’ next upside price objective is closing September futures prices above solid technical resistance at the April high of $26.645. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at $25.25 and then at $25.50. Next support is seen at $24.835 and then at Thursday’s low of $24.31.”
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