Gold – Waiting on the Fed
Commentary for Friday, June 23, 2023 (www.golddealer.com) – Today gold closed up $6.40 at $1919.10, and silver closed down $0.11 at $22.33. Gold moved from $1920.00 in the Hong Kong trade last night through $1936.00 in what looked like a reaction to an oversold week, but the domestic paper trade hammered the rally and the bulls settled for a modest close in the green. To say this has been a tough week for gold might be an understatement. Considering that Chief Powell answered a wide variety of questions this week and even considered a few hypothetical situations, the fact that gold is holding above $1900.00 is a plus. Still this market remains transitory so patience and the use of a wider timeline might prove rewarding. Last Friday gold closed at $1958.40 / silver at $24.08 – on the week gold was down $39.30 and silver was down $1.75. Silver pricing has been very turbulent but considering all the “huff and puff” commentary in both gold and silver losses this week should be considered modest.
Please note that FedEx is no longer asking for delivery signatures. They are scanning IDs. We have complained to FedEx, but they remain resolute. Scanned identification is safer, but if you have a problem with this decision, please make your feelings known to FedEx. Unfortunately, the present delivery time for the USPS alternative is 2-3 weeks.
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 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.
Monday, June 19th (Juneteenth) was a national and state holiday. Commodity markets, Wall Street, Banks, and the USPS were closed. GoldDealer.com was also closed.
On Tuesday the price of gold was a bit firmer on the open but quickly dipped to lows on the day (1930.00) and remained defensive through the close. Traders remain suspicious of higher prices in gold as more positive US economic news continues to surprise. The Dollar Index has also moved generally higher since last Friday and today is on weekly highs (102.75). We are coming off a long weekend so there is little fresh news, and these current readings remain transitory. The gold price dip today was helped by what looks like a fading technical picture. So regardless of what Powell has to say when he addresses Congress on Wednesday and Thursday it seems that our shiny friend is setting up for a test of the $1900.00 support, perhaps sooner than later.
Reuters (Deep Kaushik Vakil) – Gold slides 1% on strong US housing data, firmer dollar – “Gold retreated 1% on Tuesday on strong U.S. housing starts data and a firmer dollar, while traders looked to Federal Reserve Chair Jerome Powell’s testimony for cues on the interest rate strategy. U.S. single-family homebuilding surged in May to its highest in more than a year and permits issued for future construction also climbed. The “blowout number” has weighed on the gold market which was already “relatively weak after the last interest rate decision,” said Daniel Pavilonis, senior market strategist, RJO Futures. “The war in Ukraine seems relatively contained, supply chains are easing, interest rates are normalized, stock market is high, so what do you need to own so much gold for? … Ultimately, I think gold’s done for a little while,” Pavilonis added. The dollar rose 0.2%, making bullion a less attractive bet for holders of other currencies. Commerzbank analysts lowered their gold price estimate for the second half of 2023 by $50 to $2,000 per ounce, seeing another rate hike by the Fed in July and no rate cuts until the second quarter of next year. Higher interest rates increase the opportunity cost of holding non-yielding bullion. Traders see a 72% chance of a 25-bps rate hike in July, with rate cuts expected only when 2024 begins, according to CME’s Fedwatch tool. Markets awaited Fed Chair Powell’s testimony on Wednesday on twice-yearly reports to Congress on the state of monetary policy. Inflation in key parts of the U.S. service industry “remains elevated and has not shown signs of easing,” the Fed said in the report ahead of Powell’s testimony. Spot silver plunged 3.7% to $23.07 per ounce, its lowest in three weeks, while platinum was down 2.3% to its lowest since March 29 at $953.56. Palladium dropped 3.3% to $1,359.66.”
On the day gold closed down $22.90 at $1935.50, and silver closed down $0.89 at $23.19.
On Wednesday the headline from Reuters suggests recent traders’ caution is well deserved – gold hovers near 3-month low on Powell comments. The cash New York market too was however typical – gold prices dipped on the open touching $1920.00 yet recovered nicely by the end of the session closing almost unchanged from Tuesday.
You could look at this pattern in two different ways. The first would suggest paper traders are testing current support and the next stop might be $1900.00. The second option supports the bullish scenario. Gold continues to recover from these dips, suggesting that we are going through a transitional phase created by a fundamental change in the FOMC interest rate dynamic.
This is not much of a stretch if you follow what Chief Powell had to say to the House Committee on Financial Services today. The basic idea is that the Fed raised interest rates quickly because the FOMC did not want to get behind the interest rate curve.
But now that we are at these higher levels the speed of these rate hikes has ceased to be a determining factor. This could mean that the Fed will now transition into a less hawkish agenda. This is not news in any sense. It is just a fancier version of the “pause” scenario so highly embraced by the bulls for the better part of this year. But it has the quintessential ring of Chief Powell’s “plausibility factor” which will keep everyone happier in the short term.
On the day gold closed down $2.20 at $1933.30, and silver closed down $0.42 at $22.77.
On Thursday gold began to again weaken in the overnight Hong Kong and London markets. This drift to lower ground, although choppy, continued in the domestic New York market as gold approached $1910.00 before light bargain hunting and short covering steadied this defensive market. I’m a bit surprised Chief Powell’s talk with the Senate today did not do more to support the metals. His Wednesday comments created a nice recovery in the price of gold.
Today might be a reminder that short term commentary even by insiders is a fair-weather friend. The professional trade still fears Powell’s higher interest rates, promised before the end of this year. And gold is once again fighting for the important $1900.00 support.
The number of bank wires we receive increases as the price of gold moves lower. The public continues to take advantage of these lower prices. I also believe that gold is now in oversold territory. So, look for some kind of bounce to higher numbers. It is worth remembering during stormy trading sessions that the physical gold market is “world centered”. The protection offered by gold and silver bullion against economic calamity has no parallel – a powerful advantage.
Reuters (Deep Kaushik Vakil) – Gold drops to three-month low in hawkish Fed’s shadow – “Gold hit a three-month low on Thursday as traders braced for the second day of U.S. Federal Reserve Chair Jerome Powell’s testimony, with the possibility of more rate hikes overriding any support from signs of a softer labor market. Gold briefly pared some losses after data showed U.S. jobless claims held steady at a 20-month high last week in what may be an early indication of a softening labor market in the face of the Fed’s aggressive credit tightening, but bullion soon hastened its retreat. “The Fed and other central banks around the world continuing along their path of fighting inflationary pressures and the expectation that more rate hikes will be needed in the future is really the biggest weight on the gold market at the moment,” said David Meger, director of metals trading, High Ridge Futures. Further rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction, Powell said in remarks on Wednesday to lawmakers. The dollar rebounded from a more than one-month low hit earlier, while Treasury yields were near session highs. But Powell’s hawkish tilt did little to sway investors who kept bets for only one additional rate increase this year, followed by cuts in January. Although gold is considered an inflation hedge, high interest rates to curb price pressures dampen the appeal of the zero-yield asset. “We’re in the traditional summer doldrums on this June-July period where gold demand does have a tendency to wane,” Meger added.”
On the day gold closed down $20.60 at $1912.70, and silver closed down $0.33 at $22.44.
On Friday gold offered only mild safe haven interest even at numbers approaching $1900.00. This is a small red flag, but I’m not concerned – yet. The bulls finish a short trading week where they began, in a defensive mode. Not yet hiding under the bed but worried about how hawkish Powell and friends may become in the coming months. The problem here is that other central banks continue their aggressive fight against inflation, which suggests similar FOMC action.
Reuters (Deep Kaushik Vakil) – Gold regains ground on lower US yields, safe-haven demand – “Gold prices rebounded on Friday, helped by a retreat in U.S. Treasury yields and safe-haven buying, although a hawkish stance on rate-hikes from Federal Reserve officials meant bullion was heading for its second straight weekly drop. “We are seeing a de-risking moment on Wall Street, stocks are selling off hard and demand for Treasuries is elevated,” said Edward Moya, senior market analyst at OANDA. Wall Street’s main indexes fell and were set for weekly declines as hawkish comments from Fed Chair Jerome Powell and other officials fueled worries of interest rates staying higher for longer. Benchmark 10-year Treasury yields slipped to a 10-day low, reducing the opportunity cost of owning non-yielding gold. “Are these central banks getting ahead of themselves where they could start to reverse course, especially if we see economic data continue to break down and jobless claims and other employment factors start to build up,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. However, San Francisco Fed chief Mary Daly told Reuters two more U.S. interest-rate hikes this year is a “very reasonable” projection, but it is better to move more slowly and carefully than before. Interest rate hikes raise the opportunity cost of holding non-yielding gold. Palladium could extend this year’s near 30% price decline as the rapid rise of electric vehicles threatens to hammer demand for the auto catalyst metal.”
Jim Wycoff (Kitco) – “Technically, the gold futures bears have the slight overall near-term technical advantage. A six-week-old price downtrend is in place on the daily bar chart. 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 Thursday’s high of $1,945.10 and then at $1,950.00. First support is seen at the overnight low of $1,919.50 and then at $1,910.00. The silver bears have the overall near-term technical advantage. Prices are in a four-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing July futures prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at $21.00. First resistance is seen at Thursday’s high of $22.75 and then at $23.00. Next support is seen at $22.14 and then at $22.00.”
On the day gold closed up $6.40 at $1919.10, and silver closed down $0.11 at $22.33.
Platinum closed down $2.80 at $981.80, and palladium closed up $6.40 at $1268.10. The recent worries by today’s deep thinkers about further price downside in both platinum and palladium are overblown in my mind and further weakness makes no sense.
Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special favor – talk to Harry or Eric. We are now back to our traditional business model. Thank you for your patience. Have a blessed day. Richard Schwary
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