Gold – What a Ride!
Commentary for Friday, June 7, 2024 (www.golddealer.com) – Today gold closed down $65.10 today at $2305.20, and silver closed down $1.91 at $29.34. Another surprise finish to a week of very volatile pricing as traders move between bullish and bearish scenarios for both gold and silver. The trading quandary was in place, but difficult to see earlier this week as the Bank of Canada and the ECB cut interest rates by 25 basis points. The surprise trigger for this scary drop then whipsawed traders and was threefold: A great employment picture from the Labor Department, a significantly stronger dollar, and news that China’s central bank will ease its gold purchases. Any one of these is enough to promote caution but all three going into the weekend have the bulls hiding under the bed, as anxiety soared, and gold dipped to a four month low. The implications of today’s conflicting picture presents the usual conundrum. Physical gold is a unique financial asset for central banks and safe haven protection. It has no substitute and is absolutely necessary to anchor the world’s fiat money machine. But today suggests that pricing volatility is not over by a long shot so it’s wise to keep your seat belts fastened. Last Friday gold closed at $2322.90 / silver at $30.30 on the week gold was down $17.70 and silver was down $0.96. These spreads are relatively modest only because both metals were much higher earlier in the week. It was the suddenness of the reversal that has shaken this market.
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On Monday the price of gold was off to a good start this week pushing to session highs of $2350.00 as inflation cooled a bit and traders began again to think the Fed will cut interest rates sooner than later. I think this is too optimistic as we have visited this theory a few times since the beginning of this year only to find that Fed hawkishness remains deeply ingrained.
Unless Chief Powell sees a significant improvement in the numbers, they will not lower interest rates this year. Note the word significant, this has been the “go to” scenario for Jerome these past few years, as he takes his Federal mandate seriously. You might see a small change, like a quarter point if inflation continues to cool. But I don’t think a trend of lower interest rates will gain any momentum before next year. Look for small changes and FOMC hints that things are improving, but their primary goal is taming inflation. Across our trading desk we have seen a few larger sellers, so a cautionary note, all-time highs and profit taking hold hands.
Reuters (Brijesh Patel) – Gold firms on Fed rate cut hopes; investors await more US data – “Gold prices edged higher on Monday as signs of cooling U.S. inflation lifted hopes for interest rate cuts from the Federal Reserve this year, while traders awaited a slew of U.S. economic data due this week. Spot gold was up 0.2% at $2,331.84 per ounce as of 09:49 a.m. ET (1349 GMT), after posting a 2% gain last month. Prices hit an all-time high of $2,449.89 on May 20. “We’ve had a bit of a pullback, we’d prefer to call it a consolidation. But again, the underpinning positive bias really comes from strong expectation that we are moving towards a interest rate cuts at some point later this year,” said David Meger, director of alternative investments and trading at High Ridge Futures. Data on Friday showed that the U.S. inflation had stabilized in April, suggesting the U.S. central bank’s interest rate cut plans later this year remained intact. Traders are currently pricing in about a 56% chance of a cut in September, according to CME FedWatch tool, opens new tab. Lower interest rates decrease the opportunity cost of holding nonyielding bullion. Investors will examine the Institute of Supply Management’s (ISM) nationwide PMI reading, expected at 1400 GMT, Wednesday’s ADP employment report, and non-farm payrolls data due on Friday. “We still expect a slowdown (in U.S. economic data) will allow the Fed to cut interest rates later this year and this should lift gold prices,” UBS analyst Giovanni Staunovo said. Meanwhile, The European Central Bank is seen almost certain to trim rates by a quarter point to 3.75% on Thursday, which could make it the first major central bank to cut rates this cycle. Elsewhere, spot silver eased 0.2% to $30.31 per ounce, platinum slipped 0.9% at $1,028.85 and palladium gained 1.8% to $929.54.”
On the day gold closed up $23.70 at $2346.60, and silver closed up $0.34 at $30.64.
On Tuesday the price of gold gave up yesterday’s gains in the early domestic trade as the number of jobs available dropped to its lowest level in more than 3 years according to the latest JOLTS (Job Opening and Labor Turnover Survey). This is an example of what used to be good news turning into bad news for bulls. The still in place thinking that the labor market is weakening helped promote the notion that the Fed would loosen its monetary policy.
Now the bulls will fear the number of available jobs is moving lower, not moving higher. In other words, the economy is doing just fine and there may be no reason to lower interest rates at the present time. This diminishes the bullish gold scenario, and traders may turn bearish.
Is this latest bit of economic data a big deal? Not really, which is the point I was trying to make yesterday. The gold market is looking for anything which might support a short term guess as to price direction because traders in general are confused over the Fed’s next interest rate move.
This general confusion creates a classic “back and forth” pricing trade for gold. Higher one day and lower the next, still traders bought this latest weakness ($2317.00) which is a bullish plus.
The point being that long term physical holders should wait this turbulence out because most insiders see higher prices for both gold and silver bullion over the longer term. Why? Because the root cause which is behind the creation of $2300.00 gold and $30.00 silver is the creation of too much fiat (unbacked) paper money. The world has turned into a giant paper printing machine since the beginning of the pandemic, and I believe this alone will support even higher prices over the next decade. Today the JOLTS number and the drop in crude oil prices created a downdraft in prices. Tomorrow gold prices might move higher if the dollar weakens.
These day to day changes are transitory and can be nerve racking. But insiders know that they will correct over time. For now, ignore the chop and keep your eye on the bigger picture.
FXEmpire (Christoher Lewis) – Gold Continues to Look for Support – “Gold markets continue to see a lot of noise, with a significant amount of support underneath the current levels. This is a market that has a lot of reasons to think that it could go higher at the moment. Looking at the gold market it is obvious that we are testing a certain amount of support in the general vicinity that we are trading right now. Underneath, we have the 50 day EMA offering plenty of support and the $2,300 level underneath is also an area that I think a lot of buyers are going to defend. Ultimately, this is a market that continues to be noisy, but it does have quite a bit of upward pressure. Ultimately, if we can go higher, the$2400 level could be a target, which of course is the next major round figure. Above there, then we have the $2450 level as well. This is a market that has been very bullish and now looks as if it’s doing everything it can to work off some of the excess froth. I think that makes sense.”
On the day gold closed down $21.10 at $2325.50, and silver closed down $1.15 at $29.49.
On Wednesday the price of gold moved higher ($2355.00) as the Bank of Canada cut its lending rate a quarter of a point and ADP says the jobs created in May missed expectations. Both events are bullish for the price of gold because it again suggests that Fed may be forced to cut interest rates. But these short term crosswinds create only transient changes within a relatively narrow trading range. This pattern is common these days as traders look for something more substantial they can use to better understand longer term pricing trends.
An example of a longer term trend would be US 10 year treasury yields. Last October we were looking at 5.00%, today it is 4.28%, so they are moving lower – a plus for the price of gold. The technical picture suggests even lower yields are in the cards before year end. But until those rates materialize traders must live with the notion that this important data point remains uncertain.
FXEmpire (Christopher Lewis) – Gold Markets Continue to See Support – “Gold markets rallied slightly during the early hours on Wednesday, but quite frankly, we’re just hanging around. The 50-day EMA underneath will offer a bit of support, so pay close attention to that and it is sitting just above the $2,300 level, which of course is a large round number that a lot of people will be paying attention to. It’s the bottom of the overall range to begin with, and of course, like I said, it’s a big round number. If we were to break down below $2,300, that could kick off a sharper decline, but I see massive amounts of support at various places underneath with the most obvious one being the $2,150 level where the 200-day EMA is rapidly approaching and where we had seen previous support. On the upside, if we can break out above the $2,365 level, it’s likely that we could go looking to the $2,400 level and then eventually the $2,450 level. I do think gold has plenty to think positively about it, not the least of which would be geopolitical concerns as the world seemingly is trying to march towards some type of major conflict between the United States, NATO, and Russia. And then of course we have the borrowing, the profligate spending by countries around the world, again involving the United States, borrowing a trillion dollars every 90 days. Sooner or later, that adds up to real money. With this being the case, it is a market that I like buying dips, but it just looks like right now, we’re trying to work off some of the excess froth that has been thrown into this environment.”
On the day gold closed up $28.60 at $2354.10, and silver closed up $0.46 at $29.95.
On Thursday the price of gold dipped on the open ($2354.00) but quickly recovered and finished the day mildly in the green as the European Central Bank cut interest rates 25 basis points. While the rate cut was minor and expected the ECB is the second world bank to cut rates this week, the first being the Bank of Canada. Which reinforces to some degree the notion that interest rates will be moving lower this year. Whether the US follows along remains to be seen but this interest rate dance is perhaps the most important factor in determining the price of gold in both the short and long term. But it is not the only important factor, which makes the end result more complex when considered over the long term. Still, there is no substitute for physical gold bullion as far as world central banks are concerned. The same is true for safe haven demand. So, for now, we may not be making new highs anytime soon but there does not appear to be much downside here even at these elevated prices. Finally, most believe that interest rates are destined to move lower eventually, setting the stage for even higher gold prices.
FXEmpire (Christoher Lewis) – Gold Continues to Attempt a Move Higher – “The gold market initially rallied during the trading session on Thursday, but then gave back gains. The ECB cut rates, so we’ve seen a lot of noise and therefore we have to question whether or not gold really starts to take off due to the fact that it looks like central banks around the world are starting to cut. The $2,400 level above is a major round figure that a lot of people will be paying attention to. So, I look at that as a potential target. Short-term pullbacks are buying opportunities from what I see, especially with the 50-day EMA underneath offering quite a bit of support just above the crucial and obvious $2,300 support level. This is a market that has been very noisy as of late, but the recent consolidation looks to be giving way to a breakout, so I do believe that we will continue to grind higher. I don’t think it’s going to be an easy move. I just think that it’s a move that is destined to happen. Short-term dips are buying opportunities and it’s not until we break down below 2275 that I’d be concerned about the short-term trend and even then, I would be looking for buying gold somewhere closer to the 2150 dollars level, which also features the 200 day EMA so that will of course be very important to pay attention to. Nonetheless, this is a market that I think favors the upside regardless and I would be very surprised to see us break down towards that region.”
On the day gold closed up $16.20 at $2370.30, and silver closed up $1.30 at $31.25.
On Friday the price of gold dropped from $2375.00 to $2310.00 in a matter of minutes, further confusing an already volatile week. It is fair to say that traders believe that the bullish gold and silver scenario has been damaged considerably. But I respectfully suggest that this is not the case, we are simply experiencing higher degrees of “chop” as the “worry” factor increases. This is not unusual, but it does create tension, especially within the physical trade. Whether gold and silver will continue lower next week will depend on whether traders buy this current dip. Keep in mind, however, that gold closed today at $2305.10 and bargain hunting began around $2310.00 which is a bullish plus. Silver closed today at $29.34 and bargain hunting began around $29.37, also a bullish plus. It is difficult to say where gold and silver will be in a decade, but most physical investors look for still higher prices because our fiat monetary system cannot stop increasing the money supply. Which is what got us into this financial mess in the first place.
Reuters (Harshit Verma and Rahul Paswan) – Gold slides over 2% on double blow of strong jobs report, China data – “Gold accelerated declines after a stronger-than-expected U.S. jobs report doused expectations for U.S. interest rate cuts this year, adding to bearish sentiment driven by data showing top consumer China held off on bullion purchases in May. Spot gold dipped 2.7% to $2,312.20 per ounce as of 1520 GMT. U.S. gold futures dropped 2.5% to $2,330.10.
Caught in gold’s slipstream, silver shed 5.8% to $29.50 per ounce, platinum fell over 3% at $972.10, and palladium lost 2.8% to $904.25. “We will find out today whether gold has the stomach to absorb the one-two punch of a strong employment report AND a pause in Chinese buying,” said Tai Wong, a New York-based independent metals trader. The Labor Department’s report showed Nonfarm Payrolls (NFP) rose by 272,000 jobs in May, against expectations of an increase of 185,000. The data also drove a rally in the dollar, making bullion more expensive for overseas buyers. Traders lowered their bets to price in 38 basis points (bps) of cuts by end-December, from 48 bps before the NFP data, with the first cut more likely seen coming in November instead of September. The gold market is seeing a bit of liquidation, along with other metals since the data shows the U.S. economy is quite robust and the Fed may delay that first cut, said Phillip Streible, chief market strategist at Blue Line Futures. Higher rates increase the opportunity cost of holding non-yielding bullion. The jobs report also added to the bearish sentiment seemingly driven by data showing top consumer China held off gold purchases in May after 18 consecutive months of buying. But analysts at TD Securities wrote in a note that while the China news notably hit the yellow metal, “the pause in purchasing could just be a hint of a return to a more price sensitive operation given the run up in prices.””
On the day gold closed down $65.10 at $2305.20, and silver closed down $1.91 at $29.34.
Platinum closed down $40.50 at $967.80 and palladium closed down $14.30 at $909.50.
Jim Wycoff (Kitco) – “Technically, August gold bulls have the overall near-term technical advantage but faded today. Prices are scoring a bearish “outside day” down on the daily bar chart. Also, a bearish double-top reversal pattern has formed on the daily bar chart to suggest a near-term market top is in place. Bulls’ next upside price objective is to produce a close above solid resistance at today’s high of $2,406.70. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the May low of $2,308.70. First resistance is seen at $2,350.00 and then at $2,375.00. First support is seen at today’s low of $2,330.60 and then at $2,308.70. July silver futures bulls have the overall near-term technical advantage. However, prices today are scoring a big and bearish “outside day” down. Also, a four-week-old uptrend on the daily bar chart has been negated to suggest a near-term market top is in place. Silver bulls’ next upside price objective is closing prices above technical resistance at the May high of $32.75. The next downside price objective for the bears is closing prices below support at $29.00. First resistance is seen at $30.50 and then at $31.00. Next support is the overnight low of $29.835 and then at this week’s low of $29.50.”
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