Gold – Working Interest Rate Numbers
Commentary for Friday, Oct 14, 2022 (www.golddealer.com) – Today gold closed down $28.30 at $1641.70 and silver closed down $0.84 at $18.02. Gold is looking at its worst week since Mid-August as the dollar firms and traders worry over rate hikes. Today’s losses were not unexpected as aggressive inflation reports this week refocus negative sentiment. And while gold’s technical picture remains bearish there are traders who claim that the 10-year Treasury note which topped 4% today is running out of gas. This may sound like wishful thinking, but some believe today’s interest rate region is what the Fed had in mind when they began to slow down an overheated economy and rising inflation. Last Friday gold closed at $1700.50 / silver at $20.19 – on the week gold was down $58.80 and silver was down $2.17.
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On Monday gold was weaker in the overnight market, both in Hong Kong and London. And the New York cash market continued lower touching $1666.00 before the selling moderated. The price drop was likely created by a Dollar Index pushing to new weekly highs (113.00+).
Trader fear of upcoming Fed interest rate hikes is moving into high gear. Safe haven demand is being ignored even as the war in the Ukraine escalates and crude oil bounces to higher ground.
The improving US economic picture has taken away shorter-term gold optimism. Which suggested the Fed is less likely to raise interest rates dramatically if the economy faltered. This theory has supported the gold bulls in the past. And will likely come in and out of focus again as the world ponders the possibility of a soft economic landing.
Today’s renewed economic optimism is a red flag for gold traders. As they become convinced that the Fed will raise interest rates as high as 4.5% to quell rising inflation. This bearish gold scenario has again refocused gold’s pricing picture. Traders are now forced to reconsider recent September lows ($1620.00). In other words, we are back to where we started in late September.
Gold is again defensive, ignoring the war and other inflationary factors. Choosing instead to concentrate on the short-term Fed inflation hammer which some believe is necessary to tame inflation. Even the mood of Fed insiders seems to waver. (Reuters) – “The Fed may still be able to lower inflation without a sharp rise in unemployment even as it continues raising interest rates, Chicago Fed president Charles Evans said on Monday, a rebuttal to arguments the U.S. central bank is pushing the world and the United States towards a potentially sharp downturn.”
It remains to be seen if the Fed can accomplish its goal of taming inflation without creating recession. But this argument was the driving force behind gold’s push to $1720.00 a week ago and will likely be reinvented if the economy begins to show signs of recession. So further volatility may simply be part of this equation on the shorter term.
Gold’s technical picture remains bearish and can be better appreciated with the 60-day gold pricing chart. In early August our shiny friend topped $1800.00 but slowly declined through late September. The reinvented “line in the sand” will likely be a channel trade between $1600.00 and $1650.00 depending on several factors. Fed aggressiveness will play a large role but keep in mind that this lower channel is appealing to bargain hunters in the physical market. Look for an oversold condition, perhaps this week or next. The price of gold and silver between now and the first quarter of next year is still a fluid question. But one thing is sure, in the physical market the cheaper gold and silver bullion becomes the more interest it creates to bargain hunters.
On the day gold closed down $33.20 at $1667.30 and silver closed down $0.63 at $19.56.
Zaner (Chicago) – “An extension of anxiety from the equity markets resulted in another intervention in the Guilt market by the Bank of England and that in turn has pushed the dollar to a fourth consecutive higher high. However, declines in gold and silver prices this morning are more than simple currency market influences. It appears that the world has revived recession fears in the wake of surging crude oil prices which have already posted October gains of $13.00. Therefore, the world sees consumers disposable income squashed especially in Europe thereby stoking recession and perhaps even deflation fears. While the most significant impact on the Fed’s decision in the early November meeting will likely be focused on classic inflation signals from later this week, the US September jobs report ratcheted up the potential of a 75-basis point follow-through hike by the Fed. In fact, given the strength of the nonfarm payroll report, some market participants have suggested jumbo rate hikes may continue beyond the November hike. Furthermore, it should be noted that gold and silver ETF holdings continue to slide with gold holdings last week declining by 198,056 ounces and silver holdings declining by 8.8 million. In short, the gold and silver bears have regained the edge with surging energy prices into the monthly US PPI/CPI report window should leave outside market influences bearish. In fact, with the favorable US jobs report rekindling rising treasury yields (the 2nd test highest yielding close of the contract on Friday), treasuries are likely to add to selling interest in precious metal markets. However, China returns to work after an extended holiday and the latest net spec and fund long in gold early this week will likely register the most bearish spec and fund reading since April 2019. The October 4th Commitments of Traders report showed Gold Managed Money traders went from a net short to a net long position of 4,941 contracts after net buying 46,241 contracts. Non-Commercial & Non-Reportable traders were net long 98,358 contracts after increasing their already long position by 41,359 contracts. With the December gold contract last week stopped cold on 3 occasions at a 7-month-old downtrend channel resistance line, trend signals remain down. Therefore, we suggest traders get short December gold on a return to downtrend channel resistance which is $1,730.10 today. With silver ETF holdings flowing out at a moderate pace and the recent net spec and fund positioning jumping from a net short to a modest net long a bounce to downtrend channel resistance at $21.12 should be sold. The Commitments of Traders report for the week ending October 4th showed Silver Managed Money traders went from a net short to a net long position of 7,159 contracts after net buying 15,246 contracts. Non-Commercial & Non-Reportable traders added 12,502 contracts to their already long position and are now net long 19,005.”
On Tuesday gold opened tepid but moved higher in the New York domestic trade, pushing toward $1678.00 in what looks like a short covering rally. Investor mood is typically quiet in a defensive market especially because investors and traders are hunkered down waiting for Thursday’s inflation number. Most expect no slowing of inflation and little change in record Treasury yields and the strong dollar. The Dollar Index remains strong (113.00) but dipped in the morning helping the short covering rally. Today’s gold close was on daily highs creating a mild updraft in pricing. But in typical fashion the paper market sold this small rally in the aftermarket, as the Dollar Index bounced higher recovering early losses. Gold quickly lost $12.00, and silver moved lower by $0.27, reminding everyone that hawkish FOMC sentiment still rules.
Still, while gold and silver pricing remains capped by higher interest rate expectations the possible downside at these discounted levels is likely exaggerated. Pricing is still supported by increased bargain hunting. Our across the counter trade has slowed, which is typical for the summer months, but large gold bullion buyers have reappeared.
Silver traders are questioning its failure to hold $20.00 on yesterday’s close. I’m fond of pointing out that the paper market and the physical market are different animals. And the consistent manufacturing premiums seen on new silver bullion support current pricing levels. But the paper market is suspicious of silver’s recent weakness. There is talk that silver has become more of an industrial metal than an investment. This is an old argument which I can’t get my head around but is back into focus. Encouraged by the growing threat of recession both here and worldwide.
On the day gold closed up $11.40 at $1678.70 and silver closed down $0.13 at $19.43.
Grant on Gold (Zaner) “(1) Gold ended last week with a gain of just over 2%. It was the second consecutive higher weekly close. (2) Silver posted a 5.8% gain last week. It was the second consecutive higher weekly close. (3) Platinum closed 6.7% higher last week, notching a second consecutive higher weekly close. (4) Palladium has retreated into its range after failing to sustain gains to 6-months highs last week.”
On Wednesday gold opened choppy, drifting lower as New York reflected yesterday’s aftermarket weakness. The metals remain defensive as the Dollar Index surges again above 113.00. Still, gold and silver could be doing worse considering inflation news. Today’s US PPI (Producer Price Index) was hot and tomorrow’s US Consumer Price Index will likely also reflect troubling numbers. Today’s Fed minutes contained no surprises, so traders remain resolute – expecting higher interest rates from the FOMC as they battle inflation.
There are also a few things which may lift bullish spirits. Today’s aftermarket made up half of today’s losses – suggesting indecision even by the bears. A few insiders are making the case that while higher prices in gold will be a continuing challenge through this interest rate rollout, our shiny friend is creating a solid, rising bottom. Which may prove important for those looking to get back in as sentiment improves. Finally, many old-time physical players are buying most anything we have for live and delayed delivery. So, the physical market is alive and well.
Reuters is a mixed bag ending on a mildly positive note – “Federal Reserve Bank of Cleveland President Loretta Mester on Tuesday said the central bank had yet to get surging inflation under control and would need to press forward with tightening monetary policy. On the physical front, Standard Chartered said in a note that with festival-wedding buying starting in India, demand would continue to firm, but was not expected to be as strong as in the fourth quarter of 2021.”
On the day gold closed down $8.40 at $1670.30 and silver closed down $0.55 at $18.88.
Zaner (Chicago) – “Today could be a major trend setting session with the US PPI number expected to provide information on the status of US inflation. As it currently stands the markets largely expect another jumbo US rate hike in the first week of November and expectations for further aggressive rate hikes could begin to build if PPI and CPI over the next two sessions fail to show progress on shutting down inflation. However, with expectations of a gain of 0.2% the markets might not get a definitive signal on the direction of inflation. On the other hand, the markets are likely to take slight deviations from expectations as definitive only to see those reactions burn out quickly. In taking a step back the US Federal Reserve has made it clear they want to “definitively reverse” inflation and therefore without a significant downside miss in the form of a contraction in inflation, rate hike expectations will live on, the dollar continues to rise, and gold resumes its current slide. Traders should not discount the excluding food and energy reading today as the main driving force as retail gasoline prices declined sharply throughout the month of September. On the other hand, the vice chairman of the Fed yesterday seemed aggressive with her categorization of inflation as a continuing problem even though later comments from the 2nd in command Fed member tempered hawkish fears as the Vice chair acknowledged there were signs of trouble in the US economy. Unfortunately for the bull camp, the focus of the gold and silver trade will remain fixated on the action in the dollar and given an as expected or higher US PPI report the dollar should recover aggressively and spark a wave of speculative selling in gold. In the end, the gold market today is likely to behave in a fashion completely contrary to historical patterns with signs of ongoing inflation causing gold prices to plummet. Given the divergence between gold and silver prices recently, we expect silver to show less volatility and perhaps less downside than in gold. In fact, silver ETF holdings yesterday saw a big inflow of nearly 5 million ounces in a development that could signal a bullish silver bet on today’s PPI reaction. With the likelihood of significant gyrations in prices today, traders could utilize just out of the money November gold puts or calls as those options have 14 days until expiration (relatively cheaper) and they could easily be in the money by the close.”
On Thursday gold again moved lower as today’s US Consumer Price Index confirmed that inflation remained hot, and traders braced for continued hawkish FOMC interest rate hikes. The New York cash market settled between $1645.00 and $1655.00. The Dollar Index initially surged (114.00) but drifted back towards 113.00 and traders bought the dip. This is not so much bargain hunting but another small, short covering rally. Early losses were pared back, and the market closed almost unchanged on the day. But most traders consider this a false flag in a generally deteriorating market. Still, both gold and silver remain oversold in my opinion.
The DOW initially dropped 500 points but recovered supporting the Biden position that the economy is strong. Investors however worry that today’s initial DOW weakness, and Washington spending foreshadow a new deteriorating economic reality. One in which the world goes into the soup and takes the US along for the ride as the Fed continues to stoke up the interest rate furnace. This dynamic is worth questioning: How much economic damage can the FOMC inflict on the stock market before the Fed inflation “mandate” goes out the window?
Reuters – “Russian missiles pounded more than 40 Ukrainian cities and towns, officials said, as NATO allies meeting in Brussels unveiled plans to beef up Europe’s air defenses after committing more military aid to Kyiv. The new pledges prompted Moscow to renew warnings that Western states’ help made them “a direct party to the conflict” and that admitting Ukraine to Western military alliance NATO could trigger World War Three. A Russian nuclear strike would change the course of the conflict and almost certainly provoke a “physical response” from Ukraine’s allies and potentially from NATO, a senior NATO official said. The United Nations General Assembly overwhelmingly condemned Russia’s “attempted illegal annexation” of four partially occupied regions in Ukraine and called on all countries not to recognize the move, strengthening a diplomatic international isolation of Moscow.”
On the day gold closed down $0.30 at $1670.00 and silver closed down $0.02 at $18.86.
On Friday gold continued lower over unrelenting fear that higher FOMC interest rates will remain in place until inflation is under control. Today’s trading range was again confused, gold opened higher testing overhead resistance ($1665.00) and then dipped significantly, finally catching a solid bid range at $1646.00. Like I said earlier in the week I believe the “line in the sand” for gold will be the trading region between $1600.00 and $1650.00. Today’s gold weakness was not unexpected considering the mounting negative sentiment.
But the reality here is that we are back to September 26th lows. Gold is looking for that “realistic price” in a marketplace already using higher interest rates to attract new investors to Treasuries. In the meantime, fresh bargain buying is already in place for physical bullion veterans.
For true speculators the silver market, while extremely volatile this week is attracting bargain hunters. I do not see much downside in the $18.00 silver range, considering the long delay from manufacturers. Expect a price circus in platinum and palladium because there are big players, and big believers (probably more important) on both sides of these rare commercial metals.
On the day gold closed down $28.30 at $1641.70 and silver closed down $0.84 at $18.02.
Platinum closed down $1.50 at $905.30 and palladium closed down $119.90 at $1987.50.
Zaner (Chicago) – “The temporary flare in gold and silver prices yesterday sets markets up for a resumption of the downtrend. Apparently, the Takeaway from this week’s avalanche of US inflation data is the Fed still has significant work to do and that should set the stage for a decline below $1650 in December gold and below $18.00 in December silver. In fact, the US CPI report clocked in at a 40 year high last month prompting the trade to expect “more aggressive” interest rate hikes by the Fed. While not as significant as CPI and PPI in the eyes of the Fed, US import and export prices for September today could also have some influence on the need to continue jumbo rate hikes. The gold market will also be presented with a Fed index of common inflation expectations for the 3rd quarter and a University of Michigan five-year consumer inflation expectation report for October (preliminary). In short, additional inflation news today will likely add to the hawkish environment. Countervailing the prospect of surging global inflation are reports that up to 14% of China remains under lockdown which some feel will yield deflationary pressure. Overnight gold ETFs continue to see outflows with year-to-date holdings now down by 1.3%. However, silver ETF holdings saw a 2nd significant daily inflow of 4.4 million ounces! In a minimally supportive development, Barrick Gold Corp. said that it expects full-year gold production to be at the lower end of the range it forecast earlier. Its preliminary third quarter output reading was 988,000 ounces versus 1.04 million in the second quarter.”
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