Gold price could see '2000 flashback' as most commodities reverse in second half of 2022 – Bloomberg Intelligence

Despite gold kicking off the second half of the year with a drop below $1,800 an ounce, Bloomberg Intelligence sees the precious metal moving higher versus broader commodities, which are at risk of a reversal.

Crude oil is the commodity facing the biggest reversion risk in the second half of 2022, while gold is among the few that could benefit and see the $2,000 an ounce levels again, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.

"The great reversion of 2022 may gain momentum in 2H, and crude oil seems a top candidate to drop. We see 2H risks tilted toward accelerating retracement in the Bloomberg Commodity Index, with gold potentially a primary standout," McGlone said in his mid-year outlook.

Bloomberg Intelligence looked at whether gold got too cold while commodities got too hot during the year's first half. And after looking at all the data, McGlone noted gold is trend ready while the rest of the commodity market will be coming down from its peaks.

"Gold's moribund performance is clearly different from past high-velocity commodity rallies. But the metal looks poised to come out ahead … Juxtaposed on the chart is gold hovering around its 100-week mean for almost a year. Our take: Gold is trend ready, while broad commodities risk reversion to their historic mean," McGlone wrote. "The last similar period of sluggish gold vs. strong commodities was in 2000 as the internet bubble burst and the precious metal jumped into an extended bull market."

Gold is likely to shine versus industrial metals for the rest of 2022 as global growth declines.

"We see copper risks aligned with tumbling stock markets and the metal's roughly 15% drop in 1H continuing in 2H," McGlone said. "Cooper trading above $10,000 a ton could signal recovery, but we think it's more likely that gold will breach $2,000 an ounce."

From the macro perspective, Bloomberg Intelligence sees inflation slowing down later this year as the stock market continues to decline and commodities, including oil and industrial metals, fall.

"If 2022 isn't much different from past high-velocity pumps in the Bloomberg Commodity Spot Index (BCOM), commodities may drop about 50% in 2H. What seems extreme is quite normal … More recent examples of similar surges to peaks in 2008 and 2011 were consistent, as commodities didn't stabilize until dropping about 50%," McGlone noted. "Rising Federal Reserve tightening expectations despite meltdowns in the stock market and copper (considered an inflation/economic indicator) suggest greater risks of broad commodity-price reversion."

Bloomberg Intelligence is projecting a transition to deflation in the commodity space by the end of 2022.

"Reversion is typical in commodities after they stretch too high, and it may be getting signals from slumping industrial metals, cotton, wheat and lumber at the end of June. We believe central banks' vigilance fighting inflation amid plunging equity prices, global GDP and consumer sentiment will succeed, and see some parallels to 2008 and 1929. Both years were notable for stock-market drawdowns, with an exception of the excess liquidity that fueled asset-price pumps in 2020-21 and during the Russia-Ukraine war," McGlone wrote.

The base case for the second half of 2022 is for commodities and equities to fall deep enough for the Federal Reserve to start minimizing its rate hikes. And for gold and U.S. Treasury long bonds to start outperforming. Bitcoin might also start to mirror gold more, according to the outlook.

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David

Has gold found a bottom or is it a momentary lull of selling pressure?

For the time in the last seven trading sessions, gold closed above its daily opening price and higher than the previous day’s closing price. However, there was no strong upside move, no higher high than the previous day, and no clear indication that the recent selling pressure has concluded. Rather it seems that market participants are waiting to see what the next two key reports will indicate about inflation and jobs.

The first key report will occur tomorrow when the U.S. Labor Department will release the nonfarm payroll jobs report for June. This will be followed next week by the latest inflationary numbers when the BEA will release the CPI (Consumer Price Index) for last month. Market participants are anticipating the certainty that the Federal Reserve will raise interest rates once again this month.

However, the current debate revolves around whether or not the fed will implement another 75 basis point rate hike as they did in June, or soften their aggressive stance by only raising rates by 50 basis points. The key takeaway is that regardless of what the jobs and inflation report reveal the Federal Reserve will continue to batten down the hatches as they have since March.

According to the CME’s FedWatch tool, there is no debate. This is because the FedWatch tool is predicting that there is a 93.9% probability that the Fed will continue its aggressive stance to fight inflation with back-to-back rate hikes of ¾%.

The Federal Reserve has shifted its focus from its dual mandate of maximum employment and inflation at a target range of 2%. Recent Federal Reserve FOMC statements and minutes clearly illustrate that the Federal Reserve is laser-focused on reducing inflation, with the clear understanding that the aggressive rate hikes will lead to an economic contraction and reduction in the labor force.

It is this stance that analysts and market participants have been concerned about as they fear it will lead to economic uncertainty resulting in a recession. The latest consensus is expected to show that job growth is still robust but contracting. The anticipation is that this report will indicate that approximately 272,000 new jobs were added last month and that the unemployment rate will remain steady at 3.6%.

On Wednesday, July 13 the BEA will release the most recent data on inflation. If the most recent inflationary data from Europe is any indication of what next week’s CPI report will reveal we can expect to see that inflationary pressures continue to run hot with a possible uptick when compared to the prior month.

The most recent economic data indicates that the United States economy has deteriorated with consumer confidence moving dramatically lower. But it is also clear that the Federal Reserve will remain steadfast in its determination to reduce inflation from its current elevated levels and 40-year highs, and as such will continue to raise rates this month and in September.

Based on the extremely high probability that the Federal Reserve will enact a second consecutive rate hike of 75 basis points at the end of this month, it is certainly a plausible assumption that the recent selling pressure in gold has not concluded.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

'Gold hasn't changed, the price of gold has changed';

What the gold price reveals about the macro-tuesday, gold shaved $50 off its market value, falling to nearly $1,760. The 2 percent fall in price reveals that the "perception of the macro environment" has changed, and that "speculators" have sold some of their holdings, suggested Axel Merk, CIO and Founder of Merk Investments.

"Gold hasn't changed, the price of gold has changed," he said. "Policymakers don't have many good options, so we might be in for some pain. In the short-term, people are selling everything."

Merk spoke with David Lin, Anchor and Producer at Kitco News.
 

Recession concerns

"The risk is high" that the U.S. economy is heading for a recession, Merk predicted. He cautioned that while two quarters of negative GDP growth is the benchmark for the definition of a recession, "the official word is done by a committee, and they just take that as a contributing factor. They may not declare a 'recession,' because we have low unemployment and other items."

"The markets are telling us it's a mess out there," said Merk. "We were faced with a major supply shock. And when you're faced with a major supply shock, policymakers make the wrong decisions."

He went on to explain that "usually recessions are driven by demand, whereas recession, this time around, is driven by supply."

"Supply shocks are stagflationary," said Merk. "They cause costs to go up, and growth to go down… Part of the problem is not just that [the government] wrote [stimulus] checks, but when we have excessive government debt, and people lose confidence that this is going back into balance, that affects consumer behavior as well."

He went on to suggest that the Fed would continue to tighten its monetary policy, reducing GDP growth, and then would reverse course once inflation numbers look better.

Inflation

When it comes to monetary tightening, The Fed "doesn't have a choice," said Merk. "The question is whether they'll stick with it… We have to kill off growth, inflation numbers are going to come down, and the Fed may well declare victory. But inflation… is going to pop back up."

Merk said that the correct reaction to inflation is "not to write a stimulus check, but to throttle down demand" and improve the supply-side. He proposed that increasing immigration, while removing domestic barriers to oil and nuclear production, would help ease inflation pressures, while increasing GDP.

Over the weekend, U.S. President Joe Biden posted a Tweet, asking U.S. gas stations to "bring down the price you are charging at the pump to reflect the cost you're paying for the product." In response, Amazon Founder and Chairman Jeff Bezos tweeted that Biden's statements are "either straight ahead misdirection or a deep misunderstanding of basic market dynamics."

Merk said that he agrees with Bezos.

Ex Google advertising chief: There is 'no limit' to tech companies mining your data – Sridhar Ramaswamy

"The politically attractive thing to say is, 'oh it's the bad guys out there' [causing inflation]," said Merk. "The gas station, right? They're causing all the problems. People aren't that stupid. The problems are far more fundamental… The actual solution is to increase energy production and throttle down demand. There are many things you can do, but they are not politically attractive."

To find out about Merk's stagflation hedges, and his forecast for the gold price, watch the above video.

 

By Kitco News

For Kitco News

Time to buy Gold and Silver on the dips

 

David

U.S. dollar weakens against euro, sterling in U.S. holiday trading

The euro and sterling rose on Monday against the dollar in a quiet trading session amid a holiday in the U.S., while global risk sentiment has improved.

With the U.S. markets closed for Independence Day, markets expected a light trading day, with major currencies gaining some ground against the U.S. dollar, which had climbed to a two-week high on Friday.

The euro rose 0.3% to $1.0457, but stayed barely above May's five-year trough of $1.0349. While sterling rose 0.5% to $1.2155 after hitting a two-week low of $1.1976 on Friday.

"Quiet trading to start the week is seeing the U.S. dollar weaken against most major currencies as it unwinds Friday’s gains while ignoring a modest risk-off tone in markets," said Shaun Osborne, chief FX strategist at Scotiabank.

Reports that the White House will announce an easing of some Chinese tariffs later this week in an attempt to dampen elevated inflation helped inject some optimism back into markets, "giving currencies an extra push against the U.S. dollar," Osborne added.

The Australian and New Zealand dollars, as well as the Swedish crown , rose on Monday after hitting two-year lows on Friday.

But amid fears of a global recession, the euro remained near a five-year low against the safe-haven dollar.

The war in Ukraine and its economic fallout, in particular soaring food and energy inflation, has been a major drag on the euro, which has weakened 8% against the dollar this year. The difference between the European Central Bank and the U.S. Federal Reserve response to higher inflation has also weighed on the euro. read more

Data on Friday showed euro zone inflation surging to another record, adding to the case for the ECB to raise interest rates this month for the first time in a decade. read more

Jeremy Stretch, head of G10 FX strategy at CIBC said he expected headwinds on the euro to persist as the ECB is set to hike rates on July 21 by "a mere 25 basis point".

"ECB action remains moderate when compared with a 75bps Fed hike," he said. "Beyond ECB monetary policy discussion, the primary European Union risk variable relates to the energy sector."

Safe-haven demand has kept the dollar elevated even if markets have scaled back some of their U.S. rate hike expectations. The market is pricing in around an 85% chance of another hike of 75 basis points this month and rates at 3.25% to 3.5% by year end – before cuts in 2023.

The U.S. dollar index eased 0.15% to 104.9, not far below last month's two-decade high of 105.790.

Looking ahead to the rest of the week, investors are awaiting publication of minutes from last month's Fed meeting on Wednesday and U.S. employment data on Friday.

Australia's central bank will meet on Tuesday and markets have priced in a 40 basis point (bp) rise in interest rates. The Aussie may not catch much of a boost if a hike of that size, or thereabouts, is delivered.

Reporting by Joice Alves. Editing by Jane Merriman and Chizu Nomiyama

Time to buy Gold and Silver on the dips

 

David

Gold/Silver -How to trade this bloodbath

The broad-based selling continued in the commodity markets this week, where "inflation worries" have shifted to "recession fears." Looking back through several trading journals of mine, I can tell you that volatility operates at its highest in a deflationary/recession-type environment. Financial conditions will continue to deteriorate until the Fed pauses/pivots dovish, with corporate profits, growth, and liquidity all strained simultaneously. The spillover effect will cause cryptocurrency, real estate, and tech companies to accelerate layoffs well into the fall.

Daily chart of 10-year Treasury yields

Cross-asset class correlations show a repetitive pattern in the markets where inflation expectations elevate when Crude Oil prices rise, causing yields to cycle higher, giving a boost to the Dollar, which puts slight pressure on the Gold market. This cycle was broken abruptly on Friday as traders recognized that if a recession comes to fruition, the most likely outcome will result in declining Treasury yields, giving way for liquidation in Gold with panic buying in the treasury market to lock in higher rates.

Daily Gold Chart

Copper, Platinum, and Silver faced a beatdown on Friday from multiple directions. General Motors reported that nearly 100,000 vehicles sat uncompleted due to supply chain issues. At the same time, ISM Manufacturing data in the U.S showed that new orders had contracted to a two-year low. Remember, industrial fabrication makes up the bulk of demand for these three metals. We expect them to make a substantial recovery once the Fed declares victory on inflation and pivots to stimulating the economy. Therefore, positioning in these metals needs to be considered long-term investments in extreme washouts like what we are seeing now. Any new positioning should be in December 2022 or into 2023 on futures contract purchases. If you have never traded Silver futures, we completed a new educational guide that answers your questions on how to transfer your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. Additionally, you will receive a free two-week trial to our flagship report, "The Morning Express," giving you critical levels of support in resistance in the Gold and Silver. You can request yours here: Trade Metals, Transition your Experience Book.

Our Strategy

We remain bearish, taking tactical shorts on U.S equities on any significant bounce targeting the Nasdaq and Russell 2000. The leveraged stocks that make up these indices are most at risk during a recession. We also maintain our bearish stance on crypto and traditional currencies such as the British Pound, Euro, and Yen. We are also bearish and targeting economically sensitive commodities such as Cocoa, Corn, and Soybeans on bounces. We maintain a bullish stance on China as it continues to stimulate its economy. Crude Oil should remain firm in the front months while weakening over time as we get deeper into the recession. Therefore, we will look at leveraged option bets to play a further correction. To help you identify different technical analysis formations, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold but can easily apply to Silver." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.

By Phillip Streible

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

Fed to err on the side of too many rate hikes – Why is gold at $1,800?

Markets are anticipating the Federal Reserve to err on the side of tightening, with Chair Jerome Powell admitting this week that the real mistake would be failing to get inflation under control.

Recession fears and the hawkish Federal Reserve triggered bouts of volatility this year – the S&P 500 had its worst half of the year since 1970, while Bitcoin saw its largest quarterly drop in more than a decade. For gold, however, it has been steady sailing, with the precious metal down just 1% since the start of the year.

Analysts believe the precious metal has done a "spectacular job" of storing value. But many are neutral on the precious metal until more U.S. data show inflation peaking and growth slowing.

The headline keeping many investors cautious this week was Powell stating that the U.S. central bank could take things too far and potentially risk a recession for price stability.

"Is there a risk we will go too far? Certainly, there is a risk. But it's not the biggest risk to the economy. The bigger mistake to make would be to fail to restore price stability," Powell said during a policy panel at the ECB Forum on Central Banking in Sintra, Portugal.

At the time of writing, August Comex gold futures were trading at $1,808.50, roughtly unchanged on the day.

Making gold harder to read were many investors rebalancing their portfolios for the second half of the year in light of rising recession calls, OANDA senior market analyst Edward Moya told Kitco News.

"There are some concerning calls from others that gold could be vulnerable to some further selling pressure here. That is if the dollar remains fairly supported," OANDA senior market analyst Edward Moya told Kitco News. "It is tough to assess the market's true views. We are seeing significant repositioning. But the outlook for gold should still be fairly sideways. Next week, there will be a lot of focus on whether or not we see any signs that Fed members are becoming more optimistic that inflation is cooling."

There are already signs that the slowdown is hitting the economy a little faster than many anticipated, Moya added.

"We really need to see data showing that inflation peak is in place. We are in a choppy period because that question won't be answered by one data point. We need to see a few reports. And you need to hear from corporate America, and right now, that is not the case," he said.

Since touching $2,000 back in March, gold has been stuck in the "sell the rallies" type of trading, Walsh Trading co-director Sean Lusk told Kitco News.

"The problem for gold is all the rallies are being sold because of how hawkish the Fed is. There is no love here for the precious metal when the economic outlook is so uncertain. Plus, there are different takes on whether inflation is peaking or not," Lusk said.

In this environment, gold and silver won't see a bounce for another couple of weeks. This is why Lusk is waiting for a better seasonal time frame when more physical gold is bought.

PIC

Gold prices remain down but making a move back to $1,800 as ISM manufacturing PMI falls to 53

"Mid-to-late July is where we could get some movement to the upside. During the second half of the summer and into the Labor Day weekend is when demand for physical increases," he noted.

For now, there is a risk that gold could tumble to the $1,780 suport level. If that fails, the precious metal is at risk of falling to $1,730 an ounce. This is the price floor where Lusk expects to see a move higher. "The $1,782 level is May's low. If we blow through that, the next target is $1,760 — the pre-Christmas low and then it is $1,730. That could be where we go until we see a bounce," he said.

Moya is watching the $1,785 an ounce level, citing significant support around that range. "If it gets uglier for gold over the next week of trade, it should have major support at $1,785, and that could hold as the dollar peak might be in place," he said.

Next week's data:

Tuesday: U.S. factory orders

Wednesday: U.S. ISM non-manufacturing PMI

Thursday: U.S. ADP nonfarm employment, jobless claims

Friday: U.S. nonfarm payrolls

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David

Other potential outcomes from quantitative tightening by the Federal Reserve

The Federal Reserve’s monetary policy composed of aggressive rate hikes in tandem with a balance sheet reduction is intended to achieve price stability through lower inflation. The Federal Reserve is assuming that it can effectively reduce inflation without creating a recession. While this is one possible outcome, at best achieving this goal will be exceedingly difficult, and at worst impossible to accomplish.

Russia’s invasion of Ukraine has had a profound impact on commodity prices, supply chains, inflation, and a steep contraction of global growth. The impact of Russia’s war is that the Federal Reserve can only impact core inflation resulting in no major real reduction of inflation and an economic contraction. Therefore, a key risk to the global economy is the possibility that inflation will remain persistent and elevated together with contracting economic growth, the definition of stagflation.

Currently, inflation globally continues to run exceedingly hot. Today the European Union reported that inflation hit a new record in June. Headline inflation in Europe came in at 8.6% YoY exceeding the inflation level of the United States which is at 8.3% (CPI reading for May). Inflation in advanced economies is currently at its highest levels recorded during the last 40 years.

Global growth rebounded to 5.7% in 2021, however majority of the global growth that occurred in 2020 and 2021 was supported by global fiscal and monetary policy accommodation. Because this accommodation has ended economic growth is expected to contract to 2.9% in 2022. More alarming is the high probability that global growth will continue to contract with little change in 2023.

Today the Brookings institution released an in-depth study about how “Today’s global economy is eerily similar to the 1970s,”. This study acknowledged that “the global economy is in the midst of a sudden slowdown accompanied by a steep run-up in global inflation to multidecade highs. These developments raise concerns about stagflation—the coincidence of weak growth and elevated inflation—similar to what the world suffered in the 1970s.”

This study sites that the current supply shocks occurred after the prolonged monetary policy accommodation led to pent-up demand in conjunction with the recent global supply shock in food and energy costs due to Russia’s invasion of Ukraine. According to the study the global economy faces challenges that are similar to the oil shocks that occurred in 1973 and 1979-80. The study concludes that just as in the 1970s the global economy could be thrust into a period of stagflation.

There are multiple possible outcomes from global central banks and the Federal Reserve’s monetary tightening. Their intended goal is to successfully reduce inflation and soft economic landing simultaneously. While this is the desired outcome, it will be the most challenging possible outcome to achieve. There is a real risk that their actions will lead to persistent and high inflation combined with economic stagnation.

If the global economy moves into a period of stagflation this will certainly create strong bullish undertones for gold prices. This can be seen in today’s price action in gold. Gold futures traded to a low last night of $1783.40 and is currently fixed at $1812.12 indicating a dynamic pivot and possible key reversal. We could be witnessing market participants focusing on the real possibility that the monetary policy of central banks globally will lead to stagflation rather than their intended goal of lowering inflation.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

 

David

Gold, silver down as chart-based bears pressing their case

Gold and silver prices are lower at midday today, in a choppy, two-sided trading session. The significantly bearish near-term technical postures for both metals are inviting the speculators to play the short sides of the futures markets at present. Gold hit a six-week low and silver a two-year low today. August gold futures were last down $6.80 at $1,810.60. Gold prices are close to key chart support levels ($1,800.00 and $1,792.00) that if breached would likely set off heavy sell stop orders in the futures market. July Comex silver futures were last down $0.363 at $20.29 an ounce.

The U.S. data point of the day was the personal income and outlays report for May, including the personal consumption expenditures price index component of the report that is said to be the Federal Reserve’s favorite inflation gauge. The May CPE price index came in up 6.3%, year-on-year, with the core rate up 4.7% in the same period. In the April report, the PCE price index was also reported up 6.3%, year-on-year. Metals market bulls were briefly assuaged by the stable readings in the report, as many reckoned the numbers could have been worse, possibly prompting the Federal Reserve to be even more aggressive in its monetary policy tightening. Raw commodity traders, including metals traders, have taken a tack recently of being more worried about less consumer and commercial demand for commodities amid an economic recession—as opposed to the notions of higher inflation being supportive for raw commodity prices.

Bitcoin closes June down 40% and below $20k as markets see recession fears, contagion risks

Global stock markets were mostly lower overnight. U.S. stock indexes are lower at midday, on this last trading day of the month and of the first half of 2022. Reports said the S&P 500 is set to close out its worst half-year since the 1970s. Trader and investor risk appetite has receded late this week, following downbeat consumer confidence and GDP readings out of the U.S. this week. Fed Chairman Powell and ECB President Lagarde on Wednesday repeated warnings that their central banks will keep raising interest rates even if their economies slowed down. Recently, much of the marketplace has deemed economic recessions potential as superseding inflation worries, when placing their trades.

The key outside markets today see Nymex crude oil prices lower and trading around $107.75 a barrel. The U.S. dollar index is weaker in midday U.S. trading. The yield on the 10-year U.S. Treasury note is fetching around 2.9%. Yields have declined this week amid the increased concerns regarding a U.S. economic recession.

Technically, August gold prices hit a six-week low early on today. Bears have the firm overall near-term technical advantage and have gained power this week. Prices are starting to trend down on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at the June high of $1,882.50. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the May low of $1,792.00. First resistance is seen at today’s high of $1,826.80 and then at Wednesday’s high of $1,834.90. First support is seen at $1,800.00 and then at $1,792.00. Wyckoff's Market Rating: 2.5.

July silver futures prices hit a two-year low today. The silver bears have the solid overall near-term technical advantage and gained more power today. Silver bulls' next upside price objective is closing prices above solid technical resistance at $22.00 an ounce. The next downside price objective for the bears is closing prices below solid support at $20.00. First resistance is seen at today’s high of $20.705 and then at $21.00. Next support is seen at today’s low of $20.16 and then at $20.00. Wyckoff's Market Rating: 1.0.

July N.Y. copper closed down 550 points at 372.40 cents today. Prices closed near mid-range today. The copper bears have the solid overall near-term technical advantage. A four-week-old price downtrend is in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 400.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 350.00 cents. First resistance is seen at this week’s high of 384.30 cents and then at 390.00 cents. First support is seen at today’s low of 368.80 cents and then at the June low of 364.00 cents. Wyckoff's Market Rating: 1.5.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

 

 

David