Gold trades lower until you factor in dollar weakness

Gold trades lower until you factor in dollar weakness

Gold would have traded lower today if it was not for the dollar's weakness. The dollar is currently down 0.543 points or 0.52% with the dollar index fixed at 104.615. Concurrently, gold futures basis most active April contract is trading up $7.00 or 0.40% and fixed at $1824.10. This means that dollar weakness accounts for over 100% of today’s gains in gold. The resulting net change of gold is based on the dollar weakness and fractional selling pressure in gold.

The same relationship between gold and the dollar can be seen in the physical or spot market. According to the Kitco Gold Index (KGX), spot gold is currently fixed at $1818.10 after factoring in today’s net gain of $6.90. On closer inspection dollar weakness resulted in spot gold gaining $9.80 with fractional selling pressure taking back $2.90 of those gains.

The question becomes what fundamental events could explain dollar weakness today? For that we need to look at two reports released today.

The first report revealed that new orders for manufactured durable goods decreased by $13 billion or 4.5% coming in at $272.3 billion.

The other report released today was pending home sales in January by the National Association of Realtors. This report revealed that pending home sales improved for the second consecutive month. Collectively all four U.S. regions posted that pending home sales increased by 8.1% month-over-month. However, when you look at the data year over year pending transactions decreased by 24.1%.

When you look at the durable goods and pending home sales (year-over-year) they both indicate that the economy in the United States is contracting. This seems to be the most plausible explanation for dollar weakness today which led to the fractional gains in gold.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold at risk of a major drop as prices at ‘pivotal point’ – analysts

Gold at risk of a major drop as prices at 'pivotal point' – analysts

With the latest inflation numbers stressing out markets across the board, gold is at a "pivotal point," according to analysts who are not ruling out a deeper selloff if gold drops below $1,800 an ounce.

This week's big surprise was the hawkish Federal Reserve meeting minutes, which revealed that "a few" FOMC members were leaning towards a 50-basis-point hike instead of the more dovish 25-bps increase adopted at the February meeting.

On top of that, the Fed's preferred inflation measure — the annual core PCE price index — accelerated in January, coming in at 4.7% versus the expected 4.3%.

"There's a major reset in how high rates will go. People are now thinking over 6%. That's significant enough that it is breaking gold's back," OANDA senior market analyst Edward Moya told Kitco News.

If there is further momentum towards $1,800 an ounce, it could "get ugly" for gold, and prices could drop another $50, Moya added.

At the time of writing, April Comex gold futures were trading at $1,816.60 an ounce, down for the fifth week in a row.

"This is a pivotal point right here," Forex.com senior technical strategist Michael Boutros told Kitco News. "If we get a weekly close below $1,807-$1,805, you risk a big drop. And you could be looking at $1,750s."

It is the macro outlook that is weighing on gold. In January, the precious metal rallied on the idea that the Fed could cut rates at the end of 2023.

Now, the reality is starting to set in, Boutros explained. "And inflation numbers we got today are showing that. And that adjustment to higher rates is hitting the markets," he said.

The good news for gold is that this rate re-pricing is also impacting the equity space. And if the S&P 500 and the Dow keep falling, gold might see some support as the safety trade, Boutros noted. "That should put some sort of floor under gold's price," he added.

Geopolitical tensions are also not letting up, which is working in gold's favor in terms of finding a bottom in this downtrend.

"People are throwing around all these big words like 'nuclear threats.' It is the first anniversary of the war in Ukraine, and it is time for a reality check. The threat is there. And if that threat becomes more prominent on a global scale and if these talks continue to deteriorate, at some point, that will factor in," Boutros pointed out.

The volatility in the gold market is far from over, as prices can fall as quickly as they recover, said Gainesville Coins precious metals expert Everett Millman.

"Given gold's nature to have these quick selloffs and recoveries during times of panic, there is not an extremely strong floor right now. I wouldn't be surprised to see gold break below $1,700, with expectations that it would come back up pretty quickly if there is an escalation in Ukraine," Millman told Kitco News.

With markets realizing the difficulty in bringing inflation down to the Fed's 2% target, gold will remain vulnerable in the short term.

"There is some support at $1,750, but then you don't have anything major until possibly $1,730. This is a major change in sentiment," Moya said.

Next week's data

Analysts will monitor the macro data scheduled for next week for any signs of weakness after a solid start to the year.

"We cautioned that the stark contrast in weather between December's wintery, cold conditions … and January's almost spring-like temperatures played a big part in the strength of data," said ING's chief international economist James Knightley. "[Next] week, we will get a first test of that hypothesis with the ISM manufacturing and service sector reports for February."

Monday: U.S. durable goods orders, U.S. pending home sales,

Tuesday: U.S. CB consumer confidence

Wednesday: U.S. ISM manufacturing PMI

Thursday: U.S. jobless claims

Friday: U.S. ISM non-manufacturing PMI

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

War-time economy and gold’s $2k target

War-time economy and gold's $2k target

Gold is at a pivotal point as prices approach $1,800 an ounce. Analysts say that gold is at risk of a much deeper selloff if that support level is lost. Here's a look at Kitco's top three stories of the week:

3. The hawkish Federal Reserve minutes from February.

2. Gold's ticket to $2,000 is U.S. recession, and that is looking more likely, says Bloomberg Intelligence

1. Rising geopolitical uncertainty could create a war-time economy that drives gold to $2,000 – BCA

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

PCE inflation index jumps to 5.382% YOY or 0.6% in January

PCE inflation index jumps to 5.382% YOY or 0.6% in January

The preferred inflation index used by the Federal Reserve; the core Personal Consumption Expenditures (PCE) index jumped to its highest value since last summer. The core PCE increased by 0.6% in January when compared to the prior month, taking the year-over-year PCE to 5.382%. Today's PCE report was the result of surging consumer spending after a dramatic decline at the end of last year.

According to the BEA, "Personal income increased $131.1 billion (0.6 percent) in January, according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $387.4 billion (2.0 percent) and personal consumption expenditures (PCE) increased $312.5 billion (1.8 percent). The PCE price index increased 0.6 percent in January. Excluding food and energy, the PCE price index also increased 0.6 percent (table 9). Real DPI increased 1.4 percent and Real PCE increased 1.1 percent; goods increased 2.2 percent and services increased 0.6 percent."

The net result was strong declines in US equities and precious metals and gains in both US treasury yields and the dollar. This raises expectations that the Federal Reserve will raise rates by ¼% for the next three consecutive FOMC meetings. This also raises the expectations by market participants that the terminal fed funds rate will move to a higher target than 5.1%.

Most importantly, this report confirms that components of inflation remain sticky or persistent. This after an extremely hawkish monetary policy by the Federal Reserve has raised rates at the last eight consecutive FOMC meetings. The Fed raised its benchmark rate from near zero in March 2022 to 4.5% – 4.75% last month. It has also raised the probability of ½ a percent rate hike at the next FOMC meeting in March. According to the CME's Fedwatch tool, there is a 27% probability of that outcome.

Today's PCE report creates more bearish downside pressure for gold and silver. As of yesterday, gold futures were already priced below the opening price on January 3, the first trading day of the year.

Today's April gold futures gave up $8.80 or 0.48% and is currently fixed at $1818. March silver lost 2.66% or $0.57 and is currently fixed at $20.74 per ounce. Today's PCE report will only strengthen the resolve of the Federal Reserve to "do whatever it takes", to reduce inflation to their target level of 2%. However, their current target might be unachievable at least according to El-Erian, a Bloomberg Opinion columnist who doubts whether the Federal Reserve can achieve that goal. In fact, 3% to 3 ½% might be the new 2%.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

The Seven stages of overcoming the new hawkish Federal Reserve’s policy and forward guidance

The Seven stages of overcoming the new hawkish Federal Reserve's policy and forward guidance

Although the Federal Reserve implemented its first interest rate hike approximately one year ago, market participants went through various stages of accepting the new Federal Reserve’s narrative as fact. Oddly there are similarities to the way market participants went through a process of steps before they were able to accept and incorporate the forward guidance of the Federal Reserve. There are similarities between the steps needed for the American public to accept the new hawkish monetary policy of the Fed and overcoming a major life event such as grief.

Both events cause strong and overwhelming emotions, and the process of acceptance occurs through a series of steps that are quite similar to the seven stages of grief. In this article, we will look at the similarities between processing and accepting both scenarios.

Recently we have seen market participants move from disbelief to accepting that the Federal Reserve would implement the plan they laid out in December 2022. After the December FOMC meeting, when they released a report titled" Economic projections 2023 – 2025", which included the most current dot plot.

I entered the following question to Open AI’s GPT. "Can you compare the seven steps of grief to changes in the monetary policy of the Federal Reserve", and got the following reply?

"As an AI language model, I do not hold personal opinions, but I can provide an analogy to help illustrate how the seven stages of grief could be compared to the process necessary to accept the Federal Reserve's new hawkish monetary policy.

The seven stages of grief are a model developed by psychiatrist Elisabeth Kubler-Ross to describe the process that people go through when they experience significant loss. The stages are denial, anger, bargaining, depression, acceptance, testing, and integration.

Similarly, the process of accepting the Federal Reserve's new hawkish monetary policy may involve several stages. At first, there may be a feeling of denial or disbelief that the policy is necessary. Then, there may be anger or frustration about the potential consequences of the policy, such as higher interest rates or reduced economic growth.

Afterward, people may try to bargain, seeking ways to mitigate the impact of the policy or find alternatives. As the policy takes effect, there may be feelings of depression or anxiety about the unknown future. Eventually, however, people may come to accept the policy as necessary and begin testing it to see how it affects them.

Finally, the policy may be integrated into people's understanding of the economy and their financial decisions. This process may take time and may involve setbacks and adjustments along the way. However, ultimately, the acceptance of the new policy may lead to a more stable and prosperous economy in the long term."

While it is obvious that to compare the steps to overcome grief and the steps that market participants have taken to accept the new hawkish narrative of the Federal Reserve is a stretch, I believe that great insight can be gleaned from the AI platform.

Today’s decline in gold prices took the April futures contract below the opening of the first trading day on January 3. It is quite plausible that this most recent decline is a direct result of market participants accepting that the Federal Reserve "will do whatever it takes", to reduce inflation to their target level of 2%. I believe the recent decline in gold clearly demonstrates that market participants have accepted the new narrative of the Federal Reserve.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Federal Reserve minutes were released today, But Wait There’s More

Federal Reserve minutes were released today, "But Wait There's More"

I know it is a little cliché to use a phrase most recognized from late-night ads hawking everything from pots to knives, to discuss the FOMC minutes released today, but the minutes continue to send the same message to the American public. The Federal Reserve will continue and implement "more" rate hikes until "inflation is clearly on a path towards 2%."

The Fed's hawkish monetary policy seeks to raise its benchmark Fed funds rate to a target just above 5%, and keep that rate elevated until incoming data provide confidence that inflation is on a sustained downward path to 2%.

The minutes revealed that Federal Reserve members almost unanimously anticipate that it is appropriate to raise its Fed funds rate by 25 basis points at the next FOMC meeting scheduled to be held in March, although two officials favored a larger 50 basis point hike.

"Market participants interpreted incoming data as pointing to moderating inflation risks. Against this backdrop, market participants judged that the FOMC would likely slow the pace of rate increases further at the current meeting, and respondents to the Desk's Survey of Primary Dealers and Survey of Market Participants widely expected the Committee to implement a ¼ percentage point increase in the target range for the federal funds rate."

According to Bloomberg News, "US central bankers raised interest rates by a quarter-point, moderating their action after a half-point hike in December and four consecutive jumbo-sized 75 basis-point increases. The move lifted the benchmark policy rate into a range of 4.5% to 4.75%. Both Chair Jerome Powell and the minutes indicated that officials are prepared to raise rates further to produce a broader slowdown in the economy that tamps down inflation."

The release of the Fed minutes today created bullish momentum for the dollar and concurrently more sustained bearish momentum for gold. The dollar gained 0.36% today or 37 points fixing the dollar index at 104.485.

As of 5:10 PM EST, the most active April contract of gold futures is down $8.30 or 0.45% and fixed at $1834.20. Today's decline effectively sealed the fate of gold's strong price decline in February. Gold pricing is now below the opening price of January 3, the first trading day of the year.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Changing expectations of the Fed’s forward guidance pressure gold lower

Changing expectations of the Fed's forward guidance pressure gold lower

The Federal Reserve first spoke about its forward guidance at last year’s Jackson Hole Economic Symposium. Specifically, it was Chairman Powell’s keynote speech that delivered the blow to the American public about its intent to raise rates and keep those elevated rates in place until the Fed hits its 2% inflation target.

After the December FOMC meeting the Federal Reserve released its economic projections for 2023 – 2025 including the most recent dot plot. The dot plot is the Fed’s mechanism for predicting future rates by calling on 17 Fed officials to vote on future monetary policy. In the case of the December dot plot, it revealed an overwhelming consensus that the Fed would raise rates to a target of just over 5%, and keep rates elevated for the entire calendar year of 2023.

Although the Federal Reserve has maintained its policy, it was market participants' expectations that have recently shifted from disbelief to an acceptance that the Fed will not likely back off its extremely hawkish monetary policy. This includes continued rate hikes and maintaining those elevated rates throughout the year.

During February market sentiment regarding the forward guidance of the Federal Reserve shifted from uncertainty to acceptance. That resulted in gold trading under pressure for the last three consecutive weeks. On the first full trading day of the week (due to shortened trading hours yesterday on Presidents’ Day) gold is once again trading under pressure. As of 3:25 PM EST, the most active April futures contract is down $5.30 or 0.29% and fixed at $1844.80.

While it is true that inflation has been declining since the Federal Reserve began raising rates in March of last year, recent data suggests that inflation is not diminishing as quickly as the Federal Reserve had hoped. The jobs report for January coming in well over the forecast of 188,000 versus 517,000 combined with the most recent inflation reports suggests that inflation remains elevated and persistent in certain sectors.

The most recent data has cemented the idea that the Federal Reserve will maintain its hawkish monetary policy with a real possibility of two more rate hikes and most importantly maintain the new elevated rates throughout 2023.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold prices can go lower, but now is the time to build a strategic position – Incrementum’ Ronald-Peter Stöferle

Gold prices can go lower, but now is the time to build a strategic position – Incrementum' Ronald-Peter Stöferle

Now is the time for investors to look at building a strategic position in the gold market, according to one market strategist, as prices are expected to struggle in the near term due to rising bond yields on the short end of the curve.

In an interview with Kitco News, Ronald-Peter Stöferle, managing partner and fund manager at Incrementum AG and one of the authors of the annual In Gold We Trust report, said that he is expecting to see lower gold prices in the near term as markets begin to price in further aggressive monetary policy action from the Federal Reserve.

Persistently higher inflation has prompted markets to price in a 21% chance that the Federal Reserve will raise interest rates by 50 basis points next month. These shifting expectations have pushed the yield on U.S. two-year notes above 4.6%, its highest level since 2007.

At the same time, the yield on one-year notes is above 5%. Stöferle noted that when looking at inflation expectations, real bond yields are currently seeing positive returns.

"This is a tough environment for gold and I expect to see further downside risks in the next couple of weeks," he said.

The comments come after April gold futures ended last week in neutral territory at around $1,850 an ounce. Markets are closed Monday for the Presidents' Day long weekend.

However, Stöferle added that the gold market continues to show relative strength despite the selling pressure. He explained that he sees the price action and resilient strength in gold as the market calling out central bankers' hawkish rhetoric.

The rise in shorter-term bond yields has pushed the inverted yield curve to its widest level in 40 years. Stöferle said that this market trend indicates that it's only a matter of time before the U.S. falls into a recession and the Federal Reserve is forced to unwind its aggressive tightening.

Stöferle said that he expects that as soon as unemployment starts to rise, the Fed will quickly loosen interest rates.

"In the 2022 In Gold We Trust, we said that central bankers are doves in hawkish clothing and nothing we have seen has changed this view," he said. "As soon as credit markets tighten, there's no way the Fed or any central banker will stay hawkish."

While there is growing optimism in the marketplace that the U.S. can avoid a recession, Stöferle said that many investors have underestimated the time lag in monetary policy. He added that the Federal Reserve has already made its policy mistake and it's only a matter of time before something breaks.

 Commerzbank lowers mid-year gold price forecast to $1,800 due to shifting interest rate expectations

Not only has the Federal Reserve raised interest rates by 450 basis points this tightening cycle, but it has also reduced its balance sheet by $500 billion. Stöferle said that it's only a matter of time before the economy feels the effects of reduced liquidity in the marketplace.

"It's like being in a room that is losing oxygen. At first, you might not notice anything, but then it gets harder to breathe. Soon, you are rushing to the exits, hoping to get out before it's too late," he said. "Not only is the risk of a recession rising, but I think we could see a major fiscal crisis."

In this environment, Stöferle said that now is the time to take advantage of lower gold prices and build a strategic position ahead of the second half of the year. He added that one strategy investors should look at is building a position through cost averaging, where you look to buy at successively lower prices.

Despite lower prices in the near term, Stöferle said that gold prices are still on track to end the year above $2,000 an ounce.

By Neils Christensen

For Kitco News

Time to Buy Gold and Silver

David

Gold/Silver – Now is the time to dollar cost average

Gold/Silver – Now is the time to dollar cost average

It was just seventeen days ago (February 1) when Gold went on a two-day rally looking as though it was going to punch back through $2000/oz (Silver $25/oz), and if you were not already on board, you thought you missed it for good. Since then, Gold and other Precious Metals seem to have hit the "pain train" as economic data continues to support an aggressive Fed policy stance leading to a stronger U.S. Dollar and rising Treasury Yields. While the Fed may want to keep its hawkish narrative alive, the reality is that the wheels are already starting to fall off the economy, and no matter what cards they hold up their sleeves, they will ultimately have to pivot dovish to save face.

Even though the Fed aims to stay "apolitical" and is laser-focused on getting back down to a 2% inflation target, the probability of reaching that goal in this new global environment is nil. The heightened geopolitical tensions and unpredictable weather patterns leave basic commodity prices at elevated levels that are here to stay. Those rising input costs will ultimately lift the prices of all goods and services, and those costs will drive the consumer to take on more debt. The rising borrowing costs will spear the economy into a recession where political leaders will pressure the Fed into reversing policy action. That is why I believe getting on board assets like Gold and Silver on this decline makes sense to "dollar cost average" to try and take advantage of the recent declines.

Daily Silver Chart

Since their October 2022 lows, Gold and Silver saw substantial gains, which peaked in January. The short-term traders and investors involved in those markets then began liquidating those holdings and going back to chasing "profitless tech and cryptocurrencies." Now that those asset classes have once again peaked, a rotation back into hard assets will become underway in anticipation of a "Fed pivot." I anticipate this occurrence happening in the second quarter. To further help you develop a trading plan, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold that 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 Silver.

Daily Gold Cha

Strategy

By systematically purchasing regular intervals of the 10-ounce Gold contract or 1000-ounce Silver contract, you can layer in over time and preposition for the next rally. One example with a $25,000 account size would be to focus on the December 2023 10-ounce Gold contract and use a dollar-cost average approach by purchasing 10 ounces of Gold at 1850/oz, 10 oz at 1800, and 10 oz at 1750 with a year-end target of $2100/oz. If filled on all three contracts, your average price will be $1800/oz; therefore, every dollar move Gold makes on the three contracts will be $30 since you control 30 ounces. If the $2100/oz price objective is achieved by year-end, this will result in a gain of approximately $9,000 (30 oz times $300 rise). Traders should also consider proper risk management while using a dollar-cost averaging approach, such as a hard stop on three contracts at $1700. If that were to occur under this scenario, it would likely result in a loss of $3,000. If you have never traded futures or commodities or would like to learn more about taking delivery of Silver, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.

By Phillip Streible

Contributing to kitco.com

Time to Buy Gold and Silver

David

Central banks are replacing dollars with gold

Central banks are replacing dollars with gold
 

The economy started the year on a strong note, and the gold market is taking a hit. The Federal Reserve might need to raise rates more than expected since inflation is not coming down fast enough.

Here's a look at Kitco's top 3 stories of the week:

3. Macro data: Gold price drops below $1,850 as U.S. retail sales surprise on the upside in January

2. Frank Giustra warns that the dollar will be dethroned in 'bifurcated' global monetary system

1. Billionaire John Paulson: central banks are replacing dollars with gold, you are better off investing in precious metal than USD

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David