Gold surges to $1982.8 as investors rethink the banking crisis and accommodative Fed

Gold futures surged to the highest value of 2023 taking out the former high of $1976 achieved in February. As of 4:09 PM EST, the most active April contract of gold futures is up $58.10 or 3.02% and fixed at $1981.10. Although dollar weakness contributed to today’s dramatic ascent it was only a small factor in a much larger picture. Considering that gold futures had a net gain of over 3% and the dollar softened by 0.52%, roughly 5/6 of today’s gains in gold are directly attributable to market participants bidding the precious yellow metal higher.

Next Tuesday, the Federal Reserve will hold its second Open Market Committee meeting of the year. This will be followed by an FOMC statement and press conference by Chairman Jerome Powell on the following day March 22.

However, this FOMC meeting will be quite different in that there is an additional major component that must be factored into their decision that they will announce next Wednesday, March 22. Not only will the Federal Reserve continue to be laser-focused on reducing inflation which remains sticky or persistent in many sectors, but now they need to factor in a banking crisis that was first reported last week.

On March 10, 2023, reports began to surface about the Silicon Valley Bank failing after a bank run by depositors challenging the solvency and leading to an inevitable bankruptcy announcement today. The SVB was unique in that its primary business was funding venture capitalists and start-up tech companies. To raise the capital they liquidated a major portion of their assets on their balance sheet at a loss of $1.8 billion.

Immediately the FDIC and banking regulators stepped in to guarantee that depositors' money would become available. Then yesterday 11 major US banks created a $30 billion fund held at the first Republic Bank to create a backstop to keep banks like SVB and signature Bank of New York solvent. Federal banking regulators applauded the support of this large bank group because it validates the resilience of the banking system in the United States.

This brings us to next week’s FOMC meeting. It is anticipated that the Federal Reserve will approve a ¼% rate hike with the banking crisis ultimately backstopping the opinion that the Federal Reserve would step up its rate hikes with a ½% rate hike next week. Although it has been rumored that the Fed might pause many analysts believe that the Fed needs to continue to raise rates even with the banking crisis to maintain its credibility.

Gary S. Wagner

Time to Buy Gold and Silver

David

 

 

Today’s CPI report revealed that inflation continues to be troublesome and elevated in some sectors, with a fractional decline overall from 0.5% in January to 0.4% last month. Headline inflation continues to slowly dissipate from 6.4% year-over-year in January to 6% in February. Core inflation also remains elevated coming in at 5.5% year-over-year compared to 5.6% in January. Housing which includes mortgages and rentals composed the largest category and accounted for more than 70% of last month’s increase in the CPI.

The repercussions of today’s CPI report are that the Federal Reserve is likely to raise their terminal rate by ¼% at the next FOMC meeting (March 21 – 22). According to the CME’s FedWatch tool, the probability of a 25-bps rate hike is 81.9% and the probability that the Fed will not raise rates is 18.1%. It is noteworthy that according to the FedWatch tool, the probability that the Fed will not raise rates at its next meeting was 35% yesterday versus 0% one week and one month ago.

The Federal Reserve has been caught between a rock and a hard place attempting to raise rates enough (which intrinsically results in a contracting economy) to lessen the current level of inflation but not too much to result in a recession. It seems more and more unlikely that the Federal Reserve will be able to pull off a “soft landing”. The banking crisis that was reported this weekend further exacerbates the ability of the Fed to reduce inflation and not lead the country into a recession.

Continued rate hikes by the Federal Reserve create bearish market sentiment for gold prices because gold does not yield interest. However, higher inflation has the opposite effect creating bullish market sentiment for gold. Collectively these two forces work against each other with elevated inflation pushing prices higher and rising interest rates pulling prices lower. That being said, gold futures were able to hold above the key psychological level of $1900 per ounce.

Today gold futures opened at $1919.40 which was also the high, and traded to a low of $1899.80. As of 5:15 PM EST, the most active April contract is currently fixed at $1908.30. Concurrently, the US dollar is trading fractionally higher up 0.08% with the dollar index currently fixed at 103.265.

Although there are a couple of economic reports that will come out before the next FOMC meeting, the Federal Reserve now has the most important data it will use to make its final decision regarding the level of the next rate hike.

Gary S. Wagner

Time to Buy Gold and Silver

David

Gold prices soar as investors fearing more bank meltdowns move into safe havens

Gold has gained almost $100 in the last two days of trading. Gold futures basis most active April contract opened at $1835 on Friday and closed at $1867. Today gold opened at $1877 and as of 5:30 PM EST is currently fixed at $1917.30 after factoring in today’s gain of $50.10 or 2.66%.

Gold’s dramatic rise is largely the byproduct of a potential banking crisis with two banks showing “systemic risk” according to bank regulators. California’s Silicon Valley Bank and Signature Bank of New York required immediate action over the weekend to protect depositors’ capital. The banking meltdown resulted in the two-year Treasury yields having the largest three-day decline since black Monday in 1987.

The Federal Deposit Insurance Corporation Improvement Act of 1991 granted the Treasury Secretary after consulting the president to take steps to protect uninsured depositors in the presence of systemic risk. Originally this legislation was a component of the banking act of 1933 which created the FDIC.

Gold’s dramatic gain over the last two days was a combination of investors and large money managers flocking to gold as a haven asset, dollar weakness, and the belief that the Federal Reserve could pivot its aggressive interest rate hikes.

According to Burton Schlichter, Vice President of global clearing and execution at StoneX Financial said, “After the news on Friday about the uncertainty of customer funds at SVB Bank we noticed some traders covering short positions and some reversing their positions heading into the weekend.” StoneX currently serves more than 32,000 commercial, institutional, and payments clients, and more than 330,000 active retail accounts across 180 countries.

Market participants are under the assumption that the Federal Reserve may pivot by not implementing the anticipated ¼% rate hike at the March FOMC meeting. Some investors are under the assumption that the Federal Reserve might pivot and cut rates. This seems to be based on unrealistic optimism and conjecture rather than facts.

Tomorrow the government will release the latest inflation numbers vis-à-vis the CPI (Consumer Price Index) which combined with last week’s jobs report will be used by the Federal Reserve to make it’s final decision that will be announced on March 22 when the FOMC meeting concludes

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Thursday's Charts for Gold, Silver and Platinum and Palladium, March 9

Kitco Commentaries | Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

Understanding the charts:

Due to popular demand, we have added Palladium to the list of Analytical Charts that Metals Analyst Jim Wyckoff features.

Sharpening Your Trading Skills: Using Bollinger Bands

Sharpening Your Trading Skills: The MACD Indicator

Sharpening Your Trading Skills: Moving Averages

Sharpening Your Trading Skills: The Relative Strength Index (RSI)

"Wyckoff's Market Rating" System Explained

By Jim Wyckoff

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold rallies on financial stability risks as investors rush to safety, analysts are watching inflation report, Fed reaction

The gold market posted an unexpected weekly gain on potential contagion risks from the Silicon Valley Bank (SVB) meltdown.

The precious metal is once again the safe-have trade, with investors rushing in after Friday's SVB collapse. California banking regulators moved quickly to close SVB Financial Group in what is the largest bank failure since the financial crisis.

SVB was one of the leading technology financiers, and its failure showcases potential unintended consequences of the aggressive hiking cycle pursued by the Federal Reserve in its fight against inflation, according to analysts. The fear is that the startup-focused lender's troubles could ripple through the rest of the global markets.

"Gold is seeing safe-haven flows on these financial instability concerns," OANDA senior market analyst Edward Moya told Kitco News. "Startups and debt refinancing are some of the biggest financial risks that traders are analyzing."

It is a dramatic turnaround for gold. Earlier this week, the precious metal was steadily falling on the outlook that the Federal Reserve will hike rates by 50 basis points at its March meeting.

Gold is now rallying and it is reacting to several drivers — the SVB and financial stability risk, the higher unemployment rate from February, and a reversal of the 50-basis-point hike expectations.

"The NFP report had a strong headline beat, but the rest of the report supported the idea that the labor market is ready to cool. Wage pressures came in much softer than forecasts, and the unemployment rate rose from 3.4% to 3.6%," Moya said. "Gold is surging as Fed rate hike bets get scaled down and as SVB contagion risks trigger some safe-haven buying. The bond market is now starting to price in rate cuts by the end of the year, and that is triggering a major collapse with yields."

The U.S. dollar index fell, and the two-year yield posted its biggest two-day decline since 2008, which is very supportive of higher gold prices.

"Gold is becoming everyone's favorite trade again, and that could continue as liquidity risk concerns won't be quickly answered for that corner on Wall Street," Moya added.

One thing to keep in mind is how sustainable this move in gold is, Gainesville Coins precious metals expert Everett Millman told Kitco News.

"This is broadly a short-term reaction. You do see safe-haven demand come in fits and starts. There is fear over the stability of banking systems, and the dollar is sharply lower today. That is driving gold higher in the short term," Millman said.

Only next week can tell whether gold can hold at these levels, especially in light of Tuesday's inflation report. "I don't think gold bottomed yet, and [prices] might have further to fall during the first half of this year. I wouldn't be surprised to see gold stuck in a range between $1,800 and $1,900," Millman said.

Trading has been very volatile, and with the inflation report coming up, the key thing to pay attention to is how markets react to the data versus the data itself, noted Millman.

"The CPI print itself is not as important as the reaction to it. There has often been a bit of disagreement about whether certain data or comments from the Fed are dovish or hawkish. The Fed will also be watching how markets react and digest the CPI," Millman said.

Market consensus calls are projecting for inflation to slow to 6% from 6.4% in February.

Gold price levels to watch

This flight to safety pushed gold to levels where traders are getting more bullish, RJO Futures senior market strategist Frank Cholly told Kitco News. At the time of writing, April Comex gold futures were trading at $1,869.70 an ounce, up 1.91% on the day.

"I am watching $1,875-$1,880. We might have a bit of trouble getting there. It is the 50-day moving average. The 200-day moving average held for gold, and the $1,800 was good value," Cholly noted.

With the economy probably hitting a rougher patch sooner, Moya remains bullish on gold but anticipates the precious metal will first settle around its current levels.

"I am considering $1,865 right now. The macro backdrop has changed. Immediate resistance is at $1,880. And then everyone will have their eyes on the $1,900 an ounce," Moya said. "If we get a cooler inflation report next week and continued financial instability concerns are still being talked about, we could have a good old fashioned gold rally, with $50-$70 daily moves to the upside."

Next week's data

Tuesday: U.S. CPI

Wednesday: U.S. retail sales, U.S. PPI, NY Empire State manufacturing index

Thursday: ECB rate decision, U.S. jobless claims, building permits and housing starts, Philadelphia Fed manufacturing index

Friday: U.S. industrial production, Michigan consumer sentiment

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

Short covering, position evening in gold ahead of U.S. jobs data

Gold prices are higher in midday U.S. trading Wednesday, with silver near steady. Short covering and some position squaring are featured in the precious metals futures markets just ahead of an important U.S. economic data point Friday morning. April gold was last up $13.20 at $1,831.70 and May silver was up $0.024 at $20.175.

The general marketplace was quieter Thursday, ahead of the February U.S. employment situation report from the Labor Department on Friday morning. The key non-farm payrolls component of the report is expected to show a rise of 225,000 jobs, following a mammoth rise of 517,000 in the January report. Look for higher volatility in many markets is the non-farm jobs print misses expectations.

Global stock markets were mixed to weaker overnight. U.S. stock indexes are narrowly mixed at midday.Silver mines will likely be bought by automakers like Tesla, silver to $125 per ounce – Keith Neumeyer

The key outside markets today see the U.S. dollar index lower. Nymex crude oil futures prices are slightly up and trading around $76.75 a barrel. The yield on the benchmark U.S. 10-year Treasury note is presently fetching 3.964%.

Technically, April gold futures bulls and bears are back on a level overall near-term technical playing field. Bulls’ next upside price objective is to produce a close above solid resistance at the March high of $1,864.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at today’s high of $1,839.40 and then at $1,850.00. First support is seen at $1,820.00 and then at the February low of $1,810.80. Wyckoff's Market Rating: 5.0

May silver futures prices hit a four-month low Wednesday. The silver bears have the firm overall near-term technical advantage. Prices are in a steep five-week-old downtrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at $20.505 and then at $21.00. Next support is seen at this week’s low of $19.955 and then at $19.50. Wyckoff's Market Rating: 3.0.

May N.Y. copper closed down 15 points at 402.60 cents today. Prices closed near mid-range. The copper bulls have the slight overall near-term technical advantage but trading has been choppy and sideways recently. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the February high of 423.40 cents. The next downside price objective for the bears is closing prices below solid technical support at 380.00 cents. First resistance is seen at this week’s high of 409.50 cents and then at 415.00 cents. First support is seen at 400.00 cents and then at this week’s low of 396.10 cents. Wyckoff's Market Rating: 5.5.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

David

Powell addresses House stressing data dependency before making decisions

Today Chairman Jerome Powell finished his semiannual congressional testimony. The chairman warned that the Fed could be more aggressive because "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated."

In yesterday's testimony, he opened the door for a 50-BPS rate hike at the upcoming March FOMC meeting (March 21 – 22).

"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

According to the CME's FedWatch, the probability of a more aggressive rate hike of 50-BPS has increased since yesterday from 70.5% to 79.4% today, diminishing the probability of a 25-BPS hike from 29.5% to 20.6%.

However, Powell stressed the fact that the Federal Reserve will not make any final decision about the size of a potential interest rate hike until data from Friday's jobs report and next Tuesday's CPI report have been released.

"We have not made any decision about the March meeting. We're not going to do that until we see the additional data." Adding that, "We will be guided by the incoming data and the evolving outlook."

Today ADP released its US private payroll report revealing that an additional 242,000 private sector jobs were added last month. Currently, it is forecasted that Labor Department's jobs report on Friday will show an additional 203,000 to 225,000 jobs added to the payroll last month. Additionally, economists expect the unemployment rate to rise from 3.4% in January to 3.5% in February.

Early forecasts from next week's Bureau of Labor Statistics consumer price index for February are expected to show a modest decrease in inflation down 0.1% month over month. If correct this would take the monthly gain in February to 0.4% a decrease from January which revealed headline inflation increased by 0.5%.

The extreme volatility resulting in a sharp decline in gold and increase of value in the dollar index yesterday has abated. This is as market participants along with the Federal Reserve wait for the release of these next two critical reports from the government.

As of 5:00 PM EST, gold futures basis most active April contract is down $2.00 Or 0.11% and fixed at $1818. The dollar is up 0.08% and the dollar index is fixed at 105.68.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold, silver punished by still-hawkish Powell

Gold and silver prices are sharply lower in midday U.S. trading Tuesday, as the metals market bulls are feeling the pressure of a still significantly hawkish U.S. central bank. April gold was last down $34.80 at $1,819.80 and May silver prices hit a five-month low and were last down $0.925 at $20.21.

Focus of the marketplace today was on Fed Chairman Jerome Powell’s testimony on U.S. monetary policy to a Senate committee. Powell leaned hawkish, which was not surprising to many, but the marketplace did deem his remarks as being more hawkish than the central bank chief had been in the recent past. Powell said the Fed will likely have to keep U.S. interest rates higher for longer to win the war against problematic price inflation. He said recent stronger U.S. economic data has likely rolled back some of the softening the U.S. had seen on the inflation front the past few months. The U.S. dollar rallied sharply on Powell’s remarks and hit a three-month high. However, U.S. Treasury yields did not react much to Powell’s comments. The U.S. stock indexes sold off sharply on his remarks, as did crude oil. Powell speaks to a House of Representatives panel on Wednesday. The hawkish Powell is bearish for the metals markets because of the implications of softening consumer and commercial demand as the tighter central bank policies squeeze their respective economies in order to reduce demand.

 Pierre Lassonde: Gold to reach $2,400 by 2028 as geopolitical tensions mount, central banks purchase more bullion

Traders and investors are also looking forward to the February U.S. employment situation report from the Labor Department on Friday morning. The key non-farm payrolls component of the report is expected to show a rise of 225,000 jobs, following a mammoth rise of 517,000 in the January report.

The key outside markets see the U.S. dollar index sharply up and hitting a three-month high. Nymex crude oil futures prices are sharply down and trading around $78.00 a barrel. The yield on the benchmark U.S. 10-year Treasury note is presently fetching around 3.93%.

Technically, April gold futures bulls have lost their slight overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at this week’s high of $1,850.50. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at $1,835.00 and then at $1,850.00. First support is seen at the February low of $1,810.80 and then at $1,800.00. Wyckoff's Market Rating: 5.0.

May silver futures prices hit a five-month low today. The silver bears have the firm overall near-term technical advantage and gained fresh power today. Prices are in a steep five-week-old downtrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at $20.50 and then at $21.00. Next support is seen at $20.00 and then at $19.50. Wyckoff's Market Rating: 3.0.

March N.Y. copper closed down 1,205 points at 398.00 cents today. Prices closed near the session low today. The copper bulls have the slight overall near-term technical advantage but trading has been choppy and sideways recently. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the February high of 423.70 cents. The next downside price objective for the bears is closing prices below solid technical support at 380.00 cents. First resistance is seen at 405.00 cents and then at 410.00 cents. First support is seen at the February low of 393.45 cents and then at 390.00 cents. Wyckoff's Market Rating: 5.5.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

David

Traders are cautious as reflected in fractional declines in gold and the dollar

Market participants are trading cautiously with a wait-and-see attitude as this week contains multiple events that could have a deep impact on the financial markets across the board. Cautiousness is the overall demeanor of market sentiment as traders and investors await Chairman Powell's appearance before both the Senate and House beginning on Tuesday. This will be followed by the Labor Department's jobs report for February on Friday.

As of 4 PM EST, gold futures basis most active April contract is down $2.50 or -0.13% and fixed at $1852. Concurrently, the US dollar is also trading fractionally lower down 0.18% or 18 points with the dollar index currently fixed at 104.30.

The more hawkish faction of the Federal Reserve continues its strong narrative that was evident last weekend. On Saturday the San Francisco Federal Reserve President Mary Daly discussed economic and policy issues with Michael Strain, director of Economic Policy Studies at the American Enterprise Institute.

The first question presented to Mary Daly was, "how do you think things are going with the economy right now?" To which she replied, "I really think of it as a yes and situation. And what I mean by that is, yes, the economy has good momentum. Yes, the economy looks like monetary policy is starting to have an effect. We see some slowing in interest-sensitive sectors, we see that we feel a slowdown coming in a way that would be predicted by us raising interest rates."

Throughout the interview, she continued to underscore the narrative of the more hawkish faction of Federal Reserve officials by expressing that the policy of the Federal Reserve most likely will continue to tighten and maintain the more restrictive policy for a longer time.

Although hawkish members of the Federal Reserve are in the minority Chairman Powell is expected to maintain that more rate hikes are needed for a longer time than previously anticipated when he addresses the Senate Banking Committee tomorrow and testifies before the House Financial Services Committee on Wednesday.

Chairman Powell's testimony will be followed by two extremely important economic reports beginning on Friday when the Labor Department releases the most current data in the January jobs report which will be followed by the inflation data vis-à-vis the CPI report on Tuesday, March 14.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold Price to New Heights ?

Since its low in November 2022, the price of gold in dollars has climbed nearly +15% (compared to +4.5% in euros). The rising cost of gold production and the declining profitability of mining companies largely explain this movement. As early as November 2022, we were insisting on the strong probability of an effective gold reversal in 2023. This movement has now been confirmed. But will this rise be enough to drive new highs?

Throughout this publication, we will see that despite the slight drop in the dollar price of gold in 2022, demand is clearly on the rise. At the same time, production costs are rising and mining companies are less profitable. This context largely explains the strong rebound of gold. But what is most impressive is the appetite of central banks for gold, whose demand has increased at a rate not seen since 1967… Behind the structural changes in the market, gold seems to hide a geopolitical confrontation of considerable magnitude.

Strong increase in demand for gold in 2022

Contrary to what many had suggested, demand for gold was boosted considerably in 2022. Demand for the physical metal increased by 18% between 2021 and 2022, while supply increased by only 2%. The stability of the gold price in 2022 once again shows the lack of a link between the price and actual demand.

We should also note the particular case of Russia. The demand for coins and bars in Russia jumped by 374% in 2022 to 25 tons! This is a very significant increase for the reasons we know. In France, the increase in demand for coins and bars is still 21%, or 14% in Germany. The chart shows a clear interest in gold in European countries, mainly due to the fall of the euro in 2022. But the interest in gold is even stronger in the Middle East and Russia, driven by a desire for monetary independence.

Central banks are massively buying gold

One thing that catches our attention is the sudden and massive revival of interest in the yellow metal by central banks. Central bank demand for gold jumped 152% between 2021 and 2022! This is simply the largest amount of gold ever purchased by central banks in one year in decades. The equivalent of 1,135 tons.

These massive purchases are questionable, as they run counter to the trend observed in recent years. In 2019 and 2020, central bank demand had fallen by 7.7% and 5.8%, respectively. Central banks' purchases are taking place against a backdrop of balance sheet reduction, which seems contradictory. Turkey has thus increased its gold reserves by 147 tons in 2022, followed by 62 tons for China, and 44 tons for Egypt.

According to the World Economic Forum, the pace of gold accumulation by central banks is unprecedented since 1967! In a WEF article published on November 10, 2022, the WEF states that: “Gold is regarded as an effective inflation hedge, although some analysts believe this to be true only over extremely long time horizons stretching over a century or more.”

Gold is primarily considered in the same way as foreign exchange reserves. In order for the balance of payments between countries to be balanced, central banks must change their reserves. Foreign exchange reserves thus tend to decrease when a country experiences either capital outflows, a deterioration of its trade balance, or a decrease in prices. It is understandable why, in an inflationary context, the demand for foreign exchange reserves increases, and with it, the demand for gold. The case of Turkey, which has seen inflation rise to over 80%, is revealing. Faced with a rising dollar, many central banks are buying gold to ensure liquidity on the international scene. The real interest of gold for central banks is, above all, to guarantee a source of confidence and independence.

Time to Buy Gold and Silver

David