Gold fights against the currents of the dollar, rising yields, equities, and crypto

Gold is undoubtedly swimming against strong currents, which are curtailing any move to the upside. Recently it has been struggling successfully to stay above $1800 per ounce. On Monday as well as today, gold prices came close to testing the 100-day moving average, which is currently at $1792.10, and on both occasions closed just above $1800.

In the case of today’s intraday low of $1794.30 for gold futures, it was dollar strength in trading overseas last night that took prices to that low. However, the dollar closed lower in New York trading, which resulted in gold moving back above $1800. As of 5:30 PM EST gold futures basis, the most active August 2021 Comex contract is fixed at $1803.80, which is a net decline of $7.50. Concurrently the dollar index has come off of the highs of 93.19 achieved last night and is currently trading at 92.84, which is a net decline of -0.015%.

Yields on the 10-year Treasury Note gained 0.0710 or 5.87% and is currently fixed at 1.28%, creating another strong current that is curtailing any upside movement in gold.
 

There is also a case to be made that investment dollars today were flowing into U.S. equities markets. The S&P 500 gained 0.82%, the Dow gained 0.83%, and the NASDAQ composite gained 0.92% in trading today.

 

Cryptocurrencies also showed significant gains today, with Bitcoin Futures gaining 7.07% and Ethereum gaining 8.85%.
 

Investors always look to have their money in asset classes that will return the greatest results. With strong U.S. equities markets and the potential for cryptocurrencies to have found tentative support, it makes it more difficult for gold prices to rise.

 

Market participants await the FOMC conclusion meeting on July 28
 

The future direction of gold prices could certainly be influenced by the upcoming FOMC meeting, which begins on July 27 and concludes the following day when a statement is released, and Chairman Powell has a press conference. The statement, along with Chairman Powell’s press conference, will reveal any change in their current monetary policy.
 

Market participants are also waiting for any announcement by the European Central Bank on Thursday. According to an article by James Hyerczyk written in FX Empire said, “Gold futures are edging lower on Wednesday, pressured by a firmer U.S. Dollar ahead of the European Central Bank (ECB) announcements on Thursday, another rise in U.S. Treasury yields and increasing demand for riskier assets with U.S. equity markets hovering slightly below record highs. Despite having its gains capped, the market appears to be underpinned by some inflows into the safe-haven metal due to concerns over a surge in COVID-19 cases.”
 

The fact that gold remains above $1800 is bullish. Especially as we have seen the dollar move higher, yields in 10-year notes and U.S. equities markets both exhibiting gains.

 

By Gary Wagner

Contributing to kitco.com

 

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Gold bounces back from yesterday's lows leading into the European open

Gold bounced back from the lows of $1795.14/oz seen yesterday to trade at $1817.20/oz leading into the European session. Silver has not recovered in the same fashion as its precious metal counterpart and trades flat at $25.15/oz. In the rest of the commodities complex, after a tough session yesterday, copper has moved 0.69% higher and spot WTI has pushed up a tiny bit after a dramatic -6.80% fall following the OPEC+ decision to increase production.

Risk sentiment was once again poor in the Asia Pac area. The Nikkei 225 (-0.94%), ASX (-0.46%) and Shanghai Composite (-0.11%) all closed lower overnight. Futures in Europe are pointing to a positive cash open this morning.

In the FX markets, the dollar index broke the previous wave high to trade 0.13% higher overnight. The biggest loser was NZD/USD which fell -0.66%. In the crypto space, bitcoin has dipped below $30k again to trade at $29,676 at the start of the session.

Looking at the news from overnight, The PBOC held the 1 and 5-year rates steady today for the 15th month in a row. 1-year 3.85% (as expected) & 5-year 4.65% (as expected).

The New Jersey Attorney General is preparing an order against the bitcoin platform BlockFi.

Japan National Headline CPI for June 2021: 0.2% y/y (vs. expected -0.1%).

The U.S. has formally accused China hackers of a cyberattack on Microsoft.

The U.S. CDC raised the U.K. to its highest risk level and urged Americans not to travel to Britain.

U.S. Senate leader Schumer said he will put forward a motion to vote on the $1.2trl infrastructure bill on Wednesday.

Incoming BoE member Mann said the BoE must not be premature with the tightening of monetary policy.

In Australia, the RBA said they remain committed to maintaining a highly supportive monetary policy and the central bank will not raise the cash rate until inflation is above the 2-3% target range.

U.S. President Biden said temporary price rises (inflation) were expected and it is also expected to be transitory.

Looking ahead to the rest of the session highlights include U.S. building permits and the earnings season continues. Anglo American are a big highlight from the miners.

 

By Rajan Dhall

For Kitco News

 

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Is the U.S. dollar doomed?

The inflation debate is back in the headlines, but gold is trading down nearly 1% on Friday. Analysts are keeping a close eye on the U.S. dollar and the bond market for clues as to where gold might head next.
 

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

1. Hot inflation and better-than-expected retail numbers.

2. Federal Reserve Chair Jerome Powell testifies before Congress.

3. Firmer USD weighs on gold, but the dollar is 'doomed' long-term, says DoubleLine Capital CEO Jeffrey Gundlach.

 

By Anna Golubova

For Kitco News

 

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Don't chase gold and silver at these levels but buy the dips – Carley Garner

Although the first quarter should represent the low in precious metals, one market strategist warns investors not to chase the market at current levels.

In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that she has been bullish on gold since March and is expecting prices to end the year much higher.

However, she added that there is a risk the precious metal could see one more washout before it is ready to rally higher.

"There's some pretty heavy resistance around $1,850. So, if you're trying to buy around $1830, it's a little bit dangerous," she said. "You want to make sure you have some hedges in place."

Garner added that she likes the idea of buying on dips and said there is the possibility gold retests support just below $1,800 an ounce.

Not only is the gold market finding strong fundamental support in a low interest rate environment, but Garner said that the precious metal is also entering a positive seasonal period.

"Late summer, early fall is usually a really good time of year for gold and silver," she said.

Looking at gold's fundamentals, Garner said that she doesn't expect the inflation threat to provide much more support for gold, pointing to the drop in raw commodity prices like the one in lumber prices. The lumber market has given back its gains after seeing a historic rally in the first half of the year. Garner said that she sees similar patterns across a broad spectrum of commodities from hog futures to copper.

However, Garner said that weak commodity prices raise the specter of deflation or even stagflation instead of an inflation threat. It is unlikely that the Federal Reserve will move quickly to tighten its monetary policy in this environment, she added.

Garner said that she expects the deflation threat to reveal itself later in the year as she expects oil prices to fall back to $50 a barrel. She explained that U.S. shale producers have been reluctant to increase oil production; however, with oil now trading above $70 a barrel, crude oil supply is starting to pick up again.

"Higher prices cure higher prices," she said. "Crude oil is going to be the last one to crash. And that's the one thing that really, when we talk about inflation, really hurts everybody."

Looking at gold prices, Garner said that if gold prices can push back to $1,900 an ounce by the end of the summer, then she would expect to see the yellow metal back at $2,000 an ounce by year-end.

Garner noted that once gold finds new momentum, the market is ripe to attract new speculative interest.

"A lot of speculators are net long, but they're holding very small positions based on what we've seen as a historically. So a lot of those people got out of gold at the start of the year have plenty of ammo to put it back to work as things start moving the right way," she said.

For silver, Garner said that the metal has been extremely quiet; however, like gold, she expects to see higher prices by year-end.

"Similar to silver, I don't think we can rule out one more test of the lows, but ultimately, I think we're going to see somewhere between $29 and $31 by the end of the year," she said.
 

By Neils Christensen

For Kitco News

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Gold holds steady above $1800 but fails to truly break out to higher prices

Continued pressure from exceedingly strong U.S. equities markets coupled with dollar strength has curtailed any continuation of the momentum created from the most recent rally. Gold hit an intraday low on June 29 of approximately $1750 and then traded higher for the next five consecutive trading days. This took gold futures above their 100-day moving average, which is currently fixed at $1789.80, before forming a base and trading sideways just above $1800 per ounce.

As of 4:50 PM EST gold futures basis, the most active Comex contract is currently down four dollars at $1806 per ounce. This is a net change of – 0.22%. Dollar strength was a partial contributor to today's modest decline. The dollar index is currently up +0.13%, a gain of 12 points, and fixed at 92.235. This indicates that roughly half of today's price decline in gold can be attributed to dollar strength. However, it was the continuation of an exceptionally strong U.S. equities market that pulled investment capital away from the safe-haven asset and into the risk-on asset class.

The NASDAQ composite gained 31 points in trading today and closed at 14,733.2397, which is a new record high. The S&P 500 also hit a new record high and, after gaining 15.08 points, closed at 4384.63. Lastly, the Dow Jones Industrial Average gained 126.02 points and closed at 34,996.18. This was the highest close on record, although it hit an intraday high on May 10, just above that price point.

Gold has traded from $1750 per ounce to an intraday high last Thursday of $1819. Some analysts believe that this most recent pullback is simply profit-taking following the most recent run-up in gold of approximately $70.

The key elements that market participants are focusing upon are the direction of interest rates as well as any potential retracement from recent gains in the U.S. equities markets. The U.S. 10-year notes have seen diminishing yields which are currently fixed at 1.373%, and the 30-year Treasury bond fixed at 2.002%. Current yields are at their lowest point since February of this year.

In an exclusive interview today with Bloomberg news, the European Central Bank President, Christine Lagarde, was asked if it was time to begin to look at rolling back some of the recent accommodative monetary policies, in which she quickly answered, "This is not the time to consider that."

However, it was reported by Reuters today that the European Central Bank will chart a new policy path at its next meeting to reflect its change in strategy and how to show it is serious about reviving inflation. Last week the ECB announced a new strategy similar to that of the Federal Reserve to tolerate letting inflation run hotter above its 2% goal when interest rates are near zero as they are now.

Reuters reported that "This is meant to reassure investors that policy will not be tightened prematurely and cement their expectations about price growth, which has lagged below the ECB's target for most of the past decade."

The Federal Reserve Chairman Jerome Powell will speak to Congress this week with an update on the Fed's current monetary policy. According to CNBC, a "part of his task will be selling the Fed's still easy policies in the wake of a strong economy and surging inflation." Powell continues to be steadfast that the current accommodative monetary policy will remain fully intact until "substantial further progress" is made towards the Fed employment and inflation goals.

Chairman Powell's difficult task will be to convince Congress that it is necessary to maintain its current dovish monetary policy in light of the fact that U.S. equities continue to rise and GDP continues to strengthen. With inflationary pressures at the highest level they have been at in eight years and a surge in housing prices, this could be a hard sell at best.

The fact that both the ECB and the Federal Reserve have collectively continued to promote their accommodative stance could be the underlying impetus needed to move gold to higher pricing.
 

By Gary Wagner

Contributing to kitco.com

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Gold and silver trade lower leading into the European open

Gold and silver are leading into the first day of the trading week in the red. After closing 1.15% higher last week the yellow metal has lost nearly half a percent to trade at the psychological $1800/oz level once again. Silver has just dipped under the $26./oz mark and the support to watch is holding at $$25.51/oz. In the rest of the commodities complex, copper is down -0.75% and spot WTI is also -0.56% in the red.

Looking at the risk sentiment from overnight, the Nikkei 225 (2.25%), ASX (0.83%) and Shanghai Composite (0.70%) all closed positive leading into the European open (Much of the positive price action could come due to the Chinese RRR rate cut on Friday). Dax and FTSE futures are actually pointing towards a slightly negative open.

In FX markets, the dollar index has moved 0.11% higher and the biggest mover overnight is USD/CAD which trades 0.21% in the black. In general commodities currencies have struggled. Bitcoin is trading marginally higher at $34,341.

Looking at some of the main stories from the weekend and overnight, the Australian regulator APRA says banks must have a plan to deal with negative interest rates by April 2022.

There were reports that noted the China state financial media said that there could be more support for the economy incoming.

ECB head Lagarde says end of PEPP may be followed by a new format of support.

Sticking with the ECB, Schnabel said she does not expect that inflation will get 'excessively high'.

Chinese military confirmed that a U.S. warship unlawfully entered the South China sea.
 

Looking ahead to the rest of the session highlights include comments from Fed's Williams, Kashkari and ECB's de Guindos. There is no real tier one data to look out for.
 

By Rajan Dhall

For Kitco News

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Is Bitcoin evolving into a universal, all-use currency? Lyn Alden on reaching 'steady state' growth

Bitcoin is fast emerging as a viable form of payment, thanks to improvements in its transaction speeds and reductions in costs from layer 2 payment protocols like Lightning Network, but its utility as a currency makes more sense in some situations than others, said Lyn Alden, founder of Lyn Alden Investment Strategy.

El Salvador has recently made Bitcoin legal tender, and in a country where phones are more ubiquitous than bank accounts, transactions may be made easier in some cases with this law.

“The challenging thing there is that because they’re underbanked, it’s sometimes ironically easier to get a cheap smartphone than they can get a bank account, so when you have a free Bitcoin wallet on a cheap cell phone, that actually can make transacting easier in some cases,” Alden told David Lin, anchor for Kitco News. “There is volatility risk, but a lot of them can convert back to dollars if they decide they don’t want to hold large amounts of Bitcoin.”

Consumers should be aware to take on debt in Bitcoin, as generally speaking, any form of debt that is in a different currency than the source of income is risky if the value of the debt rises unexpectedly, Alden said.

Compared to gold, Bitcoin is better for digital transactions, ecommerce, and long-distance money transfers of large quantities, whereas gold would be one of he “worst ways” to transact in any of those domains.

However, gold does enjoy lower volatility, and has low to negligible transaction costs if the transaction is done in person and the vendor accepts gold as a form of payment.

“I like to view Bitcoin as an emergent thing. It’s not something that’s reached its steady state yet,” she said. “Will it go up to $5 or $10 trillion or will it settle down for a while, and so it’s not reached a steady state in the same way that gold or dollars generally have.”

For Alden’s outlook on Bitcoin and gold prices, watch the video above. Follow David Lin on Twitter: @davidlin_TV (https://twitter.com/davidlin_TV).
 

By David Lin

For Kitco News

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