A strong dollar and selling pressure take gold lower

It was a combination of U.S. dollar strength and market participants bidding the precious yellow metal lower that resulted in today’s substantial decline. As of 4:07 PM EST, gold futures basis, the most active April 2021 Comex contract is currently fixed at $1677.70 after factoring in today’s decline of $20.90 (1.23%). Spot gold prices also sold off with the same strong decline. According to the KGX (Kitco Gold Index), physical gold is currently fixed at $1680.60 after factoring in today’s decline of $19.50. On closer inspection, it was dollar strength that took away $8.50 of value, with the remaining $11 decline directly attributable to market participants actively selling gold.

With the recent rise in yields on U.S. bonds coupled with a strong performance in the U.S. equity market that market participants are reluctant to put large capital expenditures into the safe-haven asset, gold. U.S. Treasuries continued to offer higher yields, with the ten-year note trading above 1.6%.

The Dow Jones industrial average gained 306 points (+0.97%) in trading today. However, the tech-heavy NASDAQ composite did lose 2.24% as the apparent rotation out of tech-related companies into financial and retail-based companies continues.

There is also a distinct correlation between the rising value of the cryptocurrency Bitcoin, which has greatly influenced the market sentiment for gold. Bitcoin has gained approximately 30% in value over the last month. This dramatic return has most definitely resulted in market participants rebalancing their portfolio in regards to the safe-haven asset class, moving the capital from their holdings in gold into a more lucrative (and volatile) asset class.

Collectively these alternative investment assets offering higher yields in the case of U.S. bonds and solid gains in many sectors of U.S. equities; when coupled with Bitcoin, it has offered market participants solid alternatives resulting in a rotation out of precious metals into these other assets. Considering that ten-year note offered by the U.S. Treasury ten-year note has very little to no downside risk, it has become a favored safe-haven asset class of choice, at least for the moment.

The U.S. dollar continues to gain strength with today’s gain of .48% took the dollar index two 92.43. Considering that it was trading just below 90.00 at the end of February, it has gained well over 2 ½% in the last nine trading days.

While the Federal Reserve continues to maintain its monetary policy, which includes keeping interest rates between zero and 25 basis points (1/4 of a percent), market participants are optimistically looking forward, anticipating that a revived economic scenario in the United States will inevitably lead to higher interest rates. This continues to be in contrast to statements made by Chairman Powell that they in no way have changed their monetary policy and are committed to keeping interest rates at their current Fed funds rate through the end of this year as well as 2022.

However, recent gains in U.S. fixed income bonds and notes, when coupled with a stronger U.S. dollar, a rising U.S. equities markets, and lastly, the strong gains in Bitcoin, have created a shift in market sentiment away from gold and into the above-mentioned investment vehicles. Gold will remain under pressure until there is a shift in market sentiment for one or more of these vehicles.

Wishing you, as always, good trading and good health,
 

By Gary Wagner

Contributing to kitco.com

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Brutal March? Gold price at risk of a flash crash to $1,600 – analysts

The first week of March was a damaging one for gold as prices broke through the psychological level of $1,700. Now, the key question on everyone's minds is just how much lower can gold drop before bottoming out?

Down more than $200 since the start of the year, gold investors are looking for the magical line in the sand that will signal the end of the downtrend. At the time of writing, April Comex gold futures were trading at $1,699.10, down 2.8% on the week.

The main culprit has been the rising U.S. 10-year Treasury yield, which has triggered a stronger U.S. dollar that is weighing on gold. And this week's Federal Reserve Chair Jerome Powell's message that largely ignored inflation concerns and rising yields did not help.

"Powell's failure to push back on the recent rise in bond yields took away the luster of holding gold. It has provided a short-term bullish outlook for the dollar, which is weighing on gold. We are going to have a week and a half of no comments from the Fed, which is their blackout period until the next monetary policy meeting on March 17," OANDA senior market analyst Edward Moya told Kitco News. "We'll see the bond market run free. Right now, there are some short-term pressures that could keep gold vulnerable."

Markets are worried about the sudden rise in yields. There was an expectation that Powell would hint at some plan to prevent the long-end of the curve from rising further, said Kitco Metals global trading director Peter Hug.

"In response, stocks and the commodity complex as a whole sold off on higher rates and a stronger dollar," Hug said on Friday.

However, analysts still expect the Fed to get involved eventually – most likely when the 10-year yields rise north of 1.75%.

"A move above 1.7% in 10-year Treasury yields is not a big deal. If we get north of 1.75% and flirt with 2%, that would be significant," Hug said. "North of 1.75%, the Fed will start to look at it more seriously."

Once the 10-year starts challenging 2%, it will ring alarm bells; the equity markets will react negatively, TD Securities head of global strategy Bart Melek said.

"This will upset this whole idea of stable monetary conditions environment," he said. "What the Fed is looking at is not just yields but the broader financial conditions. Once the central bank makes it clear that there is a red line for the yields, we could see gold do better."
 

'Gold is at a critical point'

As the focus remains on the rising yields and the dollar, what does it mean for gold in the short-term?

Gold could be looking at the $1,685 level next week, which should hold, according to Hug. "Gold is at a critical technical if you follow the Fibonacci indicators," he said. "I expect a bounce here from a technical perspective – gold to close and trade $1,700 next week, which is a psychological level. The $1,725 is the next level of resistance, followed by $1,750."

However, there is a clear risk of a drop towards $1,660, and even lower, Melek pointed out, citing the need for the Fed to clarify exactly when and under what conditions could the central bank intervene to control the yield curve. "Good economic numbers next week could make the low-1600s a zone rather than a hard stop," he said.

If gold fails to hold $1,675 next week, the market could see $1,610, Walsh Trading co-director Sean Lusk told Kitco News. "We need to settle at least above $1,675 next week, or all bets are off."

If key support levels don't hold, gold could see a flash crash to $1,600, added Moya, noting that this would be a likely bottom.

"I anticipate that right now we could see $1,600 – a flash crash. But that is also where the buyers would strongly emerge. This will be an attractive buying point for many institutional investors," Moya said.

Hug is still constructive on gold in the medium-term, adding that the fiscal stimulus is not going away any time soon with the Fed not planning to reverse policy until 2022. "If the long-end of the curve continues to ratchet higher, the Fed will create action to bring it under control," he noted.

Melek is also optimistic on gold towards the end of 2021, noting that prices will be significantly higher going into 2022.

"There are massive amounts of debt, concerns about currency devaluation, and the government has no choice but to monetize all that paper. We will have inflation. And once the market gets tuned to that, long positions will return into gold," he said.
 

Events to watch next week

Economic data will continue to improve next week, and eyes will be on the progress around the $1.9 trillion stimulus package over the weekend.

"Chances are you are going to see a lot of optimism as the outlook continues to improve. We'll start to see Texas reopen, and it will be very positive for the labor market and the economic activity. There is a strong upside for the economic data. That will drive yields higher," Moya said.

Virus mutations and their impact on the U.S. is one thing to keep a close eye on because it could derail the much-expected economic recovery, he added. "If virus mutations become an issue in the U.S., it could derail the reopening idea, bringing yields back down and gold back up."

U.S. inflation data will also be important next week, with market consensus estimating the annual core CPI number to be at 1.4% in February.

"This week headline inflation is likely to move a little higher primarily due to rising gasoline prices with the annual rate of headline inflation set to head to 1.6% from 1.4% while core (ex-food and energy) stays at 1.4%," said ING economists.

On top of that, the Bank of Canada and the European Central Bank will be making their monetary policy announcements on Wednesday and Thursday, respectively. No significant changes in rates are expected. Traders will also be watching U.S. jobless claims on Thursday and the PPI data on Friday.
 

By Anna Golubova

For Kitco News

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Gold and silver edge higher leading into the EU open

Gold and silver have started the session higher but in recent days when this has been the case, the sentiment has turned later in the sessions. The yellow metal is trading around half a percent higher leading into the EU open but the daily chart structure still looks more bearish than silver.

After inheriting bearish sentiment from the US bourses indices in the Asia Pac area are softer this morning. The Nikkei 225 (-2.13%), ASX (-0.84%) and Shanghai Composite (-2.05%) are all trading in the red this morning. There was a surge in sovereign bond yields once more and this dragged equities lower.

In the FX markets, it was once again the antipodeans that outperformed. NZD/USD traded 0.32% higher while AUD/USD was the outperformer rising half a percent. Having had some news from OPEC, spot WTI trades higher by 1.25% while copper moved 0.35% lower.

We heard from some central bankers overnight, RBA's Kearns says house price gains are not a concern right now and it is to be expected.

Sticking with central banks, RBNZ Gov Orr stated central banks globally are aiming to overshoot inflation targets.

Fed's Evans said that he does not think the Fed will need to change the duration of their bond purchases. He also said he views the current rise in yields as healthy.

Reuters reported that China's $1 trillion sovereign wealth fund (China Investment Corp (CIC)) is scouting for long-term investments in the United States.

In terms of data, the Australian trade balance for January AUD$ 10,142m surplus (vs. expected AUD$ 6850m surplus) and retail sales (MoM) for January came in at 0.5% vs 0.6% expected.

On the COVID-19 front, Australian PM Morrison says the AstraZeneca vaccine will begin to roll out from Friday. German Chancellor Merkel also had her say noting that vaccinations are the way out of the pandemic.

Looking ahead to the rest of the session highlights include the OPEC meeting, construction PMI's from the major nations, EU retail sales, US initial jobless claims and the all-important comments from Fed Chair Powell. We could also hear from ECB's Centeno and Knot.

 

By Rajan Dhall

For Kitco News

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David

Gold trades slightly lower at the EU open

After bouncing off the lows during yesterday's session gold and silver are back in negative territory on Wednesday. The yellow metal trades 0.22% lower at $1734//oz, while silver trades around flat.

After inheriting a negative tone from Wall Street bourses in the Asia Pac area turned it around to push higher. The Nikkei 225 (0.51%), ASX (0.82%) and Shanghai Composite (1.95%) all closed in the black.

FX markets were a bit flat overnight, the dollar index traded just under flat and the biggest mover was GBP/USD which moved higher by 0.19%. Looking at some of the other commodities, copper trading half a percent in the red but oil has pushed higher once again by 0.85%.

There was lots of data to digest overnight, Caixin Services PMI (Feb) 51.5 m/m (prior) 52.0, this shows that the services sector in the nation is still in expansion.

Australia GDP for Q4 2020 +3.1% q/q (expected +2.5%), Australia AiG Construction PMI for February 57.4 (prior 57.6), Australia, Markit Services 53.4 and Composite 53.7 PMI for February (final)

In New Zealand, ANZ Commodity Price index for February +3.3% m/m (prior +3.6%) and New Zealand Building Permits for January +2.1% m/m (prior +5.1% m/m)

There were reports overnight that Goldman Sachs has forecast a jump for US inflation, but to subside by year-end. Many analysts are predicting a rise in inflation as commodities prices soar but interestingly the investment bank feel like it could subside earlier than some other forecasts.

In China, the financial press reported that the PBOC may (targeted) cut the RRR this month. The PBoC have stated they could use rates rather than QE to ease policy so maybe this is one signal towards that change.

Today is the UK budget and it has been reported that UK chancellor Rishi Sunak will extend the furlough for UK workers through the summer, to the end of September. Big questions remain about if the chancellor will raise taxes.

Looking at developments with the coronavirus, US President Biden says every American can get vaccinated by the end of May. Sticking with COVID-19, German Chancellor Angela Merkel proposed a four-step lockdown easing strategy

Looking ahead to the rest of the session highlights include services and composite PMI's from the major nations, OPEC meeting, EU PPI, US ADP NFP, weekly DoE's and comments from RBNZ's Orr, ECB's Schnabel, de Guindos Panneta, Fed's Bostic, Evans, BoE's Tenreyro and German Buba President Weidmann.

By Rajan Dhall

For Kitco News

 

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David

Gold and silver struggle leading into the EU open

Gold and silver have moved lower overnight into pretty bearish territory. After a good start to the session yesterday, both precious metals closed lower and leading into the EU open gold trades at $1719/oz.

All of the major bourses in the Asia-Pac area are in the red as risk sentiment was poor. The Nikkei 225 closed down 0.86%, the ASX moved 0.40% lower and the Shanghai Composite is 1.21% in the red.

In the FX markets, the dollar traded higher against most of its major counterparts. Out of the major pairs, NZD/USD was the biggest movers trading 0.50% in the red. In other commodities market, the negative sentiment hit spot WTI (-0.19%) and copper (-0.32%) too.

Lots of news from central banks overnight but first up, ECB's de Guindos said "If the yield rise has a negative impact on financing conditions, we are open to recalibrate.".

China's banking regulator Chair says China to reduce leverage, for a while China had been pumping liquidity into the markets it seems as if there could be a pause. On the other end of the scale, further stimulus could be coming from South Korea as they announce an extra budget.

We also heard from RBNZ's Hawkesby who said the bank can cut cash rate if needed, can increase bond purchases if needed.

It was also the Reserve Bank of Australia meeting overnight, the RBA decided to maintain the current policy settings. The board does not expect tight labour market, high wages growth until 2024 at the earliest. On the positive front, the Australia economic recovery well underway, stronger than was earlier expected.

The FT reported overnight that the Brazilian variant of the coronavirus evades natural immunity and the current vaccines could be less effective.

Looking ahead to the rest of the session highlights include German employment data, EU CPI, Canadian GDP and we are also set to hear from Fed's Daly, Brainard, ECB's McCaul, Panetta,
 

By Rajan Dhall

For Kitco News
 

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David

Losing streak – Gold price down nearly $200 since start of the year, what's next?

Gold is looking at its second month of losses in 2021 as markets wrap up February, and analysts warn of more downside action with the precious metal testing critical support levels.

After kicking off the year around $1,912, the precious metal touched a fresh eight-month low of $1,714 on Friday — down nearly $200 since the start of the year.

And if gold price fails to hold $1,725 or $1,700 next week, the selloff might not be over, analysts told Kitco News. At the time of writing, April Comex gold futures were trading at $1,729.10, down 2.61% on the day.

"Gold broke through recent lows and all the weekly averages," said LaSalle Futures Group senior market strategist Charlie Nedoss. "We could test $1,700 next week."

The main downward triggers for gold have been the rising U.S. 10-year Treasury yields, which hit a one-year high of 1.6% overnight, and a stronger U.S. dollar.

Friday's selloff was also accelerated by technical selling after the metal fell below the 200-day moving average, Kitco Metals global trading director Peter Hug said.

"Right now, you got computer selling accelerating the move lower," Hug said. "When we spoke last Friday, we were looking for an upward move in gold. But when we got to $1,817 on Monday, the 10-year yield was around the 1.20% range, now it is north of 1.50%."

This advance is important in how it compares to the rise in yields in other countries, Hug pointed out. "It is significant in the sense that European rates and Japanese rates are still at zero. You have to compare yield returns between countries. This is why you would expect the dollar to be stronger than where it is right now based on yields rising," he explained.

Investors are also starting to exit equities and turn to cash, which is bad for gold, added Hug. "In the context of equity markets, they are starting to take it on the chin with higher yields. Some people are exiting the equity market and moving into cash. This is why you have weakness in commodities as well," he noted.

Next week, the $1,660 level is very much a possibility, said TD Securities head of global strategy Bart Melek.

Markets are more optimistic, noted Melek, pointing to stimulus progress and quicker-than-expected vaccine deployment. The growing concern now is stimulus money accelerating inflation and steepening the yield curve.
 

Fed, yields and inflation

Until the Federal Reserve can successfully reassure the markets that it won't be raising rates sooner-than-expected and maybe even signal that it might consider looking at yield-curve control, anxiety will persist.

"As long as there is that ambiguity, they can say that they will allow inflation to run hot, but as long as the curve steepens, gold will have a concern that the Fed is not committed to its ultra-loose policy," Melek said. "This is why gold could settle down even lower before bouncing higher."

Equities are starting to tank every time yields are going up, as investors are worried that the Fed is underpricing inflation.

"If U.S. Treasury Secretary Janet Yellen or Fed Chair Jerome Powell come out and maybe even allude to higher inflation expectations and say that they will keep the yields down, gold will take off," said RJO Futures senior commodities broker Daniel Pavilonis. "But it might take for yields to rise to 2% before any response from the Fed."

The Biden Administration wants to continue to see the easy monetary policy, more stimulus, and a strong stock market. "But the more stimulus they get out, the more yields are going higher. They need to admit to the problem and continue with the stimulus," noted Pavilonis.

Longer-term, it is a whole different story as the U.S. economy will have to deal with massive dislocation in terms of businesses being closed, requiring low interest rates.

"Eventually, we should see gold better, especially with the record debt and equity market is risk-off sentiment," Melek stated. "Once we settle and it becomes apparent that the U.S. economy is not that wonderful, there will be a rebound in gold. The market will get around to that idea, and gold will start to move up. We could see this at the start of the second quarter."

Data to watch

There is a number of Fed speakers to watch next week, especially as analysts question whether the Fed will address the sudden rise in yields.

"The week will see a whole host of Fed speakers, including Fed Chair Powell, providing the Fed with an opportunity to slow the Treasury decline by at least starting to express some concern – which has been notably lacking so far," said ING FX strategists.

Fed's Powell is scheduled to speak about the U.S. economy on Thursday at The Wall Street Journal Jobs Summit. The event will be live-streamed.

In terms of macro data, there will be the U.S. ISM manufacturing PMI on Monday, the ADP nonfarm employment change and ISM non-manufacturing on Wednesday, jobless claims and factory orders on Thursday, as well as the biggest event of the week — nonfarm payrolls on Friday.

Market consensus is calling for the February employment report to show an addition of 165,000 jobs and for the unemployment rate to stay at 6.3%.

 

By Anna Golubova

For Kitco News
 

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David

Markets have reached multi-year high after ‘epic recovery’ – Gareth Soloway

The equities markets have reached a top and are due for a pullback by about 15% – 20% in the New Year, said Gareth Soloway, chief market strategist at InTheMoneyStocks.com.

“We’re now getting to a point where we have such inflated valuations that if you don’t get this monstrous beyond 35% earnings growth [that some analysts are forecast] then markets are going to sell-off pretty sharply,” Soloway said.

While the S&P 500 has broken out above its multi-year trendline, history suggests that every time this has happened in the last few years, a correction follows, Soloway noted.

“While you inched above [the trendline recently], this is what I would call the lighter holiday volume traffic, where if you have less participants in the markets, things can overshoot just a bit, I’m not sold that this is breaking out to the upside just yet. To me, this is still waffling around the trendline and very likely should break down coming into January,” he said.

Importantly, market gains usually coincide with high levels of unemployment.

“When unemployment was maximum in March, 2009, we actually got a big market move, percentage-wise, during that period. As unemployment comes down, you actually see the market gains coming down, so the idea here is that the market is always forward-thinking. The more it looks into the future and factors in good news, it goes up really quickly, but as that period actually arrives, it doesn’t have much more in it because it’s already factored that in, so I think that’s iwhat’s going on here,” he said. “That’s why I think you could be in a multi-year high.”

 

By David Lin

For Kitco News

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David

Gold prices reach $1911, the 100-day moving average then corrects to close lower

Based on the optimism that the House and Senate had reached an agreement in regards to the revised bipartisan fiscal stimulus bill on Sunday, gold futures traded to an intraday high of $1912 overseas last night in London. This price point is exactly $0.40 above gold’s current 100-day moving average which is currently fixed at $1911.60.

However, at roughly 3:30 AM EST gold futures had already sold off from the intraday highs of $1912 and was trading just below $1900 before trading sharply lower. Over the next hour of trading, between 4:30 and 5:30, AM EST gold pricing dropped from $1897 to $1859 as news surfaced about concerns that the Covid-19 virus had mutated creating a new variant of the novel strain of coronavirus.

According to MarketWatch, “Worries about increased lockdown procedures in London and other parts of the world drove investors to the perceived safety of dollars and compelled some traders to momentarily sell some of their bullion holdings… Bullion has tended to slide, at least momentarily, as worries about the virus have caused broader selling in risk assets and prompted some flight to cash and out of precious metals.”

The article cited a research note on Monday written by Edward Moya, Senior market analyst at Oanda who said, “Today’s price action for gold reminded traders of the panic selling that occurred in March.”

The news of a new coronavirus mutation dampened the optimism that the House and Senate had finally reached an agreement. The $900 billion bipartisan aid bill was voted upon today and passed in both legislative branches. This took gold prices off of their intraday low, with the most active February 2020 Comex contract currently fixed at $1881.70, after factoring in today’s decline of $7.20. However, the current price is $30 below the highs achieved overseas.

This indicates that there is major technical resistance at $1911. The inability for gold to hold pricing above $1900 also suggests that there could be more selling pressure as market participants await more clarity on the new variation of the coronavirus and its implications on whether or not the current vaccine will also protect individuals against this new variation.

We will focus upon the recent acknowledgment of the mutation of the coronavirus as well as discuss our outlook for the precious metals in greater detail tomorrow. At 4:00 PM EST Kitco news will stream their first live interview with David Lin and myself Kitco media’s first-ever live event. To view this event simply use this link, kitco.com/news/live to access the live stream.

By Gary Wagner

Contributing to kitco.com

 

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David

How severe are COVID, Brexit impacts on gold bullion supply?
With lockdowns resuming in Europe, concerns rise that London, a major vaulting center, will face logistical challenges in transporting and servicing gold and silver bullion, similar to what happened in March that led to shortages of the physical precious metals markets.

Ruth Crowell, chief executive of the London Bullion Market Association (LBMA), said that vaults and service providers are more prepared this time around.

“This is something we talk about in terms of potential market disruptions, and part of our role in terms of being that point of contact for the infrastructure providers here in London is talking to the vaults and the carriers about how are you ready…for COVID challenges as well as Brexit challenges. I think the overwhelming response is that they’re very prepared,” Crowell said. “And in some ways having had the challenges of the pandemic in March and April has made the market more resilient to those challenges up ahead.”

 

 

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