Gold holds its ground as bond yields hit 2.5%

The gold market is ending the week just above $1,950 an ounce, a slightly more than 1% gain from last Friday; however, investors need to look past the raw numbers and the environment that gold is trading in.

Gold prices have established a new range above $1,900 as the U.S. dollar index holds near a two-year high. Even more incredible, gold is holding firm in the face of rising bond yields. Early Friday, the yield on 10-year notes rose to 2.5%, its highest level in three years.

Some analysts suggest that bond yields have room to move higher as the Federal Reserve looks to tighten interest rates faster than expected. Tuesday, Federal Reserve Chair Jerome Powell shocked markets when he said that inflation is now too high. He signaled that the U.S. central bank could raise interest rates by 50 basis points in May. Markets also see the potential for a second 50-basis-point move in June.

However, the gold market is not taking these threats too seriously. To use an old cliché, some analysts have said that the Fed's bark is worse than its bite.

"It's easy to release an aggressive dot plot, and it's easy to talk tough in press conferences and speeches. But it's a lot harder to actually raise rates seven times in the course of one year and four times in the following year and increase the risk of choking off the economic cycle," said Kristina Hooper, chief investment strategist at Invesco, in a report.

Not only is the Federal Reserve talking tough, but analysts note looking at the big picture, even if the Fed meets its aggressive goals, interest rates will still be around 2%. Meanwhile, annual inflation is currently at 7.9%. Some economists expect that it could drop to between 4% and 6% by the end of the year, but the bottom line is that real interest rates are going to remain in deeply negative territory.

A weaponized U.S. dollar could prompt central banks to diversify with more gold – MKS' Shiels

But it's not just monetary policy driving investment demand into gold. Russia's war with Ukraine continues to support safe-haven demand for the precious metal.

The humanitarian crisis in Eastern Europe continues as the war rages. So far, more than 3.7 million refugees have left Ukraine, and about 6.5 million people have been displaced within the country.

Many geopolitical analysts do not expect the conflict to be resolved anytime soon, so market uncertainty and volatility will remain prominent in financial markets.

However, there is a new element to the conflict as western economic sanctions start to bite and the U.S. dollar is weaponized. Gold could assert itself as a new global currency.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

 

 

David

Gold, silver sharply up on safe-haven buying, inflation worries

Gold and silver prices are are sharply higher in midday U.S. trading Thursday, as safe-haven demand is featured amid marketplace risk aversion that remains elevated amid the Russia-Ukraine war. Sharp gains in crude oil prices this week are also bullish for the metals markets, even though oil prices backed off today. April gold futures were last up $26.70 at $1,964.00 and May Comex silver was last up $0.736 at $25.925 an ounce.

The Russia-Ukraine war and its widespread market implications continue on the front burner. President Biden Thursday is meeting with NATO and EU leaders to discuss the war. The two-day summit will be held at NATO headquarters in Brussels.

There are some reports surfacing that Russian President Putin’s war is producing cracks in the Kremlin. The reports said the Russian central bank chief quit and has left the country, while another official wanted to resign but Putin would not allow it.

Reports said Russia’s stock market has partially reopened and was trading higher, but foreigners have been banned from selling.

The other element impacting the marketplace is inflation, which has intensified because of the war. Rising inflation is historically bullish for metals markets. Global bond market yields have been rising sharply recently, with U.S. Treasury yields nearing three-year highs. The U.S. 2-year and 10-year yield curve is very close to inverting, which would begin to suggest a U.S. economic recession.

It's time to gear up for two 50-point hikes in May and June, says Goldman

The key outside markets see Nymex crude oil prices down and trading around $112.00 a barrel. The U.S. dollar index is firmer today. The benchmark U.S. 10-year Treasury note is presently yielding 2.3%.

Technically, April gold futures prices hit a two-week high today and saw a bullish upside breakout from the recent sideways trading range. Bulls have the firm overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at $2,000.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the March low of $1,895.20. First resistance is seen at $1,976.50 and then at $1,985.00. First support is seen at today’s low of $1,937.40 and then at $1,925.00. Wyckoff's Market Rating: 7.0

May silver futures prices hit a two-week high. The silver bulls have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the March high of $27.495 an ounce. The next downside price objective for the bears is closing prices below solid support at $24.55. First resistance is seen at today’s high of $26.16 and then at $26.50. Next support is seen at $25.50 and then at today’s low of $25.17. Wyckoff's Market Rating: 7.0.

May N.Y. copper closed down 135 points at 476.30 cents today. Prices closed nearer the session low today after hitting a three-week high early on. The copper bulls have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 500.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the March low of 446.85 cents. First resistance is seen at today’s high of 481.75 cents and then at 490.00 cents. First support is seen at 470.00 cents and then at this week’s low of 465.60 cents. Wyckoff's Market Rating: 7.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Gold price at $2,500, oil price at $50 in 9 months?

The war in Ukraine and inflation fears remain the top drivers for gold, which is up around 6% since the start of the year. Here's a look at Kitco's top three stories of the week:

3. Hawkish Powell: U.S. economy 'can handle' six more rate hikes

2. Elon Musk's advice when it comes to high inflation: own 'physical things'

1. What's this year's 'potential end game'? Gold price at $2,500, oil price at $50 – Bloomberg Intelligence
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David

Volatile gold price action is here to stay as safe-haven interest 'reignited' – analysts

Gold could easily make another run at $2,000 an ounce next week as the geopolitical situation is not easing, but the volatile price action is here to stay, according to analysts.

After making a run for record highs last week, gold tumbled below $1,900 an ounce and managed to stabilize just below $1,930 an ounce on Friday. April Comex gold futures were last at $1,927.70, down 0.80% on the day.

Looking ahead, the market is still facing another uncertain weekend on the geopolitical front, with the war in Ukraine remaining the top driver for commodities. "We are watching what's going on in Ukraine. Frankly, nothing is more important to the market. It could shift the calculus on risk," said TD Securities head of global strategy Bart Melek.

Also, many in the gold space remain unconvinced that the Federal Reserve can raise rates six more times without significantly slowing down the economy.

"Gold prices continue to trade above $1,900/oz, despite the first Fed rate hike since 2018. The March meeting was hawkish but did not derail the positive sentiment towards gold," said Standard Chartered precious metals analyst Suki Cooper. "Current geopolitical risk has led to concerns that inflation could surge even higher for longer, reigniting longer-term interest in gold."

These past few weeks, investor interest in gold jumped – a big driver for prices, noted Cooper, warning of more volatility. "While the physical market has come under pressure, growth in investor interest has more than offset this weakness, suggesting that volatile price action is here to stay," she said.

Aside from the geopolitical uncertainty, investors are still digesting the Fed's new hawkish stance.

"Gold's reacted negatively to the Fed, but we saw the metal erase most of its losses after the central bank's announcement. As hawkish as the Fed was, the market is still skeptical that there will be six more rate hikes. That's a very aggressive forecast that didn't align with the Fed's inflation expectations of 4.3% this year," said Gainesville Coins precious metals expert Everett Millman.

Any pullback in those expectations would be positive for gold going forward, Millman added. "I am bullish right now. It is very healthy that gold pulled back this week. At the same time, we have to watch out for more volatility," he said.

Plus, inflation expectations are still bound to worsen after February's U.S. CPI data showed inflation at 7.9% — a fresh 40-year high.

"We still haven't seen the massive spike in food prices translate in. The problem is that 60% of CPI components are up 5% year-on-year," said Melek. "It is no longer transitory inflation. It is aggregate. Inflationary expectations could get de-anchored. As far as gold is concerned, Fed's promise doesn't become restrictive fast enough to fight inflation. This is a positive environment for gold."

IMF's warning: Russia's invasion of Ukraine 'may fundamentally alter' global economic and geopolitical order

A run to $2,000 an ounce level is not being ruled out, but the question is whether gold can stay there, added Melek. Analysts also stopped talking about gold dropping to $1,400. "And that's the trick," said Melek. "If the Fed becomes too restrictive, gold will sell-off. But it will be stronger than we thought a month ago on the downside."

Gold price levels to watch this week are $1,920 as support, followed by $1,875, noted Melek. The first major resistance comes in at around $1,980.

Millman is looking at $1,900 an ounce as support and $2,00 as resistance. "After $1,950, I wouldn't be surprised to see gold break $2,000," he said.

It will be a light data week, with markets watching Wednesday's new home sales and Thursday's durable goods orders, jobless claims, and manufacturing PMI.

"Data includes durable goods orders, which will be dragged lower by a drop in Boeing aircraft orders. Strip these out, and the report should be solid given evidence seen in business surveys, such as the ISM report. There are also plenty of housing data, which should be OK," said ING chief international economist James Knightley.

By Anna Golubova

For Kitco New

Time to buy Gold and Silver on the dips

David

Gold's not afraid of the Fed or seven rate hikes

The humanitarian crisis caused by Russia's invasion of Ukraine continues to build. According to the United Nations 816 civilians have been killed and 1,333 more have been wounded in the fighting.

It looks like, the war is not going to end anytime soon and people will continue to suffer. At the same time the gold market is starting to lose its geopolitical safe-haven premium. Analysts have said that it looks like the conflict will be contained within the country.

At the same time, the impact of the war in Eastern Europe will be felt worldwide and will continue to roil commodity markets. At the start of the week, the International Monetary Fund, warned that the war would lower global growth expectations and increase consumer prices.

"The war may fundamentally alter the global economic and geopolitical order should energy trade shift, supply chains reconfigure, payment networks fragment, and countries rethink reserve currency holdings. Increased geopolitical tension further raises risks of economic fragmentation, especially for trade and technology," the IMF warned.

So even as gold's safe-haven premium starts to wane, there are still plenty of reasons for investors to have the precious metal in their portfolio.

"You don't know when the next geopolitical event will happen. You don't know when the next inflation threat hits, so having long-term exposure to commodities and gold makes sense," said Kristina Hooper, chief investment strategist at Invesco, in an interview with Kitco News.

Many analysts have pointed out that rising inflation remains the biggest reason why investors should hold some gold. Some analysts have recommended an overweight position in the precious metal of between 10% and 15%.

Gold has proven its value as a diversified asset – Invesco's Hooper

Adding to the bullish sentiment in gold is that fact that Federal Reserve has unveiled a clear monetary policy plan. Many analysts have noted that gold traditionally performs poorly ahead of a new tightening cycle but rallies higher once the path has been laid out.

We can see the underlying strength in the gold market. Prices have managed to hold support above $1,900 an ounce even as the U.S. central bank looks to raise interest rates seven times this year and could start to reduce its balance sheet at the next meeting.

Inflation is the biggest reason why gold has been able to withstand the Federal Reserve's new tightening cycle. The latest CPI numbers showed annual inflation rising 7.9% in February.

"If indeed the Federal Reserve does follow through with its plan that will put interest rates at 1.75% by the end of the year. Interest rates will remain under 2% this year. I don't think markets have much to worry about," said George Milling-Stanley, chief gold strategist at State Street Global Advisors. "Now that we've got the reality of the first-rate and we know what's in store for next nine months, we will focus much more closely on inflation numbers. That's probably the right thing to be focusing on."

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold price down but not out as Federal Reserve starts tightening cycle and lowers 2022 growth forecast and raises inflation expectations

The gold market remains under selling pressure but has pushed off its session lows as the Federal Reserve starts a new tightening cycle even as it lowers its growth forecasts and raises its inflation outlook.

As expected, the Federal Reserve raised interest rates by 25 basis points, increasing the range to between 0.25 and 0.50%.

Gold prices were testing support just above $1,900 an ounce and have cut some of its losses in initial reaction as the U.S. treads a delicate course within a sea on instability, created by Russia’s war with Urkaine.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the Federal Reserve said in its monetary policy statement.

Not only is the Federal Reserve rasing interest rates but it is also planning to reduce its balance sheet "at a coming meeting."
 

Despite the growing uncertainty, the U.S. central bank signals that it continues to move forward with rate hikes in an environment of rising inflation and lower economic growth.

Federal Reserve’s interest rate projections, also known as the dot plots, have jumped from December’s forecast. The committee sees the Fed funds rate at 1.9% by the end of the year, up from December’s projections of 0.9%. The new media rate indicates at around seven rate hikes this year.

The Federal Reserve sees slightly slower growth this year as the conflict in Eastern Europe raises economic uncertainty. The Federal Reserve sees the U.S. gross domestic product growing 2.8% this year, down sharply from 4.0% forecasted in December. However, GDP growth is unchanged in 2023 and 2024 at 2.2% and 2.0% respectively.

At the same time, inflation pressures have risen sharply. The U.S. central bank sees core inflation, which strip out volatile food and energy prices, rising 4.1% this year, up compared to December’s estimate of 2.7%. Core inflation will remain elevated, rising 2.6% in 2023, up from the previous forecast of 2.3%. Looking to 2024, inflation is also higher at 2.3%, up from December’s projection of 2.1%.

Overall consumer prices are expected to rise 4.3% this year, up from December’s forecast of 2.6%. Next year headline inflation is expected to rise 2.7%, up from the previous estimate of 2.3%. for 2024 inflation is expected to rise 2.3%, up from the previous forecast of 2.1%.

The Federal Reserve sees a fairly stable labor market in the next two years with the unemployment rate holding steady at 3.5% this year and next, unchanged from December’s projections. The unemployment rate is expected to tick higher to 3.6% in 2024, up from the previous estimate of 3.5%.

While the Federal Reserve didn’t raise rates by 50 basis points as was expected earlier in the year, economists note that the central bank has come out with a strong hawkish stance.

“The Fed threw down the gauntlet as it confronted a broad inflation upsurge, twinning a widely expected and tame quarter point rate hike with a much sterner message about what lies ahead,” said Avery Shenfeld, senior economist at CIBC.

Shenfeld noted that not only does the Fed see seven rates hikes this year but are expected to rise 2.8% by the end of 2023.

Paul Ashworth, chief U.S. economist, also said that the Federal Reserve’s projections are on the hawkish side.

“The Fed's new economic projections suggest that officials are particularly worried about the potential for core inflation to remain high,” Ashworth said. “Even after the rally in rate expectations in recent days, the Fed's own projections are on the hawkish side.”

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold trades under pressure but currently holding the 38.2% retracement as support

As of 3:30 PM, EST gold is trading off by $29.20, or 1.46%, with the April 2022 Comex contract currently fixed at $1956.00. On a technical basis, today’s low of $1952 is just below the 38.2% Fibonacci retracement, which is currently at $1953.80. The data set used for this retracement begins at the low created in December 2021 when gold hit $1752.60 and began a dynamic rally which took pricing to a high of $2078.20 during the first week of March 2022. If gold breaks below the 38.2% Fibonacci retracement level, the next logical place that gold could trade to is the 50% retracement which is currently at $1915.40.

While Russia’s invasion of Ukraine continues, its massive assault market participants are focusing upon what actions the Federal Reserve will take this week. Traders are focusing on the amount of the Fed will raise rates, whether they will raise rates by ¼% as many Fed members have suggested, including Chairman Powell, or a more aggressive move to ½ a percent due to the ever-increasing rate of inflation. This would be the first interest rate hike since March 2020, when the Federal Reserve reduced the Fed’s fund rate between zero and 25 basis points (¼%).

According to the CME’s FedWatch tool, the probability that the Fed will raise interest rates from 0 – 25 basis points to 25 – 50 basis points is 98.3%. With a 1.7% probability that the rate hike will be more aggressive totaling ½ a percent hike to 50 – 75 basis points. However, it is widely believed that a ¼% rate hike has been, for the most part, factored into the current pricing of both precious metals and U.S. equities. U.S. equities continued their price decline as the first trading day of the week began.

With approximately 15 minutes remaining in the trading session, the Dow Jones Industrial Average is relatively unchanged, currently up nine points or 0.03% and fixed at 32,949.60. The NASDAQ composite does appear that it will close strongly lower as the tech-heavy index is currently down by 2.01%, a decline of 259 points and fixed at 12,584.99. The S&P 500 is also indicating that it will result in a decline today, currently trading off by 0.9%, which is a decline of 37 points, with the S&P currently fixed at 4166.92 points.

U.S. debt instruments are also trading lower, reflecting higher yields in anticipation of the Federal Reserve initiating liftoff or interest rate normalization. They almost certainly will announce an interest rate hike after this month’s FOMC meeting which begins tomorrow and concludes on Wednesday. The thirty-year U.S. government bond is currently yielding 2.47%, and the 10-year is currently yielding 2.13% after factoring in today’s drop in U.S. bonds and bills taking yields higher.

Unless there is some peaceful resolution to the Russian invasion of Ukraine, we can expect to see moderate to strong support of gold pricing even at these current levels, which reflect pricing that is near the top of the range resulting from the $300 rally which began in December of last year. Sadly, it does not appear that Russia in any way has de-escalated their attack even as they resumed negotiations via video links this morning.

While the goal of Ukraine continues to be securing a cease-fire leading to the immediate withdrawal of Russian troops from Ukraine, it appears that Russia is unbending, seeking that Ukraine surrender and its troops lay down its arms. With a divide between both sides so deep, it seems unlikely that a peaceful resolution to the conflict will be forthcoming in any short time.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Gold, oil open lower

On Sunday open spot gold dropped $20 hitting $1,970 a ounce.

Oil was down, too, with Brent crude off 0.87% to $111.7 a barrel.

April gold futures last traded at $1,979.3 an ounce, down 0.29%.

Hong Kong's Hang Seng index opened lower, down 1.61% on Monday local time.

Major action in the Ukraine-Russia war over the weekend was a Ukrainian base near Poland getting hit by cruise missiles fired by Russia. Thirty-five people were killed, and 134 were wounded.
 

By Michael McCrae

For Kitco News

Time to buy Gold and Silver on the dips

David

What's next for gold price after making a run for record highs? Fed, Ukraine updates on deck

The Federal Reserve's interest rate decision and developments in Ukraine will dominate gold's price direction next week after the precious metal made a run for record highs.

Gold rallied on its safe-haven appeal this week as sanctions against Russia were stepped up to import bans and the war in Ukraine escalated, creating chaos in the commodities space. April Comex gold futures were last trading at $1,990.50 an ounce after briefly rising above $2,070 an ounce earlier in the week.

"Gold will continue to hover around $2,000 in the short-term. If gold closes at $1,980 an ounce, then I am bullish. If gold rises to $2,010, then I am neutral," OANDA senior market analyst Edward Moya told Kitco News.

The trading range for gold remains pretty broad due to the current volatility in many financial markets. The two leading drivers will be the Federal Reserve's meeting on Wednesday and any new developments regarding sanctions against Russia and the war in Ukraine.

"Gold could trade over the next week between $1,960 and $2,050. It is looking at a pretty wide range given the sensitivity of the situation in Ukraine. And we have the Fed policy meeting, which could provide some big shifts as to how the U.S. central bank will address the inflation outlook and more importantly what will be the path of tightening going forward," Moya said.

Wednesday's afternoon announcement will be followed by Fed Chair Jerome Powell's press conference. All eyes will be on the new economic projections, the dot plot, and Powell's take on the "unintended consequences" of the conflict in Ukraine.

"Powell has to provide clarity. He needs to set market expectations. After this, we'll get a better sense if there could be a risk of a super-sized rate hike over the summer."

Markets are currently pricing in a 95.1% chance of a 25-basis-point hike next week. These expectations were further cemented by the recent inflation data, which showed the U.S. Consumer Price Index (CPI) rising to 7.9% in February, a new 40-year high. Also, Powell testified last week that he would be supporting a traditional 25-basis-point hike at the March meeting.

"Investors have done a U-turn in their assessment of what Russia's invasion of Ukraine will mean for U.S. monetary policy ahead. A brief flirtation with the idea that the war's economic costs would temper the rate hike path has been quickly reversed, with the February CPI data being a further reminder that inflation is breaking out in just about every major category of goods and services," said CIBC World Markets chief economist Avery Shenfeld.

Capital Economics is forecasting new projections to point to at least five interest rate hikes in 2021 and an additional four rate hikes in 2023. This would take the Fed Funds rate to between 2.25% and 2.50%.

"Fed Chair Jerome Powell may offer more details in his press conference about the Fed's plans for quantitative tightening (QT), but we don't expect QT to be launched until closer to the middle of this year," said Capital Economics chief North America economist Paul Ashworth.

'Commodities are better investment than gold' as inflation could hit 10%, says billionaire 'Bond King' Jeff Gundlach

What about gold's pullback after hitting $2,000?

Consolidation after rising above $2,000 an ounce is a good thing for gold, said RJO Futures senior market strategist Frank Cholly.

"A pullback correction is good. It is testing the strength of the market. Gold will continue to march higher to the $2,050 area. I don't think that a rate hike next week is going to hurt the market," Cholly told Kitco News. "Now that we have the big breakout, I remain bullish. The uptrend is still intact. And right now, it is a good buying opportunity."

Gold will easily get back to $2,050 an ounce level in the short-term, he added. Plus, the Fed is now unlikely to surprise with a 50-basis-point hike since it has signaled a more cautious approach when raising rates to avoid throwing the economy into a recession.

Cholly also does not see the war in Ukraine lasting for many months as many fear, which could potentially see gold return to $1,900.

"There will be some resolution sooner rather than later. This is not going at all how Putin planned," he said. "Possible that we have a pullback to $1,900. But even before February 24, when Russia invaded Ukraine, the gold market was starting to take on a bullish tone. Now that we've broken out and are above these levels, I don't think gold is going back down to $1,800."
 

Data to watch next week

Tuesday: PPI, NY State manufacturing index

Wednesday: Retail sales, Fed interest rate decision, Powell's press conference

Thursday: Building permits, housing starts, jobless claims, Philadelphia Fed manufacturing index, industrial production

Friday: Existing home sales
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David