Gold price advances as inflation fears grow even with hawkish Fed

Gold futures had respectable gains in New York trading today. The most active April 2022 contract gained $14.20 and as of 4:47 PM, EST is currently fixed at $1822. Considering the Federal Reserve’s updated monetary policy, which is more hawkish and the most recent statement from last month’s FOMC meeting and last week’s strong jobs report, gold has been extremely resilient and continuing to gain in value.

Gold was trading at approximately $1830 before the release of last month’s Federal Reserve monetary policy statement and traded to a low of $1814 during Chairman Powell’s press conference. During the week beginning on January, 24 gold opened at approximately $1835 and closed on Friday, January 28 at $1784. However, over the last two weeks, gold has had significant gains closing at $1808 last week and gaining over $14 today, taking it to $1822. At current pricing gold has almost fully recovered from the declines of the week beginning January 24.

Gold’s resilience is apparent in light of last Friday’s jobs report which came in well above the forecast from economists polled by the Wall Street Journal which was expecting 150,000 new jobs. The actual number of new jobs added according to the U.S. Labor Department was an additional 467,000. Gold continues to rise against strong headwinds resulting from the current demeanor of the Federal Reserve and a strong jobs report.

The strength in gold pricing is based upon two primary factors. First, gold has been buoyed by real concerns and fears about inflation levels. Second is the uncertainty of the current geopolitical risks between Ukraine and Russia.

Inflationary fears grow

Currently, the CPI index is at 7% based on last month’s report which is at a record 40 year high. On January 28, the Bureau of Economic Analysis reported that the PCE index grew to 5.8% in December; this level is now also at a 40 year high. On Thursday of this week, the BEA will release its most current report for January on the CPI index. According to analysts polled by Bloomberg, Thursday’s report is expected to rise to an epic level of 7.3% over last year.

If the forecasts are correct and the inflationary pressures vis-à-vis the CPI come in at 7.3%, it will only strengthen the resolve of the Federal Reserve to be more aggressive on raising interest rates in March. According to Reuters, “U.S. inflation figures for January are due on Thursday, with markets now pricing in a one-in-three chance the Fed might hike by a full 50 basis points in March.”

That forecast is very close to the CME’s Fed watch tool that is predicting that there is a 25% likelihood that the Federal Reserve will raise rates by ½ % in March.

On the Russian front

The current geopolitical tensions between Russia and Ukraine continue to grow, with NBC News reporting that Russia is pessimistic about a resolution resulting from diplomacy. “Entering a critical week in the standoff over Ukraine, neither Russia nor the United States sounded optimistic about intensifying diplomatic efforts to de-escalate tensions.” According to the NBC News article titled Russia has massed 70 percent of forces needed to invade Ukraine, “Russia has already assembled 70 percent of the forces it would need to launch a full-scale invasion of Ukraine, a U.S. official with direct knowledge of the latest government assessment said late Friday amid spiraling tensions in the region.”

These two factors have been ultimately supportive of gold pricing and will continue to not only support gold pricing but move them higher in the upcoming weeks ahead.

 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

Gold price holds $1,800, but can Fed's 50-point hike trigger selloff?

The gold market is stuck at its all too familiar $1,800 an ounce level as markets start to price in the potential of a 50 basis points rate hike in March. The focus next week is on the latest U.S. inflation numbers.

The most anticipated data point of the week shocked the markets on Friday as investors digested the U.S. economy reporting strong hiring and higher wages, with 467,000 jobs created in January.

"Many on Wall Street were expecting a negative number. Instead, we saw robust hiring, higher wages, and more Americans returned to the workforce. Treasury yields skyrocketed alongside the dollar," OANDA senior market analyst Edward Moya told Kitco News.

In response, gold tumbled, but strong buying interest below the $1,800 an ounce level has helped gold recover. The April Comex gold futures were last trading at $1,806.20, up 0.12% on the day.

In light of strong employment data, markets are starting to price in a 50-basis-point rate hike in March.

"For gold, the biggest headwind has always been how aggressive the Fed will have to be with tightening policy," said Moya. "With a couple of hotter inflation reports coming before the March FOMC meeting, the base case is quickly becoming for the first-rate hike to be a half-point interest rate increase."

And an environment with surging global bond yields is never good for gold. But what the recent trading pattern shows is that with gold and bond yields, it is no longer a one-way trade. "If we are talking about Treasury yields going up another 30 basis points, that would usually mean gold at $1,650. But that's not the case and is not what's happening now," Moya said.

Gold to take on $1,900 by year-end but 'boring' $1,800 level will be sticky – StoneX

The good news for gold is that there are buyers below the $1,800 level. However, if that changes, the precious metal could be in trouble.

"It will be a choppy period for stocks and gold going into March. We are probably going to see more inflows into gold just because of significant geopolitical risks and inflation pressures. Bitcoin is starting to compete with gold again as institutional money is trying to catch a bid," Moya said. "But gold buyers do emerge on dips, showing that for a lot of investors, gold is still an inflation hedge and a safe haven."

On top of the Fed uncertainty, markets are also dealing with a hawkish tilt from the European Central Bank and the Bank of England.

Despite keeping its key rate unchanged at -0.5% this week, the ECB president Christine Lagarde told reporters that she is growing more concerned with the recent surge in inflation.

Her comments come after the euro zone's inflation data showed the cost of living jump a record 5.1% in January.

That Bank of England also stepped up its fight against three-decade high inflation in the U.K. with its first back-to-back rate hike since 2004, increasing the policy rate to 0.5 %.

"Financial markets are pricing in the BoE raising by 50 basis points in March. A lot of tightening is difficult for gold," Moya pointed out.

Gold remains stuck with sideways price action, for now, said RJO Futures senior market strategist Frank Cholly. "A 50-basis-point hike could hurt gold. Yields are moving higher right now, but gold is holding above $1,800, and that's encouraging. Gold should be able to move higher because of global price pressures, but I won't get too bullish until gold makes it above $1,900."

Geopolitical tensions between Russia and Ukraine along with surging energy prices should help gold along, Cholly added.

"Inflation will eventually benefit gold — the high price of energy ripples through the entire economy. Everything requires energy to produce it and to mine it. I expect that the higher costs of energy will inflate the cost of precious metals," he explained. "Geopolitical tensions with Russia could have a big impact on energy prices."

Markets could be looking at $100 Brent oil next week, Moya stated. "This trajectory is getting traction. Geopolitical tensions are heightened again," he said. "The energy story is the biggest risk right now."

A critical gold level to watch is $1,780 an ounce, Moya highlighted. Gold is likely to trade between $1,780-$1,820 next week. If we break below $1,780, it can get ugly. I would be very concerned as far as potential bearish momentum selling."

 

Next week's data

All eyes are on the latest inflation numbers for the U.S., scheduled to be released on Thursday. Market consensus calls are projecting a 7.3% annual headline print for January.

"The narrative of intensifying labor market inflation pressures and strong employment growth when Omicron is supposedly depressing activity only makes it more likely that the Fed will embark on an aggressive series of interest rate increases. We are doubtful on the idea of a 50bp hike in March as a signal of intent to get inflation under control, given comments from officials, but fully expect five 25bp hikes this year, starting in March," said ING chief international economic James Knightley.
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Gold shows resilience gaining value in light of an extremely strong jobs report

Volatility continues to be a prominent factor in gold pricing today. The volatility revolved around the release of the Labor Department’s jobs report for January. Earlier this week ADP released its private-sector jobs report. Economists polled by the Wall Street Journal were expecting an additional 200,000 jobs to be added in January. The ADP report came in well below forecasts indicating that over 300,000 jobs were lost in January, the largest single-month drop since 2020.

The ADP report brought into question the projection for the Labor Department’s jobs report released today. Estimates for today’s report predicted that 150,000 jobs were added last month. Because of the ADP report, economists stated that we could see a negative number in today’s report. In the case of the last two reports economists polled by various new sources were way off the actual numbers. Today’s jobs report revealed that there were 467,000 new jobs created in January, with the unemployment rate remaining unchanged at 4%.

Reuters news service reported today that, “The U.S. economy created far more jobs than expected in January but despite the disruption to consumer-facing businesses from a surge in COVID-19 cases, pointing to underlying strength that should sustain the expansion as the Federal Reserve starts to raise interest rates.”

These factors created volatility in gold pricing over the last couple of days. As of 4:40 PM EST gold futures basis, the most active April 2022 contract is currently fixed at $1807.90, after factoring in today’s net gain of $3.80. That being said, gold opened at $1805.40, traded to a high of $1815.80 and a low of $1792.10.

What is noteworthy is the resilience of gold prices to remain above $1800 in light of such a strong jobs report today. Today’s moderate gain was accompanied by the largest weekly gain since November of last year. Even with the perception that the Federal Reserve continues to maintain a hawkish tone in regards to adjustments made to its monetary policy gold has shown resilience. This indicates that market participants continue to focus upon inflationary pressures above the monetary tightening by the Federal Reserve.

Gold’s resilience to remain above $1800 per ounce was highlighted in a Bloomberg article released two days ago which was titled, “Looks like there’s a whale snapping up gold bullion below $1800”. The article reported, “Spot gold is again bobbing along near $1,800 an ounce, as it has been since mid-2020. The stickiness of that level, particularly as fundamentals turned more bearish, suggests there’s a big buyer somewhere in these waters…Since breaking above the round number in July 2020, the gold price dipped below it 19 times on a closing basis, only to regain its footing.”

 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

Gold and silver push higher ahead of the European open

Gold (0.19%) and silver (0.46%) have pushed higher ahead of the European open. Gold continues to trade around $1800/oz, while silver hovers at $22.50/oz. In the rest of the commodities complex, spot WTI is 0.60% higher and copper is trading flat.

In equities markets, Amazon and Snapchat performed well in the aftermarket sending risk sentiment positive. The Nikkei 225 closed 0.73% in the black and the ASX pushed 0.60% higher. Futures in Europe are also positive.

In FX markets, AUD/USD was the biggest mover losing 0.24% of its value. EUR/USD traded 0.17% following the ECB meeting on Thursday where the pair also climbed 1.19%. In the crypto space, BTC/USD rose 1.62% overnight

 

News from overnight:

Biden to boost project labor agreements for federal construction projects.

In the U.K., pressure is mounting on PM Johnson as four of his top aides quit the party.

It was reported overnight that the U.S. has intel on a Russian plan to fake a pretext for an invasion of Ukraine using a fake video that would build on recent disinformation.

BoJ Gov Kuroda says Japanese consumer inflation is weaker than that in the US and Europe.

The Japanese government is looking at diverting some supplies of gas to Europe.

Japan finance minister Suzuki says the country's fiscal position is severe.

Head of the IMF says its too early to say world is facing an era of sustained inflation.

Germany December factory orders +2.8% vs +0.5% m/m expected.

New Zealand – Building consents/permits for December 2021 +0.6% m/m ( prior +0.6% also).

Looking ahead to the rest of the session highlights include U.S. NFP data, U.K. and EU construction PMI, EZ retail sales, and the Canadian labor market report.
 

By Rajan Dhall

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Gold, silver see modest gains as bulls regaining momentum

Gold and silver futures prices are higher and nearer daily highs in midday U.S. trading Wednesday, on continued short covering and perceived bargain buying. A slumping U.S. dollar index and crude oil prices hitting seven-year highs earlier this week remain bullish outside market forces for the metals markets. April gold futures were last up $7.40 at $1,808.80 and March Comex silver was last up $0.08 at $22.675 an ounce.

The U.S. data point of the day Wednesday was the ADP national employment report for January, which came in at down 301,000 jobs. The report was forecast to show a gain of 200,000 jobs. Markets saw no major reaction to today’s report. The ADP report is the precursor to the more important Labor Department employment situation report that is due out Friday morning. That report is also expected to be downbeat, with its key non-farm payrolls number expected to come in up only 150,000 jobs in January.

Global stock markets were mostly higher overnight. U.S. stock indexes are mixed at midday. The U.S. stock index bulls are having a very good week and are gaining strength and momentum again. Generally good U.S. corporate earnings reports are boosting trader and investor confidence this week. China’s markets are closed all week for the Lunar New Year holiday.

Gold is 'prime candidate' to rally as stocks reverse in 2022 – Bloomberg Intelligence

The key outside markets today see crude oil prices a lower and trading around $87.50 a barrel. The OPEC oil cartel, as expected, raised its collective oil production level by 400,000 barrels per day. The U.S. dollar index is lower today. The U.S. Treasury 10-year note yield is presently fetching 1.797%.

Technically, April gold futures bulls have the slight overall near-term technical advantage. However, a bear flag pattern has formed on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at the January high of $1,856.70. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the December low of $1,755.40. First resistance is seen at $1,825.00 and then at $1,835.40. First support is seen at $1,800.00 and then at today’s low of $1,794.60. Wyckoff's Market Rating: 5.5

March silver futures bears have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $24.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the December low of $21.41. First resistance is seen at this week’s high of $23.06 and the at $23.48. Next support is seen at this week’s low of $22.25 and then at $22.00. Wyckoff's Market Rating: 3.0.

March N.Y. copper closed up 425 points at 447.80 cents today. Prices closed nearer the session high today. The copper bulls have gained the slight overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the January high of 460.10 cents. The next downside price objective for the bears is closing prices below solid technical support at the December low of 419.95 cents. First resistance is seen at today’s high of 450.90 cents and then at 455.00 cents. First support is seen at today’s low of 443.00 cents and then at 440.00 cents. Wyckoff's Market Rating: 5.5.
 

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Biggest gold price losses to hit market in mid-2022, here's why

Gold prices could be looking at sideways price action for the rest of the year. The biggest test comes in mid-2022 when inflation begins to stabilize and markets absorb higher interest rates, according to DailyFX.com senior strategist Christopher Vecchio.

After a quick rally above $1,850 an ounce, gold could already be running out of steam, Vecchio told Kitco News, pointing to a move in the U.S. Treasury yields.

"I don't necessarily have a lot of faith in gold's move higher," he said. "Underlying fundamentals remain a significant concern. We've seen the U.S. Treasury yields, both nominally and in real terms, move significantly higher at the start of 2022. Historically speaking, gold prices tend to go down when real yields go up. And in an environment defined by tighter monetary policy over the course of this year, real yields will continue to move higher."

Vecchio sees gold ending the year at $1,800 an ounce, which is about where it is trading now. At the time of writing, April Comex gold futures were last at $1,801.40, up 0.28% on the day.

"I don't see that gold has a legitimate path higher from here. The fiscal and monetary stimulus impulses are fading rapidly in the United States and in other Western economies. The UK, for example, has already embarked on austerity on the fiscal side. And the Bank of England is looking like they're going to move forward with three or four hikes this year. Here in the United States, we see that it's increasingly unlikely that the Democratic Congress is able to find consensus around a new fiscal stimulus plan, like the Build Back Better program," Vecchio described.

With tighter monetary policy and no major fiscal spending projected for the rest of the year, the outlook for gold looks very neutral.

"As we near those midterm elections, it's going to be increasingly difficult to expect a scenario where we get any sort of big fiscal stimulus out of the U.S. If Republicans do take back control of the House, of the Senate, we go back to a situation we had in the early 2010s when you had a Democrat in the White House and Republicans in control of Congress. Gold prices peaked in 2011. And then they were on a steady decline for about five or six years," Vecchio said.

This environment encourages investors to sell gold during rallies, especially if the Fed succeeds in controlling the four-decade high inflation. The senior strategist estimates inflation to balance out by the end of the year as the Fed proceeds with four rate hikes in March, June, September, and December.

Vecchio is not ruling out inflation returning back under 3% by the end of 2022. "As vaccination rates continue to pick up and more lethal strains of COVID are being replaced with more manageable strains, consumers should shift their spending back towards services and away from goods. And as that spending shift occurs, the supply chain bottlenecks will ease. It would not surprise me if by the end of 2022 we're looking at headline inflation in the U.S. back under 4% or perhaps even 3%," he said.

This macro outlook undercuts gold's appeal as an inflation hedge in the long term, with investors no longer looking for safe havens and opting for assets with exposure to global growth conditions.

"If gold couldn't rally in an environment where we had U.S. government debt surging year-over-year and the Fed pumping trillions of dollars into markets. Then why would it be able to do so in the exact opposite environment where we don't have that fiscal stimulus, where the Fed is tightening and withdrawing its asset purchase program," Vecchio noted.

 

Expect 'much higher' commodity prices if Russia-Ukraine crisis escalates – ING

Gold's Q1 potential

Despite the neutral long-term view on gold, Vecchio said there is a chance to see $1,870 an ounce levels in the first quarter.

"Market chatter of a potential 50 basis point hike in March is misplaced," he stated. "As the market relaxes those very extreme expectations, there is room for gold to continue to move up, which is why I am looking for a potential peak around $1860, $1870 before more selling kicks in."

The markets get jittery around the early stages of the Fed's tightening cycle, which could be bad for equities but good for the precious metals. "It does create a decent environment here for the first quarter. But as we make our way into the middle part of the year, particularly in the second half of the year, that's where I think that that gold could really see its losses accumulate," Vecchio clarified.

 

Risks to the outlook

One potential upside price risk to Vecchio's outlook is the Fed kicking off quantitative tightening too soon and walking into a policy trap.

"It's a three-step process. First, we taper QE, then we move on to rate hikes, and in the late part of the rate hike cycle, we begin quantitative tightening — the balance sheet reduction," he said. "For the Fed to do all three in a very short period of time, it could prove significantly de-stabilizing to financial markets. You could have a knock-on effect where you potentially see spikes in unemployment. The Fed is then forced into a policy mistake where, in the very short term, you still have relatively high measures of inflation and unemployment rates are going back up. That's when the stagflation fears begin to creep in."

Vecchio described this risk as an unlikely one, stating that he would be shocked to see the Fed move forward with balance sheet reduction at any point in 2022.

Another potential upside risk to the senior strategist's gold outlook is a new COVID strain that proves to be just as transmissible but more lethal than Omicron, causing more supply chain problems. "New lockdowns restrictions on social activity would push people into spending more money on goods than services," he said.

Also, escalating geopolitical tensions between Russia and Ukraine or China and Taiwan could trigger another rally in gold. "Any sense that it will be more than just a war of words and we see boots on the ground or ships at sea, that is something that could stoke significant demand for safe havens like gold and silver," Vecchio said.

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Gold is 'prime candidate' to rally as stocks reverse in 2022 – Bloomberg Intelligence

The sentiment in the gold market has reached its "maximum disdain," which means that gold is primed for a reversal and could be ready to rally past $1,900 an ounce, according to Bloomberg Intelligence.

As the Federal Reserve gears up to raise rates and reduce liquidity, the precious metal is a potential top performer this year, said Bloomberg Intelligence senior commodity strategist Mike McGlone.

And after a year of consolidation, gold has formed a solid price bottom at around $1,700 an ounce.

"The elongated stock-market rally, recent commodity bounce and competition from Bitcoin may have pushed the metal close to maximum disdain, solidifying gold's foundation vs. the 'there's no alternative' mantra," McGlone said in a report. "We see gold-bottoming parallels to the 2008 and 2018 foundations."

Gold's potential upside stems from the Fed's hawkish stance to fight inflation as the U.S. stock market gives up last year's gains.

"The fact that gold responded well when the Federal Reserve started the last rate-hike cycle in 2015 — and when it ended in 2019 — may favor the metal in 2022. Not since the 2008-09 financial crisis has the one-year-out fed-fund future priced for a similar extreme disparity of higher hikes as now. This dichotomy about 14 years ago coincided with a gold foundation of around $800 an ounce, on the way to the 2011 peak just above $1,800 — near the current price," McGlone explained.

All eyes are on the Fed's March decision, with the CME's FedWatch Tool pricing in a 92.5% chance of a 25-basis-point rate hike. If all goes according to plan, gold might be looking at a similar launchpad as December 2015, when gold rallied from $1,000 an ounce to above $1,300 an ounce within just six months.

"Gold is a prime candidate to follow the pattern of commodities that trade within narrowing wedge patterns — they have a tendency to break out to the upside. The 2021 range of about $1,700-$1,950 an ounce roughly matches the 50-week Bollinger bands, which are the narrowest since 2018," McGlone stated. "About $1,700 is a solid base for a potential breach of $1,900 resistance."

Expect 'much higher' commodity prices if Russia-Ukraine crisis escalates – ING

Gold is "a primary beneficiary" in response to the Fed's fight against four-decade high inflation. Other assets with a similar outlook are U.S. Treasury long bonds and Bitcoin. In the meantime, the U.S. stock market is looking at a significant reversal of 2021 gains, Bloomberg Intelligence added.

"The remainder of the year faces the potential for some sustained reversion of the about 600% advance in the S&P 500 since the 2009 bottom. The Federal Reserve fighting the highest inflation in about four decades and full employment suggest the party is over. If commodities, equities and bond yields don't reduce liquidity and revert some of the inflation-related advances of 2021, it's more likely the Fed will," McGlone said. "If the SPDR S&P 500 ETF Trust (SPY) continues to wobble, we see greater potential for gold, long bonds and Bitcoin to top the performance scorecard toward the end of 2022."

Gold is wrapping up January down almost 1.7%, trading very close to its key psychological level of $1,800 an ounce. February Comex gold futures were last trading at $1,796.80, up 0.67% on the day.

In the meantime, the S&P 500 is closing January down more than 6%, marking the biggest one-month decline since March 2020.
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David