Gold spikes to record high, backs off sharply; bulls now exhausted

Gold and silver prices sharply lower in midday U.S. trading Monday, after gold overnight spiked to a new record high of $2,152.30, basis February Comex futures. Silver hit a seven-month high overnight. The two precious metals markets are seeing the shorter-term futures traders taking profits after the recent solid gains. Importantly, today's price action in gold and silver suggests the bulls are now near-term exhausted and that near-term (but not longer-term) market tops are in place. By this I mean that gold and silver prices have probably peaked for at least a few weeks, it not a while longer, but after that new highs are probable—likely sometime in 2024. February gold was last down $44.10 at $2,046.00. March silver was last down $0.997 at $24.875.

Daily bearish elements for the gold and silver markets to start the trading week are solid gains in the U.S. dollar index, rising U.S. Treasury yields and weaker crude oil prices. However, both metals remain supported by still-overall-bullish technical charts, a generally depreciating U.S. dollar on the foreign exchange market, generally falling bond yields, ongoing safe-haven demand, and notions the major central banks of the world will back off on their interest-rate-increase cycles. A serious escalation in the Middle East turmoil would likely push gold and silver prices higher and in more rapid fashion.

Asian and European stock markets were mixed to firmer in overnight trading. U.S. stock indexes are lower near midday. Risk aversion is keener to start the trading week as tensions in the Middle East are on the rise. Missiles fired by Yemen's Houthi rebels struck three commercial ships Sunday in the Red Sea, while a U.S. warship shot down three drones in self-defense, the U.S. military said. The Iranian-backed Houthis claimed two of the attacks. Meantime, Israel has resumed its military offensive in the Gaza strip.

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The key outside markets today see the U.S. dollar index solidly higher. Nymex crude oil prices are weaker and trading around $73.50 a barrel. The yield on the benchmark U.S. Treasury 10-year note is presently fetching 4.448%.

Technically, February gold futures prices scored a record high of $2,152.30 overnight and then promptly reversed course to sell off sharply and score a technically bearish "key reversal" down on the daily bar chart. That's one chart clue the bulls are out of gas and that a near-term market top is in place. The bulls so still have the overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at today's record high of $2,152.30. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $2,000.00. First resistance is seen at $2,075.00 and then at last week's high of $2,095.70. First support is seen at $2,030.00 and then at $2,015.00. Wyckoff's Market Rating: 7.5

March silver futures prices scored a big and bearish "outside day" down on the daily bar chart today. The bulls appear to have run out of gas. The silver bulls do still have the overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at today's high of $26.34. The next downside price objective for the bears is closing prices below solid support at $23.50. First resistance is seen at $25.50 and then at $25.775. Next support is seen at $24.50 and then at $24.25. Wyckoff's Market Rating: 6.5.

March N.Y. copper closed down 935 points at 383.80 cents today. Prices closed near the session low today. Prices Friday hit a four-month high. The copper bulls have the overall near-term technical advantage but appear exhausted now. Prices are in a six-week-old uptrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 404.45 cents. The next downside price objective for the bears is closing prices below solid technical support at the November low of 362.60 cents. First resistance is seen at 390.00 cents and then at last week's high of 393.30 cents. First support is seen at last week's low of 378.60 cents and then at 375.80 cents. Wyckoff's Market Rating: 6.0.

Try out my "Markets Front Burner" email report. My next one is due out today and is going to be entitled, "When China sneezes…" Front Burner is my best writing and analysis, I think, because I get to look ahead at the marketplace and do some market price forecasting. And it's free! Sign up to my new, free weekly Markets Front Burner newsletter, at https://www.kitco.com/services/markets-front-burner.html .

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

David

Economists, experts, and market participants await Friday’s Core PCE report

The financial markets are currently in the process of factoring in or getting in front of the upcoming release of the core PCE (Personal Consumption Expenditures) report. On Friday the Bureau of Economic Analysis (BEA) will release the most current information on inflation for December. Current estimates are anticipating a continued decline in core inflation from 4.7% in November to 4.4% (year-over-year) last month.

This is welcome news to Americans, but more importantly, is the last critical economic report that the Federal Reserve will have available as it convenes to decide the pace and size of upcoming interest rate hikes. Although Federal Reserve members have expressed mixed messages regarding their opinion on the pace of upcoming rate hikes as well as their upside target to take their benchmark “fed funds” rate to. It is currently widely accepted that the Fed will raise rates by ¼%, the first small rate hike since their first rate hike in March of last year.

The Federal Reserve had maintained rates between 0 and ¼% since 2018. That ended in March 2022 when the Federal Reserve raise rates by ¼%. What followed a series of extremely aggressive rate hikes of ½ a percent in May. Followed by four consecutive ¾% hikes in June, July, September, and November. Finally, in December they only raise rates by half a percent. Collectively the seven consecutive rate hikes took interest rates from near zero to between 4 ¼ and 4 ½%.

It is widely expected that the Federal Reserve will slow the pace of rate hikes with a ¼% rate hike during the January FOMC meeting. The CME’s FedWatch tool currently is forecasting that there is a 99.7% probability that the Fed will raise rates by only ¼% and a 0.3% probability that the Fed will raise rates by ½ %. The Federal Reserve is also on record according to their most recent economic projections released in December of last year that they expect to take their benchmark rate just above 5% and not reduce that level for the entire year and possibly into the first or second quarter 0f 2024.

According to Investing.com the US core PCE index was at 4.7% (year-over-year) in November and is expected to decline to 4.4% in December. This clearly illustrates that the Federal Reserve’s aggressive monetary policy has effectively decreased inflation during 2022. However, the Federal Reserve’s most recent economic which was released at the December FOMC meeting clearly stated that they do not intend to reduce interest rates during the entire calendar year of 2023.

The Federal Reserve was slow to act and made a stupendous blunder by not raising rates until March 2022. This is when headline inflation was at 8.5%. Considering that headline inflation was at 2.6% exactly one year earlier the decision to not raise rates was one of the worst calculations by any Federal Reserve in history. However, the aggressive rate hikes implemented by the Fed last year although extremely painful were correct and did reduce inflation dramatically.

The question now is whether or not the Federal Reserve will back away from its stance of maintaining interest rates at this elevated level throughout the year, or once again become data-dependent and reposition its policy based upon this new data that they have effectively put a dent in inflation.

By Gary Wagner

Contributing to kitco.com

David