Gold futures surged higher on dollar weakness and inflation concerns

Gold futures basis the most active June 2021 Comex contract is currently fixed at $1756.50 after factoring in today’s strong gains of $14.90 (+0.86%). Dollar weakness was partially responsible for today’s gains, but the majority of gains were due to market participants bidding the precious yellow metal higher as active buyers. Silver basis the most active May 2021 Comex contract gained $0.28, and is currently fixed at $25.525.

In both gold futures and spot pricing it was dollar weakness that partially supported higher gold and silver pricing. The dollar index lost 40 points, or -0.40% and is currently fixed at 92.10. According to the KGX (Kitco Gold Index) spot gold is currently fixed at $1755.80 which is a net gain of $18.20 on the day. On closer inspection market participants bid the precious metal higher by $11.10. Concurrently dollar weakness contributed an additional $7.10 of value to a troy ounce of gold.

Bitcoin futures which trade on the Chicago Mercantile gained $1735 today, remaining extremely strong with a single coin valued at $58,045.

Much of today’s gains in the precious metals and U.S. equities is directly tied to minutes of last month’s FOMC meeting, which were released yesterday. In addition, the Federal Reserve is not standing alone in their mandate to continue to provide extremely accommodative rates vis-à-vis their Fed’s funds rate which is currently set between 0 and ¼%. Additionally, they continue to add an additional $120 billion per month to their asset balance sheets through purchasing United States bonds and mortgage-backed securities.

The Federal Reserve is not alone in its monetary policy mandate. On Tuesday the IMF backed the Fed’s decision to be patient and not rock the boat by moving interest rates up higher too quickly. The International Monetary Fund made it crystal clear that they intend also to maintain an extremely accommodative monetary policy. In their latest global financial stability report they sent a strong message that there continues to be a need for the current dovish demeanor of central banks worldwide. Both entities are acutely aware that we live in a global economic world in which positive movement in any major country has a spillover effect to other countries, and that raising rates too quickly could easily stifle the economic rebound witnessed in the United States and to a lesser extent in Europe.

Today Chairman Jerome Powell attended a virtual spring meeting sponsored by the International Monetary Fund and the World Bank. He acknowledged that there are a number of factors coming together to support a brighter Outlook for the economy in the United States. Stating that those factors have been instrumental in putting the nation “on track to allow a full reopening of the economy fairly soon.” However, he also spoke about the caveat saying that many Americans who were out of work will struggle to find new jobs because some industries will likely be smaller than they were before the pandemic, as well as a statement saying that “It’s important to remember we’re not going back to the same economy. This will be a different economy.”

While the IMF and the Federal Reserve both continue to maintain their extremely accommodative policies as such, they could have a profound and negative impact on both the euro and United States dollar. This most likely will result in both of those currencies losing value over time and that in turn has created new concerns about rising inflation rates.

 

By Gary Wagner

Contributing to kitco.com

Time to Use the Kinesis Money System

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Gold and silver trade higher leading into the EU open

Gold and silver have moved higher in the Asia Pac session with the yellow metal trading 0.40% in the black at $1743oz. Silver has pushed 0.77% and trades at $25.31oz breaking through the $25.20/oz resistance level on the daily chart.

The indices in the Asia Pac area have traded mixed the ASX (1.02%) and Shanghai Composite (0.14%) performed well while the Nikkei 225 traded just under flat.

In the FX space, the antipodeans traded well with both NZD/USD and AUD/USD moving 0.30% in the right direction and the dollar index (0.06%) is trading just slightly lower overnight. In the rest of the commodities complex, copper is 0.43% in the black and spot WTI dropped 0.64%.

Looking at the news, German factory orders for February pushed +1.2% month on month in line with the analyst consensus expectations. Sticking with data, New Zealand April (preliminary) business confidence fell to -8.4 vs the prior reading of -4.1 & the activity outlook hit 16.4 (prior 16.6).

In an interesting twist, Japanese funds sold the most Australian government bonds ever in February. This could be due to the new measure the RBA took at their last meeting.

Australian PM Morrison says has no advice to change to AstraZeneca vaccine rollout. This is after the EMA report suggested there could be a "possible link" to the blood clots and the vaccine.

People's Bank of China wary of rising household debt as they note that any excess could damage the economic recovery.

Over in the US, US President Biden is considering doubling Obama's climate promise. On many occasions, President Biden has said the environment is an important part of his agenda.

US Senator McConnell says there may be a way forward on infrastructure bill that does not change 2017 tax cuts. This comes as Biden says he is willing to hear proposals for a corporation tax rate below 28%.

Looking ahead to the rest of the session highlights include the ECB minutes, German & U.K. construction PMI, US initial jobless claims, and comments from Fed Chair Powell.

 

By Rajan Dhall

For Kitco News

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Gold and silver trade slightly lower heading into
the EU open

Gold and silver trade marginally lower heading into the European cash equity open.

Gold is 0.13% down at $1741.70oz while silver has lost 0.16% and trades near $25.10/oz.

It was another mixed session for the indices in the Asia Pac area. The Nikkei 225 (0.12%) and ASX (0.61%) closed higher while the Shanghai Composite dropped 0.29%.

In the FX space, USDCAD was the biggest mover and rise 0.30% followed by GBPUSD which lost 0.24%. The dollar index trades flat. In the rest of the commodities complex, copper is nearly half a percent in the red and spot WTI is 0.30% in the black.

On the coronavirus news front, the European Medicines Agency (EMA) are reportedly about to announce that blood clot cases are 'likely' linked to AstraZeneca vaccine. Sticking with the COVID-19 news, Germany are set to miss out on up to 878,400 vaccine doses from Moderna this month. Adding to the vaccine tussle, Australian PM Morrison wants to talk with the EU about getting more vaccine doses.

Over in Japan PM Suga says a snap election before the end of September is "a possibility". He said, “There’s certainly a chance of dissolving parliament before the LDP leadership race,”.

On the data front, there were some Australian (final) Markit PMIs for March. Services hit 55.5 (prior 53.4) and this took the composite reading to 55.5 (prior 53.7). Australia also had their AiG construction PMI for March which came in at 61.8 (prior 57.4).

There were some comments from US President Biden near the U.S. close. He said he will not be telling the Federal Reserve what to do, preserving their independence. He also said the good news is that vaccinations are progressing quickly.

The International Monetary Fund said the global economy will expand 6% this year, up from the 5.5% pace estimated in January. The report said China will contribute more than one-fifth of the total increase.

Looking ahead to the rest of the session highlights include composite and services PMI's from the major nations, Canadian Ivey PMI, DoE's, U.S. & Canadian trade balance and the all-important FOMC meeting minutes.
 

By Rajan Dhall

For Kitco News

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Gold price could double in 5 years, here's why yields are not a problem

The best is yet to come for gold as the precious metal could start rising along with its biggest obstacle — the 10-year Treasury yields — once inflation kicks in, according to one industry expert.

"One of the main drivers for gold demand is a hedge against inflation," Guardian Vaults business development manager John Feeney told Kitco News." Inflation usually comes about after a rapid increase in the money supply. That's exactly what we saw in 2020 — an unprecedented expansion of the money supply globally last year."

So far this year, gold has unperformed as the U.S. Treasury yields climbed, pushing the U.S. dollar higher and the yellow metal lower. But that does not mean this correlation is a permanent one for gold, Feeney pointed out. "There is no economic law that states bond yields and gold cannot rise at the same time," he said.

Looking back, the inflationary period of the 1970s stands out in terms of gold and 10-year U.S. Treasury yields rising at the same time.

"From 1972 to 1982, the yield on U.S. 10Y Treasuries rose from 6% to 15%, the Federal Reserve cash rate went from 5% to 20%, and Gold rose from $50 an ounce to above $650 an ounce in the same timeframe. That's over 1,000% returns for gold in $USD despite the dramatic rise in interest rates and bond yields," Feeney noted. "During the 1970's President Nixon wanted strong economic growth and low unemployment at any cost and was not concerned about rising inflation. The sharp jump in the money supply is what preceded a runaway inflationary period."

Investors can't forget that the 1970s also marked the end of the gold standard, which contributed to the rise in prices.

Right now, markets are fixated on gold's negative correlation to rising yields, but it won't last as inflation kicks in, added Feeney. "If we did see inflation running out of control in years to come, there is almost zero risk in owning gold, as it would have an incredibly high percentage chance of performing well under that environment," he said.
 

Where is inflation?

Last year saw the largest expansion in the U.S. money supply, Feeney pointed out. "The M1 rose from $4 Trillion to $16 trillion in a year, some 300%, and the M2 rose from $15.5 trillion to over $19 trillion, or 22%, in under 12 months," he said.

But where is the inflation? And will it be transitory just as the Federal Reserve says? Feeney points to "velocity of money" as the main reason for the delay in inflation. "Money Velocity (the pace at which it changes hands, and is usually an effect of aggregate demand) has been plummeting, as most of the monetary stimulus hasn't flowed through to the broader economy (or bottom 90%)" he said.

This is about to change as Biden's stimulus package works itself through the system into the hands of everyday Americans. "If money velocity has in fact bottomed, and starts to rise from here, then we should all be very concerned with what is to come," he said.

As people begin to spend all the printed money, price pressures will rise, Feeney warned. "As the economy improves and people come out of lockdowns, it makes sense for the velocity of the money supply to increase. And that's the main reason why we haven't seen inflation as for the CPI over the last ten years. We haven't seen the velocity of the money supply. The rate at which money is changing hands has been dropping since about the year 2000."

Inflation could start making headlines as soon as late this year into next year and then into 2023.

"When I look at the market right now, the bond market is clearly pricing in higher inflation over the next few years, whereas the gold market right now isn't. One of those markets is correct and my money would be on the bond market," Feeney stated. "We will see inflation pick up dramatically in the next few years, and I think it will become a problem to the point where central banks have to raise rates to combat it."

And once inflation starts rising, it could accelerate faster than the Fed expects, which would be troublesome.

"The language that's been coming out of the Fed lately has been similar to Nixon in the fact that they say that they're happy to let inflation run above target for a period as well. They're more concerned about low unemployment and economic growth and less concerned about inflation. The current environment is similar to the 1970s. I feel like it could rise a lot further than what they anticipate and a lot further than what they would like to see.
 

Gold could double in five years

Inflation has been great for gold as investors start to pile into the precious metal. "During an inflationary period, you'll naturally just have a lot of money flow into gold as a hedge. That's exactly what we saw in the 70s," Feeney said. "Inflation can be the number one driver for gold demand if you're in an inflationary period. It allows gold to rise at a much quicker rate than the natural inflation rate."

From a price perspective, gold is currently trading below its 2011 highs. But in terms of all the money that has been created since 2011, "gold could easily double from here," Feeney noted. "It'll take probably at least five years or thereabouts."

Shorter-term, gold does not need inflation to recover above $1,800 an ounce, he added. "We're not going to see a big change in inflation over the next few months. But gold can recover from here purely on a technical basis, given that it's so oversold. It could recover back up to $1,800 on a technical basis."

At the time of writing, June Comex gold futures are trading at $1,729.10, up 0.04% on the day.

 

By Anna Golubova

For Kitco News
 

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Gold prices today drop, down ₹11,000 from record high, silver rates fall

Gold rates today: Prices on MCX fell to ₹45,355 per 10 gram

Gold rates today: Prices on MCX fell to ₹45,355 per 10 gram

A strong US dollar and elevated bond yields put pressure on gold

Gold saw its first quarterly drop since in three years

Gold and silver prices in India edged lower today amid muted global cues. On MCX, June gold futures were down 0.14% to ₹45,355 per 10 gram while silver futures edged lower to ₹65,070 per kg. Gold prices recorded their first quarterly drop since 2018 amid rising bond yields, vaccine rollouts and optimism over a recovery from the pandemic. In addition, holdings in bullion-backed exchange-traded funds have dropped to the lowest since May.

In India, gold prices have been on a downward trend since hitting ₹56,200 in August. For the first three months of the year, gold fell nearly ₹5,000 per 10 gram.

Visitors crowd at the Juhu beach amid Covid-19 coronavirus pandemic in Mumbai on April 4, 2021. (Photo by Sujit Jaiswal / AFP)

"Recovery upticks are in cards as long as gold holds $1680 on the downside. However, a break of $1760 is required to continue major rallies in the counter. Further weakness is seen only a close below $1660," Geojit said in a note.

On MCX, gold has support at ₹44,100 and resistance at ₹46,150.

In global markets, gold was steady today but a stronger US dollar and firm US treasury yields capped its upside. Spot gold was flat at $1,728.60 per ounce. Data released on Friday showed US created highest number of jobs in March in seven months amid more vaccinations and fewer business restrictions and additional pandemic relief money. The better-than-expected data pushed inflation fears but elevated bond yields took some shine off gold.

Gold is typically seen as a hedge against inflation. But higher bond yields increase the opportunity cost of holding gold.

Among other precious metals, silver rose 0.2% to $25.01, while platinum climbed 0.4% to $1,214.03.

Gold traders will be watching the progress of debate over Biden’s $2.25 trillion infrastructure proposal.
 

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Gold/Silver/Commodities – The Second Quarter Outlook

The first quarter is behind us, and the second is off to a bang with Silver +2.09%, Platinum +1.9%, Gold +0.86%, and Copper +0.45%. What is the best performer, you might ask? Crude Oil +3.52%. The Jobs Report came in at +916,000, and in observance of Good Friday, the markets are effectively closed, leaving us with a free day of mapping out some second-quarter predictions.

If you know me personally, I'm a numbers guy, and looking deeper into the Jobs Report, the most interesting number was the 110,000 construction jobs created. Booming construction is often the driver for a "Commodities Super-Cycle" and an excellent indicator for the economy's strength. Looking at basic materials used in construction (Copper, Cotton, Crude Oil, Lumber, Gasoline) gives us some of our "Best Idea" commodity long plays. Last week I wrote an article on how Copper is setting up technically bullish and how increased demand should outstrip supply leaving a potential multiyear supply deficit.

Another best idea, "core long," for this quarter is Crude Oil. We know that as long as the vaccine rollout is effective, Crude Oil demand will see an underlying bid on prices through increased travel consumption. What about OPEC flooding the market? Thursday, Saudi Arabia announced that it would only "gradually increase" production in the coming quarter, which created a knee-jerk reaction in the market, sending prices straight-up $2.12/barrel on the day.

Now that we know inflation is here in housing prices and at the gas pump, what about food prices? Wednesday, the USDA announced that "ending stocks" for Corn fell drastically, and the American Farmer intends on planting one of the tightest crops seen in years. Within minutes of the USDA release, Corn futures skyrocketed "limit-up," leaving little room for any weather disruption this coming summer. Where opportunities remain are in some of the more exotic food commodities such as Sugar and Cocoa. Cocoa should get a boost in the back half of the year once Europe lifts its social distancing restrictions.

I know what your thinking by now, "enough with the commodity talk" I'm here for the nuts and bolts (Gold and Silver). Last week I mapped out a level on Gold with a strong "technical base" to play against in the $1680-1675/oz level. Using Gold futures as a tradable contract with 23-hour access, we can navigate in and out of the market tactically. The reality is that Gold will continue to face headwinds as yields continue to rise, leaving rallies as selling opportunities and steep corrections seen as opportunities to position for Q3 and Q4. The third and fourth quarter is when economic growth will get a reality check, and the market could go back into a "Stagflation" environment. Stagflation backtested is proven to produce the best results for Gold. We created a guide that will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the Gold market. You can request yours here: 5-Step Technical Analysis Guide to Gold.

Silver is still where I see the best potential for upward price movements. Governments globally are working to fight carbon emissions, and the best way is to focus is on wind and solar energy. As solar technology continues to see boosts in wattage, the prospects for tighter Silver supplies remain. We are setting up for another opportunistic Silver option play for early 2022. If you would like to be up to date on the developments of our specific strategies in the futures and commodities markets, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up.

 

By Phillip Streible

Contributing to kitco.com
 

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After the worst start to the year in almost four decades and the worst quarterly performance in more than four years, gold is kicking off the second quarter on a much better note. But will it last?

"Gold has got off to the worst start to any year in 39 years, plunging by 10%, i.e. $190, in the first quarter. This was also its most negative price performance in any quarter since the fourth quarter of 2016," said Commerzbank analyst Daniel Briesemann.

Despite the disappointing news, gold bulls are encouraged by how well the precious metal was able to recover after dropping below $1,680 an ounce this week. At the time of writing, June Comex gold futures were trading at $1,728.00, up 0.72% on the day.

But there is still no clear catalyst for a significant move higher, according to analysts. "We were below $1,680, now we are in recovery mode — above $1,728. I don't see a big catalyst to the upside at this stage," TD Securities head of global strategy Bart Melek told Kitco News. "For the time being, we are range-bound."

Gold continues to take its cues from yields, meaning that when the U.S. Treasury 10-year yields rise, gold drops and vice versa.

On top of that, the U.S. dollar remains "the only game in town," Melek said, which is a problem for gold. "Right now, the U.S. dollar is the only game in town because the U.S. economy is the only game in town. Europe is locking up while the U.S. could be fully vaccinated by May. This is why the U.S. markets will do pretty well. Plus, we are getting a significant commitment to spend more on infrastructure. Earnings and everything else will be good," he said.

Gold will need to see the rest of the world start to recover compared to the U.S., which will trigger a reversal in the U.S. dollar, Melek added. "I'm a little bit more optimistic about Q2, but gold is not going to find its traction until the latter part of the year."

Also, bitcoin's popularity and the impact of higher equity markets should not be underestimated. "It is preventing interest in gold. More people are talking about crypto as a hedge. Right now, there is no big macro catalyst for gold to move higher," Melek stated.

For gold, it is not just about the U.S. bonds selling off, said Phoenix Futures and Options LLC president Kevin Grady. "Gold should be performing better, and it is not. Look at the amount of stimulus thrown into the economy. The 10-year yields shouldn't affect gold as much," Grady said. "Cryptocurrencies is what is hurting gold investments."

Considering all the stimulus out there, gold around $1,700 an ounce does not make sense, he added. "I'm waiting to see if interest will come back into gold."

From a technical perspective, gold is looking better. "Weak longs are out. Positioning is turning. There is significant potential for the upside," Melek pointed out, adding that he still sees gold reaching $1,900 by year-end as inflation picks up.

"Might see inflationary pressure. Fed keeps saying any price pressure this year would be transitory. That doesn't mean that market believes them. If that is the case, gold is in much better shape," Melek said.

Some analysts are more bullish for the second quarter. LaSalle Futures Group senior market strategist Charlie Nedoss said he sees gold going higher next week after it managed to hold $1,700 an ounce.

The U.S. Treasury yields could back off a bit in Q2, noted RJO Futures senior commodities broker Daniel Pavilonis, who is also bullish on gold next week.

"Yields could see a bit of a reprieve. If yields go back down, that is good for gold. In Q1, it was about how quickly yields rose. If they climb slower and in a more controlled way, it would give gold a better play," Pavilonis.
 

Data to watch

The biggest macro event to watch next week will be Wednesday's FOMC meeting minutes from March 16-17.

Also, Fed Chair Jerome Powell will be speaking on Thursday as part of the virtual International Monetary Fund Seminar.

"We doubt the Fed is yet ready to change its dovish tune and – as our bond team concluded at the time of the March FOMC – the Fed has left the long end of the bond market unprotected. Until we see some kind of turnaround in Europe, DXY should continue to edge higher," ING FX strategists said on Friday.

Other data to keep an eye on are the U.S. factory orders and ISM non-manufacturing PMI on Monday, and PPI on Friday.

 

By Anna Golubova

For Kitco News
 

The Best Place to Trade and Store Gold and Silver

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