Dollar strength today is equal to gold weakness in terms of percentage gain and decline

A surging U.S. dollar continues to pressure gold resulting in a further price decline. Yesterday the dollar index closed at the highest level this year, and today the dollar rally continued and resulted in a new record high for the year. As of 4:30 PM EDT, the U.S. dollar index is up by+0.68% and gold futures are down by -0.68%.

This means that the percentage advance in the dollar index is equal to the percentage decline in gold. Today's example clearly illustrates the intrinsic negative correlation between gold and the dollar. This occurs because gold is priced or paired against the dollar. This also shows that today's selloff in gold did not occur because of selling pressure, but rather dollar strength. The same cannot be said for the dramatic decline today in silver which we will address at the end of this article.

Today the U.S. dollar index gained 0.625 points and is currently fixed at 94.405, by far the highest value in 2021. However, even at this level, the dollar is 10% below the highs seen in March 2020 as well as in December 2016. In both of those instances, the dollar index hit a high just above 103. In March 2020 the dollar closed at 103.50 on a weekly chart which matches the highs achieved in December 2016.

The implications of the highs achieved both in 2016 and 2020 mean that even at this current level the dollar index could move substantially higher. Currently, the dollar's rise has been fueled by recent statements by the Federal Reserve that they are going to begin to wind down their unprecedented accommodative monetary policy that they put in place at the onset of the pandemic in attempts to temper the recession which followed. Now the Fed's accommodative monetary policy has been a key component of the economic recovery that has begun in the United States.

However, there have been real costs to Fed's $120 billion monthly purchases. The balance sheet of the Federal Reserve has now swelled to $8.4 trillion. Although the Federal Reserve has not made it clear when they will reduce their balance sheet, but they have announced that they will "soon" begin to taper their monthly accumulation.

Since the Federal Reserve announced that they will begin to taper their monthly $120 billion of asset purchases (80 billion in U.S. debt and 40 billion in mortgage-backed securities) we have seen the yields in U.S. debt instruments rise dramatically. Yields in the 10-year Treasury notes rose to a three-month high which resulted in the recent strength of the dollar. This strength is a direct result of higher yields in government bonds and notes resulting in the dollar again be favored as a safe-haven asset.

MarketWatch reported that FXTM analyst Lukman Otunuga said, "Yields have risen on expectations for a sooner-than-expected rate hike by the Fed, which could translate to more losses for gold as it would raise the opportunity cost of holding non-yielding bullion."

Gold today lost $11.70 with the most active December 2021 Comex contract currently fixed at $1725.80. Silver prices have also plunged giving up 4.24% today with the most active December contract down $0.95 and fixed at $21.515. Silver has now fallen below the lows of September 2020 at which time silver pricing hit a weekly low of $21.85.

Our technical studies indicate that gold's next level of support occurs at $1712 with stronger support at $1675 which is based upon the double bottom that occurred in March 2020 which also matched the lows of the flash crash that occurred in August following an extremely robust jobs report for July. Major support does not occur until $1628 per ounce which is based upon the 50% retracement of gold's ascent from $1177 up to the apex of $2088.
 

By Gary Wagner

Contributing to kitco.com

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Gold price sees double-digit drop as Yellen says failure to raise debt ceiling will trigger financial crisis, undermine U.S. dollar

If the debt ceiling is not raised in time, the U.S. will default, which would trigger a financial crisis and undermine the U.S. dollar, U.S. Treasury Secretary Janet Yellen told the U.S. Senate on Tuesday.

"If the debt ceiling is not raised, there would be a financial crisis, a calamity. It would undermine confidence in the dollar as a reserve currency … It would be a wound of enormous proportions," Yellen said during her testimony before the U.S. Senate.

A U.S. default would also undermine the confidence in the U.S. government, Yellen added, urging how critical it is to act now.

"It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history. The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession," she stated.

In a separate letter to sent Congress on Tuesday morning, Yellen clarified that the debt ceiling needs to be raised by October 18 to avoid an economic calamity.

"We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18," she wrote. "At that point, we expect Treasury would be left with very limited resources that would be depleted quickly. It is uncertain whether we could continue to meet all the nation's commitments after that date."

Raising the debt ceiling is about paying the existing bills, and it is "necessary to avert a catastrophic event for our economy," Yellen noted.

The gold market struggled in light of Yellen's comments as U.S. Treasury yields climbed to three-month highs and U.S. stocks tumbled. December Comex gold futures saw double-digit losses and were last trading at $1,739.80, down 0.70% on the day.
 

Federal Reserve Chair Jerome Powell also testified alongside Yellen, telling U.S. Senators that potential effects could be "severe" if the debt ceiling is not raised.

Powell was also grilled on inflation, Fed's maximum employment goals, and the recovery progress.

On inflation, Powell stated that price pressures have been elevated and "will likely remain so in coming months before moderating."

Supply bottlenecks and higher demand are at the heart of inflation, he noted. "These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal," he said.

On tapering, Powell noted that the test had been all but met. However, the maximum employment goal is still a long way away.

At the September monetary policy meeting, Powell said that tapping will likely begin in November and will last through the middle of next year.

"We are not subtracting accommodation. Test for raising rates is substantially higher [than tapering]. We want to see a very strong labor market," Powell said.

By Anna Golubova

For Kitco News

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Gold has multiple factors and events to glean insight into the future direction

The gold market will continue to keep its focus on the Federal Reserve. The recent FOMC meeting statement and updated monetary policy in regards to interest rates have contained any large moves in gold. The net result of a more hawkish Fed has resulted in a major uptick in the yields of 10-year Treasury notes, which is also supportive of the U.S. dollar. This week the Federal Reserve will continue to remain in the news with major speeches by Fed officials, including the chairman as he testifies before Congress. His testimony could shed insight into the central bank's monetary policy and the current response by the Fed to the pandemic.

According to Reuters News, "Gold prices were subdued on Monday, pressured by an uptick in U.S. bond yields and a robust dollar, as investors awaited speeches from Federal Reserve policymakers for clues on when the central bank could taper its pandemic-era economic support."

Concurrently two Federal Reserve members will be leaving the central bank this year and next year, which could be the result of recent information about trading activity and whether or not this was a breach in the ethics in regards to trades by Fed members.

The recent uptick in the yields of 10-year Treasury notes has resulted in the highest yields seen in approximately three months, and higher yields coupled with a strong U.S. dollar have definitively placed pressure on any solid upside move in gold.

Traders are also immensely focused upon what Congress will do in regards to raising the debt limit. The United States Treasury will run out of money by the end of this month and this necessitates raising the debt limit for the U.S. to meet its payroll obligations for government employees as well as interest payments on its debt. The national debt continues to swell and is at just under $30 trillion.

Lastly, gold investors and traders will focus upon U.S. equities and their reaction as to whether or not Congress will "kick the can down the road," and fund a temporary infusion of cash and simply raise the debt limit by enough capital to fund the government throughout October, November, and December.

This week investors and traders will focus upon all of the issues above, which could have a strong and dramatic impact on the future of gold pricing as to whether or not it continues to fall or finds support. If real yields on U.S. debt instruments continue to rise, and the dollar continues to hold its value or trend higher, gold will have a difficult time trending higher from its current pricing at approximately $1750. Throughout last week we spoke about a key and critical support level in gold at approximately $1738, and this is the most important support level to watch.

As of 5:17 PM EDT gold futures basis, the most active December 2021 Comex contract is down $1.90 and fixed at $1749.80. As we have spoken about over the last few weeks, there seems to have been a decoupling in the relationship between gold and silver. Today's move in silver further solidifies that observation with the most active December 2021 contract moving opposite to gold, gaining $0.21 (+0.94%) and fixed at $22.635.

Contributing to kitco.comr

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David

Gold and silver trade higher heading into the European open

Gold and silver are both heading into the European session in positive territory. Gold is up 0.42% while silver has risen 0.89% respectively. In the rest of the commodities complex, copper is trading just above flat while spot WTI pushed 1.30% in the black.

In terms of risk sentiment, the Nikkei 225 (-0.03%), ASX (0.57%), and the Shanghai Composite (-0.94%) were mixed overnight. Futures in Europe are pointing towards a positive open nevertheless.

In FX markets, the greenback is just above flat (dollar index) but it lost ground against AUD and CAD. Bitcoin is trading nearly 2% higher at $44,015.

 

Looking at the major news stories from overnight:

A very narrow election in Germany saw the SPD come out with a narrow victory. The Greens and FDP are to play a key role in the coalition-building process.

The SPD secured 25.7% of the vote, while the ruling conservative CDU/CSU bloc gained 24.1%. The Greens achieved 14.8% of the ballot, the best in their history.

BOJ's Kuroda said Japan's economic recovery to become clearer as pandemic impact subsides.

Vitol's CEO says global oil demand is still down compared to the 2019 level.

US President Biden says again he'll levy higher taxes on those earning > $400,000.

US House Speaker Pelosi set Thursday for the infrastructure bill vote.

Japan PPI Services for August +1.0% y/y (expected +1.2%).

Goldman Sachs hiked its oil price projections from $80 to $90 (year-end Brent)

U.S. National Hurricane Center warns on "ferocious" Sam.

Australian PM Morrison says states must reopen borders once vaccination targets hit.

Looking ahead to the rest of the session highlights include U.S. durable goods, comments from ECB's Lagarde, Panetta, Fed's Evans, Williams, Brainard, and BoE's Bailey.

 

By Rajan Dhall

For Kitco News

 

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Gold trades to a critical price support level this week

nge on the day, and little change when compared to last Friday’s close. Gold futures basis the most active December 2021 contract is currently fixed at $1750.60, which is a net gain of $0.80 (+0.05%) on the day. Gold futures did trade with a lower high and a higher low when compared to yesterday’s trading range. The largest decline occurred yesterday, a delayed reaction to Wednesday's conclusion of this month’s FOMC meeting.

The fundamental event that pressured gold dramatically lower yesterday was the release of the FOMC meeting statement and Chairman Powell’s press conference. In terms of when the Federal Reserve will begin to taper, the statement acknowledged that tapering will begin “soon”. It is now believed that an announcement as to when the Federal Reserve will begin the process of tapering their monthly asset purchases will be in November. It is also widely believed that tapering could begin as early as December.

However, the news that startled market participants and gold investors was the newly revised “dot plot”, which shows the projections of interest rate normalization. The most recent projections revealed that there could be an interest rate hike next year rather than 2023. The Federal Reserve has made it emphatically clear that their timeline to begin tapering, and their timeline to initiate lift-off of interest rate normalization have different criteria.

The Federal Reserve also acknowledged that inflationary pressures will probably be sustained for a longer period than the most recently projected. The Fed has been focusing on maximum employment rather than inflationary pressures, both of which compose their primary dual mandate. Inflationary pressures continued to mount as indicated by the release this month of the August CPI. It indicated an increase of 0.3% from July to August. The report from the Bureau of Labor Statistics also indicated that inflation has risen to 5.3% for the 12 months ending in August 2021.

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in August on a seasonally adjusted basis after rising 0.5 percent in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.3 percent before seasonal adjustment.”

It is this report that is most likely the underlying rationale for the Federal Reserve moving up their timeline for liftoff when they will raise interest rates for the first time since the onset of the pandemic over 20 months ago.

Gold's strong bearish reaction to the potential for interest rates rising quicker than the Federal Reserve had projected previously. This is because higher interest rates intrinsically increase the opportunity of holding gold which yields no interest gains to the investor.

Gold is currently very susceptible to lower pricing and on a technical basis is at a key and critical level. Our technical studies indicate a Fibonacci harmonic’s between two data sets, one created from daily charts, and the other created from weekly charts.

The longest data set begins in October 2018 when gold was trading at $1171, up to the current record high achieved in August of last year when gold reached an apex of $2088. Currently, gold’s low this week matched the 38.2% Fibonacci retracement of this long data set. It also matched the 61.8% Fibonacci retracement which was created from a daily chart. A Fibonacci harmonic’s occurs when two different data sets have the same price point for one of the key Fibonacci numbers. This makes that price point a much more critical level on a technical basis.

 

By Gary Wagner

Contributing to kitco.com

 

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David

$3,000 gold is this cycle's peak, and it's coming, here's why – David Garofalo

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Gold peaked in 1981 when it reached $850 an ounce in nominal terms, but adjusted for inflation, that would equal $3,000 in real terms today.

$3,000 is this cycle’s coming peak, David Garofalo, CEO of Gold Royalty Corp. told David Lin, anchor for Kitco News.

“Gold’s all-time peak in real terms was actually achieved in 1981 when the nominal gold price was $850 an ounce, that would be $3,000 an ounce in 2021 dollars. That’s what I think I see in this cycle. The reason you want to be in the royalty companies in that kind of pronounced price [movement] versus the producers is we protect you from cost inflation,” he said.

Royalty companies, like Gold Royalty, earn income by taking a percentage of their portfolio miner companies’ top line revenue, and so are not exposed to potential margin shrinkages by means of cost inflation.

 

Prior to Gold Royalty, Garofalo served as the CEO of Goldcorp before the merger with Newmont.

On cryptocurrencies, Garofalo said that the scarcity aspect is not a valid argument for categorizing cryptos as a store of value.

“It’s inevitable that the central banks will continue to repatriate their control over currencies and I will say that it just becomes a fiat currency like everything else. You’re going to see a lot of air coming out of that market. Scarcity is an illusion,” he said.

For information on Gold Royalty’s recent three-way merger with Abitibi Royalties and Golden Valley Mines and Royalties, watch the video above. Follow David Lin on Twitter: @davidlin_TV (https://twitter.com/davidlin_TV).
 

By David Lin

For Kitco News
 

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David

Gold loses post-FOMC price gains as Powell upbeat on U.S. economy

prices are lower and near daily lows in afternoon U.S. trading Wednesday. This afternoon’s statement from the Federal Reserve’s Open Market Committee (FOMC) was deemed mostly neutral on U.S. monetary policy and actually rallied the gold market, initially. However, Fed Chairman Jerome Powell’s upbeat remarks on the U.S. economy and jobs-growth prospects dented the gold bulls’ enthusiasm as the U.S. dollar index rallied to its daily high while Powell was giving his press conference. October gold futures were last down $6.60 at $1,769.50. December Comex silver was last up $0.054 at $22.665 an ounce.

The FOMC statement said the U.S. economy continues to recover from the pandemic, but the rise in Covid cases has slowed the recovery. The statement said that a tapering of the central bank’s bond-buying program (quantitative easing) is on the table for discussion. The statement also said a U.S. rate hike is likely in 2022. The Fed said the 2021 inflation forecast is 4.2% and that inflation will remain above the Fed’s target rate of 2.0% until 2024.

Global stock markets were mixed in overnight trading. The U.S. stock indexes are solidly higher in afternoon trading. There is less risk aversion in the global marketplace at mid-week. The troubled Chinese property giant, Evergrande, is still on traders’ and investors’ minds, but many believe the situation will not turn into a worldwide contagion and that the Chinese government will not let Evergrande fail. The company said it would make its latest debt payments—at least one of them anyway. The marketplace will continue to keep a close eye on the matter. China’s markets reopened today after a public holiday, with the Chinese stock market a bit weaker but not showing any stress.

Just over the horizon, the U.S. government is now grappling with extending the U.S. debt ceiling. Treasury Secretary Janet Yellen said the government will run out of money sometime in October. The marketplace has seen this situation play out in years past, and it could inject some anxiety into the marketplace if the government actually nears a shutdown.

The key outside markets today see the U.S. dollar index higher. Nymex crude oil futures prices are higher and trading around $72.00 a barrel. Meantime, the yield on the benchmark U.S. 10-year Treasury note is presently fetching 1.309%.

Technically, gold bears still have the slight overall near-term technical advantage but the bulls are having a good week and have some momentum. A three-week-old price downtrend is still in place on the daily bar chart, but now just barely. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at $1,790.00 and then at $1,800.00. First support is seen at today’s low of $1,762.80 and then at Tuesday’s low of $1,756.30. Wyckoff's Market Rating: 4.5

December silver futures saw short covering was featured after prices hit a 14-month low earlier this week. The silver bears still have the solid 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 $21.00. First resistance is seen at $23.25 and then at $23.50. Next support is seen at today’s low of $22.455 and then at this week’s low of $22.025. Wyckoff's Market Rating: 2.0.

December N.Y. copper closed up 1,410 points at 426.60 cents today. Prices closed near the session high today. The copper bulls and bears are back on a level overall near-term technical playing field. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the September high of 447.15 cents. The next downside price objective for the bears is closing prices below solid technical support at the August low of 396.65 cents. First resistance is seen at 430.00 cents and then at 435.00 cents. First support is seen at 420.00 cents and then at today’s low of 410.70 cents. Wyckoff's Market Rating: 5.0.

By Jim Wyckoff

For Kitco News

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Gold price steps up its safe-haven game as Evergnde rattles ramarkets

After selling off $50 last week, gold is stepping up its safe-haven play as investors look for hedges amid Evergrande volatility.

On Tuesday, gold saw double-digit gains triggered by a global equity selloff that boosted risk-off sentiment among investors. December Comex gold futures were last trading at $1,780.40, up nearly 1% on the day.

When news of Evergrande, the prominent Chinese property developer, broke, there was no significant impact on precious metals. But things have changed since then, said MKS PAMP GROUP head of metals strategy Nicky Shiels.

"It's triggered a broad-based based selloff in U.S. equities (largest 1day slide since October 2020) … 'Macro fear' has been woken with this Evergrande/Chinese property crisis now intensifying (knock-on effects – Chinese Property Developer Sinic halted trading after plummeting 87% in a day!) – so we have an Asian "grey swan" that is still not resolved but its another excuse to lighten up risk exposure," Shiels said.

With the world's most indebted real estate developer, Evergrande, due to make interest payments of $84 million on its bonds on Thursday, things are only heating up. Investors are most worried about the contagion effect.

"Ultimately, while the markets are focused on China's overregulation (of everything from internet stocks to the commodities sector to the ultrawealthy), the escalating concerns around Evergrande highlights an even structural issue – the large-scale malinvestment over many years (since 2009) leading to ghost cities, which is coming back to haunt investors/markets now, Shiels described.

This uncertainty has triggered a search for safe-haven plays, which is why the precious metal is seeing this increased interest this week.

"The overreach for havens was thus warranted; from U.S. Treasuries (10yr yields fell from 1.38% to 1.3%), to the US$ (edging toward key s/t ceiling at ~93.50) and gold (which managed to not only hold up in the face of widespread deleveraging, but closed up on the day," Shiels said commenting on gold's price action on Monday.

This is a significant shift for the precious metal, which dropped into "no man's land" last week after falling from $1,807 to $1,750 an ounce.

"Gold has been a frustrating letdown (it didn't show up when opportunities arose this summer)," Shiels noted. [The yellow metal's] strength indicates some true safe-haven bids that have been missing for a while."

If gold can manage to hold its gains, that could mark a shift in its recent disappointing trading pattern. "This newfound relative gold strength (IF it holds!) is notable and would mark the 2nd time this year (the previous time was the August 18/19th equity pullback) it showed up as a safe haven," Shiels explained.

The two biggest downside risks for gold going forward is a strong rebound in the U.S. dollar and a selloff of gold ETFs. "The unwind of equities risks a simultaneous unwind of Gold ETF exposure). Gold is a safe haven only once the dust settles, hardly during it," Shiels added.

By Anna Golubova

For Kitco News
 

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David

Gold recovers as worldwide equites selloff

Gold truly acted as a safe haven asset today. Equities worldwide incurred a tremendously deep selloff as concerns about the Chinese property group Evergrande’s solvency. The worldwide equity selloff began overseas and then continued into the U.S. equities markets. At its low today the Dow Jones industrial average was down 900 points before recovering. The Dow gave up 614 points in trading today and closed at 33,970.47, resulting in a net decline of 1.78%. The NASDAQ composite lost 2.19% and is currently fixed at 14,713.9030. The S&P 500 lost 1.70% and is currently fixed at 4357.73.

As of 5:56 PM EDT gold futures basis, the most active December 2021 contract is currently up to $13.30 and fixed at $1764.70. Silver did sustain a mild selloff closing lower by 0.41%, and after factoring in today’s decline of a little over nine cents, it is currently fixed at $22.245.

Reuters reported that “Wall Street plunged on Monday as fear of contagion from a potential collapse of China’s Evergrande prompted a broad selloff and sent investors fleeing equities for safety.”

They also added that “the equity selloff in the United States was a result of concerns of solvency of the Chinese property group Evergrande. “Gold rose on Monday as fears about the solvency of Chinese property group Evergrande sparked a flight to safe-haven assets, but gains were capped by strength in the dollar ahead of the U.S. Federal Reserve’s policy meeting. Spot gold rose 0.5% to $1,762.66 per ounce by 1753 GMT. U.S. gold futures settled 0.8% higher at $1,765.40.”

The Chinese property to developers has accumulated over $300 billion in debt mostly with the Central Bank of China.

The Federal Reserve will meet tomorrow and begin September’s FOMC meeting, which will conclude on Wednesday. Market participants and traders hope to gain more clarity as to the timeline in which the Federal Reserve will begin to taper their monthly asset purchases of $120 billion (80 billion in U.S. debt and 40 billion in mortgage-backed securities).

There is genuine uncertainty as to what actions the Federal Reserve will take in regards to their current monthly asset purchases. Their asset balance sheet has swelled to above $8 trillion in assets. However, their primary focus has been upon maximum employment, a major component of their dual mandate which is maximum employment and annual inflationary levels of around 2%. They have let inflation run much hotter in lieu of achieving their maximum employment goal. Believing that the majority of the current level of inflation is transitory, the Federal Reserve has let inflation run to 5.3%, based upon the latest CPI numbers released last week.

However, the most recent jobs report was extremely disappointing and deeply below expectations and forecasts from economists polled by the Wall Street Journal. The expectation was that the August jobs report would indicate an additional 700,000+ new jobs added to payrolls, and the actual number was a tepid 235,000 new jobs added last month.

The weak August jobs report will be weighed against the most recent report by the U.S. Census Bureau, which indicated robust consumer spending last month, resulting in $618 billion, up 0.8%. Economists polled were looking for August consumer spending to be down between -0.8 to -1.8. If you strip out consumer spending on automobiles and trucks, the actual gain for the month of August is 1.8%.

These two reports show an interesting mix between new jobs added and consumer spending. While the jobs report was disappointing and weak at best, consumer spending rose far past the expectations given by economists. Therefore, the Federal Reserve will be faced with making a decision based on strong consumer spending and weak growth in jobs. That will certainly influence their decision as to when they will begin to taper.
 

By Gary Wagner

Contributing to kitco.com

Buy and Sell Gold and Silver with Free Storage

David