Gold has gained over $100 in November but now has entered a period of price consolidation

Since November 11 gold began to consolidate after completing the current leg of the most recent rally that began on November 4. The rally started one day after the conclusion of the November FOMC meeting. They announced that they would begin to taper their $120 billion asset accumulation later in the month. They announced that they would have a monthly reduction totaling $15 billion and continue the reduction until they are at a net-zero. Concurrently they indicated in unison with the ECB and Bank of England to keep interest rates extremely accommodative.

The Federal Reserve has been actively providing liquidity to aid in the economic recovery which was a direct result of a global pandemic. The last occurrence of massive asset accumulation by the Federal Reserve was during the economic recovery from the 2009 recession, a direct result of the banking crisis in the United States. During the first occurrence of “quantitative easing,” the net result of which was that the Federal Reserve with a balance sheet of roughly $4.5 trillion.

In approximately 2013, as they completed their tapering process, the Federal Reserve began to reduce their balance sheet taking their assets down to $3.7 trillion before they stopped reducing their assets. At that time, they believed that a further reduction would have a detrimental effect on the economic recovery which had taken place.

However, compared to their asset accumulation during the 2009 recession the current strategy of quantitative easing by the Federal Reserve has resulted in an asset balance sheet that has swelled to $8.6 trillion. Roughly double the size of their assets that they accumulated in 2009. At the current rate of a $15 billion monthly reduction, it will take at least until June 2022 before they complete the process.

While there is much uncertainty about when the Federal Reserve will begin to normalize rates, and at what pace that rate normalization will take place, what is certain is that at some point most likely in 2022, but at the latest in 2023, they will begin the process of lift-off in which they will slowly ratchet the Federal funds rate currently in essence at 0% back to normalized rates of around 2.5%.

The net result of the massive asset purchases by the Federal Reserve coupled with extensive expenditures by the administration in terms of fiscal stimulus has seriously impacted the current inflationary rate. While much of the current inflationary pressures are temporary, based upon applied chain bottlenecks and labor shortages which has greatly hindered companies in supplying the surge in demand of goods and services. Collectively these issues had taken the current rate of inflation to a level not seen since November 2009 when CPI inflationary index was at 6.2%.

The Federal Reserve has let inflation run hot instead of focusing on achieving maximum employment, one-half of their dual mandate. The other component of this dual mandate is to keep inflationary rates at approximately 2%. It is the spiraling rate of inflation that has been the primary undertone taking gold higher from $1770 on November 4 to $1880 on November 16. In other words, over the first two weeks of November gold prices increased by over $100 per ounce due to inflationary concerns. However, the price search in gold only took five trading days, or one week before gold pricing began to consolidate which is what is currently occurring. Typically, after a commodity has a dynamic rally, it will either have a correction in price or have price consolidation. The current price consolidation in gold indicates that the precious yellow metal is potentially forming a base at this new higher level and awaiting the set of next fundamental events.

Over the last six trading days since November 11, we have had gold open and close within a defined price range with the lows at $1851 and the highest closing price which occurred yesterday at $1870.

The recent price increase of over $100 was in direct response to rising inflationary pressures. However higher inflation contains a double-edged sword because the Federal Reserve has one primary tool in their toolbox to make inflation lower and that is to raise interest rates. Higher rates will pressure gold lower which makes forecasting the future price of gold a difficult read.

Our current assessment is that if we can get an effective close in gold above $1880, it has a clear path to challenge $1900 and possibly even trade as high as $1920, the high seen in June 2021. If the Federal Reserve raises rates immediately after the conclusion of tapering, we could see gold at that point come under significant pressure. However, that timeline still allows for inflation to continue to rise, and gold to gain value at least until June 2022.

 

By Gary Wagner

Contributing to kitco.com

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David

Gold continues to attract market participants as a primary tool of wealth preservation

Market participants are once again focused upon the real threat that faces global economies, spiraling inflation. Today the United Kingdom reported that inflation has now hit a 10-year high. In the United States, the current level of inflation is at a 31-year high coming in at 6.2%. Mexico currently has an inflation rate of 6.24%, and many South American countries are running double-digit inflationary levels such as Argentina (52.1%), Brazil (10.67%).

Some countries are running extremely tight economies and maintaining very low inflationary rates such as Japan, Saudi Arabia, and Switzerland. However, real concerns in the United States are mounting as the US government continues to spend dollars vis-à-vis fiscal stimulus with money it simply does not have. The United States continues to run yearly deficits well beyond the wealth it produces as seen through the GDP.

While the Federal Reserve has begun tapering its monthly asset purchases by $15 billion a month, it will continue to add to its enormous asset balance sheet at least until June of next year. With the current asset sheet of the Federal Reserve just north of $8.6 trillion, by the conclusion of their quantitative easing program, the Federal Reserve balance sheet will likely be north of $9 trillion.

Add to that the $4+ trillion in fiscal stimulus that was spent in 2020, and additional expenditures this year once again in the trillions, it is surprising to no one that the inflationary rate in the United States is out of control, now at a level not seen since November 1990.

But wait, there’s more! After passing a $1+ trillion infrastructure bill recently President Biden is now putting forth a new stimulus package that he has labeled “Build Back Better”. I think a more appropriate name for this stimulus plan might be “Build Inflation Quicker”.

While I think this bill has correctly targeted those Americans who are most in need, and is much more correct than spending checks to ALL Americans, as it did in the past, a government cannot continue to spend dollars that it must borrow to fund. Today the house was supposed to begin a debate on Biden’s Build Back Better bill, however, it has been postponed with voting that could begin as early as Thursday or Friday. This new bill being proposed by the current administration has a cost of approximately $1.75 trillion.

Expectations on inflationary pressures by the Federal Reserve continue to assume that the vast majority of these pressures are transitory. Many analysts do not believe that assumption and are adamant that much of the inflationary pressures will be “sticky” lasting well into next year and possibly longer than that.

Based upon our economic recovery occurring at a much more prolonged period than originally anticipated, and the vast amounts of government capital that have been used to aid in that recovery it is no wonder that market participants have once again focused upon the safe-haven asset that for hundreds of years as kept up with inflation; gold.

Gold traded to higher values for seven consecutive days which was followed by two days of price declines. The total decline from the onset of the rally that occurred the first week of November with gold trading at $1758, up to the intraday high yesterday just shy of 1880 was a net decline of 23%. This is a key Fibonacci retracement number for a shallow, but acceptable price correction or decline. Today gold recovered and as of 5:00 PM EST gold futures basis, the most active December contract is currently fixed at $1869.50 after factoring in a net gain of $15.40.

Unquestionably if the current administration continues down this road with tremendous expenditures that the government will have to borrow to pay for, the United States will advance our national debt. It is for the reasons we have spoken about above that I think that market participants continue to focus on gold to preserve their wealth. If this assumption is correct gold has nowhere to go but to higher pricing.
 

By Gary Wagner

Contributing to kitco.com

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David

Strong retail sales and dollar strength take gold lower in trading today

Gold futures traded to a high of $1879.50 overseas last night but then fell sharply off of these highs as the U.S. Census Bureau announced the advanced estimate of retail and food services sales for October 2021. Concurrently, the Federal Reserve released its industrial production data for October. Both reports indicated robust production and spending which was cited as the primary explanation for gold selling off so briskly.

Retail sales in the United States increased last month coming in above estimates. Economists polled by the Wall Street Journal predicted that the report would indicate an increase of retail sales by 1.5%.

The numbers released by the U.S. Census Bureau indicated that monthly advance sales reached 1.7% year-over-year totaling $638.2 billion. This is just over double the growth of retail and food services in September, which came in at $627.5 billion, an increase of 0.8%.

The report retail and food services began with the following comments, “Advance estimates of U.S. retail and food services sales for October 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $638.2 billion, an increase of 1.7 percent (±0.5 percent) from the previous month, and 16.3 percent (±0.9 percent) above October 2020.”

The Federal Reserve announced that “industrial production rose by 1.6% in October after falling 1.3% in September.” However, the Fed said that about half of the increase in industrial production reflected a recovery from the effects of Hurricane Ida.

One caveat to the numbers released today is that spiraling inflationary pressures greatly enhanced the amount of spending, which inflated the retail sales numbers that were reported today.

These reports and dollar strength were the forces that moved gold lower today as of 5 PM EST, gold futures basis the most active December contract is fixed at $1852 after factoring in today’s decline of $14.60, or -0.78%. Roughly 2/3 of today’s lower pricing is attributed to dollar strength. The U.S. dollar index gained 52 points, or 0.55%, and is currently fixed at 95.925. Because gold is a trading partner with an absolute negative correlation. When we subtract gold’s decline due to dollar strength a small portion 0.24%, came out of market participants being active sellers.

We created a Fibonacci retracement data set which begins at the lows of this rally that occurred on Wednesday, November 3, 2021, when gold traded to a low of $1758. The data set begins on November 16 at the intraday high of $1879.50. Gold traded to the 23% Fibonacci retracement level, which is fixed at $1851.50. A shallow correction can easily give up 23% before reversing to the primary direction of the current trend, which in this case is up. Below that price point is the 38% Fibonacci retracement that occurs at $1833.30. A break in gold below that price point I believe is highly unlikely. Market participants will see the updated PCE core inflation index for October when it is released on November 24, one day before the Thanksgiving holiday in the United States. This should be the next report that could highly influence gold pric
 

By Gary Wagner

Contributing to kitco.com

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David

Gold prices to average $1,9450 in Q1 – Société Générale

The gold market has broken out after five months of consolidation, and commodity analysts at Société Générale see the potential for a significant rally through the first quarter of 2022.

In its latest price forecast, the French Bank said that U.S. monetary policy will continue to support prices as inflation pressures rise.

“The Fed seems to be reluctant to increase interest rates any time soon, this combined with high inflation create the perfect mix of negative real rates for gold,” the analysts said.

In its updated forecast, Soc Gen sees gold prices averaging around $1,950 an ounce during the first quarter of next year. The bank’s average price target represents a 4.5% gain from current prices. December gold futures last traded at $1,866.90 an ounce, relatively unchanged on the day.

Last week, gold prices saw their best price gains since May, pushing above $1,850 an ounce as U.S. Consumer Price Index saw an annual rise of 6.2%, its most significant increase in more than three decades.

While Soc Gen expects inflation to fall from current levels, the economics expect price pressures to remain above trend through 2022. The bank sees inflation rising 4.4% this year and 3.7% next year.

Although the bank is bullish on gold for the start of the year, the analysts said that prices should start to cool in the second half.

“Inflation is expected to retreat in the second half of next year while interest rates slowly increase. The U.S. real rates should turn positive again by the end of 2022 and see gold goldilocks moment passing,” they said.

The analysts said that on the upside, if inflation persists and economic activity starts to slow, gold prices could push above $2,000 an ounce by the second quarter and remain elevated through 2022.

The analysts reiterated that investment demand for gold-backed exchange-traded funds (ETFs) remains the critical component to unlocking the precious metal’s value.

“Our conviction is mainly pinned to our expectation that the ETF outflows will cease, and we will begin to see some moderate inflows by the end of the year and into the next one,” the analysts said. “For 2022, we expect a total 300t inflow into gold ETF, mostly focused on the first half of the year and inflation risk will still be in the spotlight. This will be enough to significantly drive gold price but also much lower compared to the 408t and 874t experienced in 2019 and 2020 respectively.”

Soc Gen added that they also see the potential for central bank gold demand to support gold prices.

“In a world becoming more multipolar and with the U.S. debt ballooning, the U.S. dollar as a reserve currency is losing credibility and central banks are keen to diversify away from it, building up gold reserves,” the analysts said.

By Neils Christensen

For Kitco News

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David

Gold prices jump into positive territory following drop in UoM consumer sentiment survey

After spending the morning in negative territory, gold prices are once again on the move higher, getting a boost following weaker than expected U.S. consumer sentiment data.

Friday, preliminary data from the University of Michigan showed consumer sentiment falling to 66.9, down from October’s reading 71.7. The data significantly missed expectations as economists were expecting to see a reading of around 72.5.

“This is the lowest in a decade and the University of Michigan noted that one-in-four consumcer cited inflationary reductions in their living standards. Half of households anticipated reduced real incomes next year,” said Adam Button, chief currency strategist at Forexlive.com.

Button noted that the U.S. dollar has fallen in reaction to the report, which is also helping to support gold prices.

The gold market has jumped back into positive territory following the data. December gold futures last traded at $1,868.40, up 0.24% on the day.

The data also shows that consumer inflation expectations continue to move higher. The report said that consumers expect annual inflation to rise to 4.9%, up from the previous estimate of 4.8%.

Investor fears that inflation is rising out of control picked up significantly this week after the Consumer Price Index showed an annual rise of 6.2% last month, the highest increase since 1990. The latest inflation data would not be reflected the currenty survey, so some economists suggest that sentiment could get even worse.

Michael Pearce, senior U.S. economist at Capital Economics, said that the latest consumer sentiment data does not bode well for future economic growth.

“The unexpectedly large drop in the University of Michigan consumer confidence index in early November reflects the impact of broadening inflation fears, suggesting any rebound in real consumption over the coming quarters will be relatively muted,” he said.

By Neils Christensen

For Kitco News

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David

This gold price level to spark even a bigger rally – analysts

After a solid breakout above $1,850 an ounce, gold could be ready for even bigger gains. But first, the precious metal must breach this level, according to analysts.

Inflation accelerating to three-decade highs in the U.S. has pushed investors towards gold, with the precious metal up nearly 3% on the week and December Comex gold futures last trading at $1,865.90.

"It is all about inflation. The market is starting to embrace the fact that inflation will be longer-lasting. It will take years to fix the supply chain issues due to pandemic, all the stimulus, and tons of pent-up demand," RJO Futures senior market strategist Frank Cholly told Kitco News.

All eyes will be on the $1,835-$1,875 trading range for gold. A move below would indicate the end of the current rally, while a move above could trigger a move towards $2,000 an ounce.

"What's going to be critical to sustaining this breakout is that the market can hold $1,835. We want to be able to keep the prices above there," he said. "On the other hand, a close above $1,875 would spark a secondary rally to $1,900-25. I do think we may see $2,000 by the end of this year."

This is how technical buying works, Cholly explained. If the upper-trading range is taken out, people will start to feel the fear of missing out, which will trigger more buying.

"Most of the commodities, especially energies, had been very strong lately and gold has been stuck in a sideways market for the past five months," he said. "Gold is coming to terms with the idea that it needs to be an inflationary hedge."

The path towards $1,900 is very clear now, said Walsh Trading co-director Sean Lusk. "Gold below $1,800 was seen as a good buying opportunity. We have to watch if banks try to come in and hedge this thing. Prospects for the first couple of months of 2022 are good. We see a year-end rally that carries through into January and February," Lusk told Kitco News.

There is a good chance that gold could take a bit of a breather before moving higher next week, said TD Securities head of global strategy Bart Melek. Gold would have to move above $1,875 an ounce to attempt a run at its 2020 record highs of above $2,000.

"We have about two more months before the Federal Reserve has to switch to a more hawkish narrative. In the meantime, we could see significant levels in gold as more people begin to say that the Fed is behind the curve. We could attempt to reach all-time highs in early 2022," Melek said.

Once the Fed does turn more hawkish and will begin raising rates, gold's initial reaction would be to go lower. However, longer-term, gold can still post gains as Fed continues to tighten slowly, Melek noted.

"If the Fed's funds rate moves up by 25 basis points and inflation is running at 4.5%, that's is still a very accommodative policy," he said.

Data to watch

The two most significant macro events to watch next week will be Tuesday's retail sales and industrial production reports.

"The October retail sales and industrial production reports are next week's highlights and both should be strong. Retail sales will be lifted by the 6% MoM increase in new vehicle units sold – the first increase since April – while gasoline station sales will be boosted by the surge in gasoline prices," said ING chief international economist James Knightley. "Industrial production should see good manufacturing growth based on the ISM report already released."

Monday: N.Y. Empire State Manufacturing Index

Tuesday: Retail Sales, Industrial Production

Wednesday: Housing Starts and Building Permits

Thursday: Jobless Claims, Philadelphia Fed Manufacturing Index
 

By Anna Golubova

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold shines the brightest when the chips are down

Everyone who has bought anything in the last year knows that inflation is real. However, this week we found out just how bad it is.

Wednesday, the U.S. Consumer Price Index saw an annual rise of 6.2%, the highest level in more than three decades. And while the idea that prices are rising isn’t new, according to some economists and market analysts, the fear is that the U.S. central bank is losing control of inflation.

The Federal Reserve appears to be losing control because there is not much they can do to stop the current price in prices. Inflation is being driven by a global supply crunch. A rate hike will not bring more microchips online or increase the amount of food in the grocery store. Rate hikes certainly won’t bring more oil production online to lower gas prices.

Before you dismiss the growing threat, we are starting to see the economic impact of rising inflation.

This morning, preliminary data from the University of Michigan showed that consumer sentiment in November dropped to its lowest level since 2008 as consumers were dealing with the effects of the Great Financial Crisis. The most significant factor behind the drop in sentiment was inflation.

Some economists will point out that weak consumer sentiment leads to less consumption, leading to lower growth. So the prospect of stagflation is now growing.

This fear is what has lit a new fire under gold and propelled prices to a five-month high. The precious metal has been seeing its best weekly gains since early May. December gold futures last traded at $ 1865.90 an ounce, up more than 2.6% from last week.

Gold is doing what it does best. Gold is the one solid asset that investors cling to when the chips are down and fear sweeps through markets. It has shown its value time and time again.

What makes gold’s breakout rally even more impressive this week is when you look at it in correlation to the U.S. dollar. The U.S. dollar Index is ending the week above 95 points, a 15-month high.

Gold can fight against the U.S. dollar's strength because as inflation grows, the purchasing power of the U.S. dollar continues to weaken. The latest CPI data from the U.S. showed that food prices rose 5.3% over the last 12 months.

To put that into perspective, consumers are looking at the most expensive Thanksgiving dinner in history just ahead of the holiday season.

However, gold has been able to maintain a stable purchasing power over the years.
 

By Neils Christensen

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Gold price is heading back to $2,000 after playing 'second fiddle' to other assets – DailyFX

After playing "second fiddle" to other assets for most of the year, gold is on its way back towards the 2020 record highs of above $2,000 an ounce, said DailyFX analyst Warren Venketas.

There is a good upside to the price of gold as markets gear up for the Federal Reserve December monetary meeting, with the U.S. inflation and employment data at the forefront of everyone's minds.

"Inflation is a big one for me. If we see inflation expectations outperforming the move in yields. That's what I'm looking for at that year-end rally. And it is in the cards. I am very bullish at this point," Venketas told Kitco News.

Technically, gold is set up perfectly for a bullish rally, he noted. And a hotter-than-expected and more persistent inflation will help drive prices higher.

"There is a very strong case for the year-end gold rally," Venketas said. "That second-round impact of the price increases will last into the second half of 2022. Inflation is here to stay for the next six months or so. It is transient but it will be more prolonged than initially forecasted."

Reaching those 2020 record highs above $2,000 an ounce is possible for gold next year as the precious metal catches up to other alternative assets.

"It is a possibility because we haven't seen that typical gold behavior on the back of inflation. Gold has been playing second fiddle to a lot of the other commodities. It can catch up. There are a lot of fundamental factors that we've gone through that are favoring further upside," Venketas explained.

One major competitor to gold's price performance has been bitcoin. "People have been flocking to crypto as a potential inflation hedge, taking away from gold's attractiveness. Plus, gold's safe-haven appeal has been dissipating as COVID cases decreased globally."

By the end of this year, the DailyFX analyst is looking for gold to climb to $1,916 an ounce.

So far, Federal Reserve Chair Jerome Powell managed to convince the markets that the central bank will remain patient when it comes to raising interest rates — prioritizing reaching full employment over fighting high inflation. But markets do often tend to overreact to data, which is why those rate hike expectations could spike again.

"Everything is data-dependent," Venketas said. "Leading up to the December meeting, inflation and employment figures are going to be key."

The Fed's December meeting will also reveal the dot-plot and the latest economic projections, which will clarify the macroeconomic situation.

The more persistent inflation turns out to be, the more gold will rally, the analyst added. "That is bullish for gold because historically we see gold tick higher when inflation is more persistent as opposed to short term."

Venketas does not see the Fed raising rates until September or even December of next year.
 

By Anna Golubova

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

Could gold be posed for a breakout? CPI numbers answered that question today

Yesterday's article addressed whether or not gold was positioned for a large upside breakout. We cited that the upcoming CPI (Consumer Price Index) numbers which were released today, would be a huge component to answer that question. Our technical studies indicated that a break in gold futures above $1835 would be a trigger for a strong breakout or price search. That is exactly what we saw today. However, the rise in inflation for October surpassed any of my expectations.

Not since 1990 has the inflation rate come in over 6% year over year. In September, we saw inflationary pressures decline from 5.4% to 5.3%, and many analysts including myself, expected inflation to continue to rise. Analysts and economists polled by the Wall Street Journal were predicting that we would see a rise of inflationary pressures by 0.6%. The actual numbers were much more alarming with inflation last month climbing almost a full percentage point, with the government’s report indicating a rise of 0.9%, taking the year-over-year inflationary rate to 6.2%.

Since 1990 inflationary pressures have risen, but never to 6% or above. That all changed today when the CPI for October climbed to 6.2%. The primary factors for the accelerated rate at which inflation has been growing are attributed to rising energy and food costs. Oddly, the Federal Reserve prefers to use the PCE (Personal Consumption Expenditures) inflationary index, which strips out energy and food prices from the calculations.

This means that the PCE inflationary index will not accurately define the current levels of inflation as the Federal Reserve uses that index to base its monetary policy decisions. However, I find it hard, if not impossible for the Federal Reserve to ignore the numbers. The prior PCE inflationary index indicated a year-over-year inflationary rate of 4.4%, which is still more than double the inflationary target of 2%. However, government data indicated that even the PCE rose by 0.6%, taking the core inflation rate from 4% to 4.6%.

Simply put, the Federal Reserve has backed itself into a corner as they continue to assume that current inflationary pressures are transient and will slowly dissipate. They’re certainly in the minority when it comes to the question of whether or not current inflationary pressures are transitory or persistent. Most economists agree with the Federal Reserve in that a component of the rising inflationary rate is due to supply chain shortages and labor shortages. But much of the recent inflationary pressures will be persistent over the next 2 to 3 years. Energy costs continue to rise with many analysts anticipating that oil will reach $100 per barrel again. Food costs continue to be problematic as Americans see their dollar buying much less in terms of goods and services they depend on.

Gold today had a dramatic increase after the release of October’s CPI inflationary index. Gold futures basis the most active December 2021 contract traded to a high of $1870 before retracing. As of 5:25 PM EST, the December contract is currently fixed at $1851.60 after factoring in today’s net gain of $20.80. More impressive is the fact that we saw gold even after four consecutive days of higher pricing surge to the highest pricing seen since June of this year. The chart we have included in today’s article is an updated version of the chart we published yesterday showing the strength of the breakout. For the last couple of months, our technical studies have indicated that gold will reach $1835 by the end of the year. If anything, we underestimated the timeline to get there.

The studies also concluded that gold will challenge $1900 by the first quarter of 2022. We might see that forecast come in sooner than we originally believed.
 

By Gary Wagner

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David

By 2024, gold price will double, silver will more than triple, here’s why – Patrick Karim

Gold and silver are both headed much higher, if prices continue to follow a 7-year arc pattern, said Patrick Karim of Northstar & Badcharts.

Should the arc hold, gold should be trading at 250% higher than its 2017 level, translating to $4,200 an ounce by 2024, Karim told David Lin, anchor for Kitco News.

Silver would see even more upside, trading at 350% higher than its 2017 level by 2024, implying a $77 an ounce 3-year price target.

For more information on how this technical analysis is performed, watch the video above.
 

By David Lin

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David