Gold, silver power higher amid improving chart postures, weak USDX

Gold and silver prices are sharply higher and hit 10- and nine-week highs, respectively, in midday U.S. trading Thursday. The metals were lifted in part by a more bullish technical picture for both, a lower U.S. dollar index and U.S. Treasury bond yields backing off a bit from this week’s highs. June gold futures were last up $32.00 at $1,816.30 and July Comex silver was last up $1.023 at $27.55 an ounce.

The gold market pushed above what was key technical resistance at the $1,800.00 level and set off pre-placed buy stop orders in the futures market to propel prices even higher.

It could also be that increasing worries about global inflation becoming problematic in the coming months are prompting the buying of gold and silver as a hedge against serious inflationary pressures that could occur down the road. There are more and more clues surfacing to suggest inflation will rise beyond what central banks and governments want to see.

In another sign of stronger consumer and commercial demand for goods that adds to the inflation argument, shipping giant Maersk reportedly said there are not enough ships in the world to meet container shipping demand. Maersk handles around 20% of global container traffic. The shortage of container ships and problems with the location of many containers has helped to more than triple container rates over the past year.

The key outside markets today see the U.S. dollar index lower. Nymex crude oil prices are lower and trading around $64.85 a barrel. Meantime, the yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.58%.

The key U.S. data point of the week and arguably of the month comes Friday morning with the Labor Department’s Employment Situation Report for April. Non-farm payrolls are seen up 1 million compared to a rise of 916,000 in March. The unemployment rate is seen at 5.8% versus 6.0% in March.

Technically, June gold futures bulls have the overall near-term technical advantage and gained more power today. A five-week-old uptrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,850.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,754.60. First resistance is seen at today’s high of $1,818.60 and then at $1,825.00. First support is seen at $1,800.00 and then at today’s low of $1,781.80. Wyckoff's Market Rating: 6.5

July silver futures prices hit a nine-week high today. The silver bulls have the overall near-term technical advantage and gained more power today. A five-week-old uptrend on the daily bar chart is in place. Silver bulls' next upside price objective is closing prices above solid technical resistance at $28.475 an ounce. The next downside price objective for the bears is closing prices below solid support at last week’s low of $25.745. First resistance is seen at today’s high of $27.585 and then at $28.00. Next support is seen at $27.00 and then at $26.765. Wyckoff's Market Rating: 6.5.

July N.Y. copper closed up 775 points at 460.15 cents today. Prices closed near the session high today and hit a contract and nearly 10-year high. The copper bulls have the strong overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 475.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 430.00 cents. First resistance is seen at today’s contract high of 460.30 cents and then at 465.00 cents. First support is seen at 455.00 and then at 450.00 cents. Wyckoff's Market Rating: 9.5.

 

By Jim Wyckoff

For Kitco Newss

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Gold and silver trade lower overnight leading into the European open

Gold and silver are trading marginally lower leading into the European open after a dismal session on Tuesday. Hawkish comments from Janet Yellen sent the yellow metal lower to trade -0.77% in the red during yesterday's session. Silver also moved -1.47% in the red and trades at $2635/oz this morning.

Japanese, Chinese, and South Korean markets were still closed due to public holiday's but the ASX rose 0.39% despite a negative lead from Wall Street. Some analysts attributed the gain to Yellen clarifying her earlier statement by saying she was not predicting or recommending a rate rise.

In FX markets, the dollar index was slightly firmer overnight after rising 0.35% in the prior session. The main mover has been NZD/USD 0.13% but the majors mostly traded within their ranges overnight. In the rest of the commodities complex copper is trading -0.11% lower and spot WTI moved 0.16% higher.

Looking at the news, Treasury Secretary Janet Yellen says she has regular meetings with Fed Chair Powell but believes strongly in Fed independence and she also reiterated "She Isn’t Predicting Higher Interest Rates". On the subject of cryptocurrencies, Yellen said we don't have an adequate cryptocurrency regulatory framework.

On the coronavirus front, a third COVID-19 vaccine shot will be offered to people over 50 in the UK.

Looking at some of the data overnight, New Zealand ANZ Commodity Price index for April +2.3% m/m (prior +6.1%) – NZ jobs report for Q1 showed the Unemployment rate hit 4.7% (vs. 4.9% expected).

In Australia, April construction PMI printed at 59.1 (vs. prior 61.8) and Australia April Markit PMIs, saw at services 58.8 (prior 55.5) & composite rose to reach 58.9 (prior also 55.5)

 

From central bankers, Fed's Kashkari says the Federal Reserve has powerful tools if inflation surprises higher.

Dallas Fed head Kaplan said yet again that a discussion of tapering should begin. This is not the first time Kaplan has stated that the Fed should start to look at tapering QE.

Lastly, RBNZ Deputy Governor Bascand says there is a greater risk of a house price correction. This comes after the RBNZ tightened lending rules.

Looking ahead to the rest of the session highlights include composite and services PMI's from the major nations, EU PPI, U.S. ADP NFP, and weekly DoE's. We could also get comments from Fed's Rosengren, Kaplan, Evans, Mester, BoC's Macklem, ECB's Lane, German Buba's Wuermeling, and BoE's Deputy Governor Woods.

 

By Rajan Dhall

For Kitco News

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Gold rallies but at least for now fails to trade above resistance

Gold futures had a strong and respectable gain in trading today, with the most active June 2021 Comex contract gaining just over $25 per ounce. As of 4:45 PM EST, the most active gold contract is trading up $25.50 and is currently fixed at $1793.20. After trading under pressure and closing lower last week, gold futures opened at $1768.10, which corresponds roughly to the close on Friday. Factors contributing to today's strong upside move are U.S. dollar weakness as well as slightly lower yields on the U.S. 10-year Treasury note. It must be noted that today's high of 1798.90 falls just shy of the current major resistance at $1800.

Currently, the dollar index is fixed at 90.95 after factoring in today's decline of 32 points (-0.36). Today's lower pricing gives back roughly half of the gains witnessed on Friday as the dollar index surged up approximately three-quarters of a percent.

Treasury yields had a slight fall losing approximately three basis points, and are currently trading at approximately 1.608. The higher 10-year note, which resulted in lower yields, was the result of the ISM manufacturing PMI report for April, which came in at 60.7. This was well below the economic forecast, which expected the number to be 65 or higher.

According to CNBC, "This compares to March's level of 64.7. The index measures manufacturing activity via a survey of more than 300 manufacturing company purchasing managers conducted every month by the Institute for Supply Management. IHS Markit U.S. manufacturing activity grew at a record-high speed in April, data from a survey compiled by IHS Markit showed Monday. April's Manufacturing Business Activity PMI Index came in at 60.5, above the 59.1 print in March."

Silver, spot and futures rally

Silver had the strongest percentage gains of all for precious metals (gold, silver, platinum, and palladium), gaining over 4% in futures trading today. Traders have moved to June now the most active contract. June silver is currently fixed at $27.01 after factoring in today's gain of $1.14. That amounts to a percentage gain of 4.43%. Spot or Forex silver is currently fixed at $26.87, which is the result of approximately $0.98, a net gain of 3.81%.

Copper futures continue their historic rally

Copper futures continued their historic price increase and are certainly within the range of taking out the all-time high that occurred during the first quarter of 2011. Although the all-time record high for copper futures is $4.65 per pound, the highest close on record of $4.4919 was taken out on a closing basis with today's large gains. In fact, if copper holds the gains established today on a weekly basis, it would be the highest closing price ever recorded for the highly used industrial metal.

According to MarketWatch, commodity strategists at Bank of America acknowledged that "The world risks "running out of copper" amid growing demand for the metal, paving the way for a spike in prices just as the global economic reopening gets under way."

In fact, according to this report, current inventories, which are measured in metric tons, now stand at a level seen 15 years ago. This, according to the report, implies that current stocks will only cover 3.3 weeks of demand, and as such, Bank of America strategists believe that the price of copper could rise to 13,000 per metric ton, which amounts to $5.89 per pound in the upcoming months. They're forecasting that the copper market's deficits which are seen as drops in inventory, will continue through 2022.

 

By Gary Wagner

Contributing to kitco.com

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Concern about inflation and a weakening U.S. dollar, is pushing more than a dozen states to try and recognize gold and silver coins as legal tender.

The Constitution allows for States to give their citizens the ability to settle debts in gold and silver, according to Ed Moy, former director of the U.S. Mint.

"What it does allow the states to do is give their citizens the ability to settle debts in gold and silver. It';s never been exercised since it was written into the Constitution until recently. After the Financial Crisis, a number of states, the current number is 12 of them, are trying to figure out how to operationalize Article 1, Section 10, to allow their citizens to buy and sell things in gold and silver," Moy told Michelle Makori, editor-in-chief for Kitco News.

A few states have already taking this initiative, said Moy who was the director of the U.S. Mint between 2006 and 2011 under President Bush and President Obama.

"Utah, has already gone ahead and started operationalizing this. Most of these states take several steps, and the first step is gold and silver are exempt from taxes and capital gains," he said.

 

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Gold pricing continues to react to higher yields in U.S. debt instruments

Now for the second consecutive week, gold futures have closed lower. Gold hit its highest price point this month last week, the week of April 19, with market participants taking gold futures just a couple of dollars short of $1800 per ounce. However, during the week of April 19, gold futures opened on Monday only to close on Friday roughly at the same price point; $1778. The first two weeks of April both resulted in gold closing higher on the week, with the largest weekly gain occurring during the week of April 12. During the second week of April, gold opened at $1745 and closed at $1780, gaining approximately $35 on the week. That was the largest single-week gain this month.

Because gold is paired and traded against the U.S. dollar, one can see an inverse relationship between recent dollar weakness and gold strength over the first two weeks of April.

During the last week of March, gold pricing hit a second double bottom, with market participants observing the precious yellow metal trading just below $1680. Concurrently the dollar index was at its highest value during the last week of March. The lowest value of the USD this year occurred during the first week of January 2020, breaking below 89.00 on the dollar index. Historically the dollar has not had this low of a value since the first few months of 2018.

The highs that were achieved during the last month of March took the dollar’s value to highs not witnessed since the first week of November 2020, in each occasion trading to a high value of 93.50. This was followed by a decline in dollar value for three consecutive weeks and ended this week with the dollar trading to a low of 90.40.

The dollar index surged in trading today, gaining three-quarters of a percent, a total of 0.682 points, and is currently fixed at 91.275.

Dollar strength can also be deeply integrated into the rise or fall of U.S. Treasury bonds and 10-year notes. Higher yields in U.S. debt instruments can make that investment more attractive to investors seeking fixed income both in the United States and abroad. Higher yields in U.S. Debt instruments will also put downside pressure on gold, making the safe-haven asset class less attractive. It is this push and pulls of contrary market forces that have resulted in the recent price action in gold. Although gold closed lower on the day and week, it did result in a gain during the month of April.

 

By Gary Wagner

Contributing to kitco.com

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Mints are running out of gold; not enough physical silver to cover paper – former U.S. Mint Director

global shortage of physical gold and silver products has created a premium on coins and bars, and this premium is causing a disconnect between the spot price and the "true" price that retail investors need to pay, said Ed Moy, former director of the U.S. Mint.

Moy, who was the director of the U.S. Mint between 2006 and 2011, cites the inability of the mints around the world to keep up with physical coin and bar demand as a reason for this shortage.

"Not only the U.S. Mint, but other Mints around the world, Australia's Perth Mint, the Mexican Mint, have all run out of gold, they can't keep it in spot and there's so many shortages retailers are having problems accessing that gold," Moy told Michelle Makori, Kitco's editor-in-chief.

Premiums on these physical gold and silver products can run as high as 20% in some places, Moy said.

"If you go to any of the top retailers for gold bullion and take a look at what they're charging for an ounce American Eagle gold bullion coin, even though the spot price right now is $1,775 give or take, you're hard pressed to find a ounce gold coin for anything less than $2,000, and I've seen it as high as $2,100," he said.

One of the main reasons for why the spot prices have not caught up to gold and silver's premium-adjusted price is that the overall markets are flooded with bullion derivatives, Moy said, but it's only a matter of time before the short contracts keeping the price down expire.

"What's artificially depressing the price of gold now is that there's a lot of institutional investors that don't hold gold. What they hold is they buy gold derivatives, like futures…and a lot of them are betting that the economy's going to recover and that everything's going to be fine and gold's going to go down," he said. "As those short contracts come up, what you're seeing is a popping in price."

By Kitco News

For Kitco News

 

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The gold market went back to basics in the first quarter of 2021 as demand for jewelry and physical bars and coins supported a sharp drop in investment demand, according to the latest research from the World Gold Council (WGC).

In its quarterly Global Demand Trends report, the WGC said that physical demand for the precious metal totaled 815.7 tonnes, virtually unchanged compared to the fourth quarter of 2020. However demand was down 23% compared to the fourth quarter of last year.

In an interview with Kitco News, Juan Carlos Artigas, head of research at the World Gold Council, said that shifting demand in the gold market continues to demonstrate the precious duality as an important strategic asset.

“Investment demand can have a significant influence on price, but also you shouldn't completely, disregard what is happening in other parts of the market because that can create support for the price. That is what we are seeing right now in practice,” he said.

Meanwhile, the average gold prices in the first three months of 2021 was 13% higher compared to the first quarter of last year; however, it was down 4% compared to the previous quarter.

Artigas, said that the research shows global gold investment is shifting away from tactical positioning as investment flows out of gold-backed exchange traded funds. At the same time consumers are developing more strategic purchases, taking advantage of lower prices to buy the physical metal in forms of jewelry and bars and coins.

“The support from renewed consumer demand has provided important support for gold, otherwise the price may have fallen further. Yes we have seen outflows in investment demand but we also see positive growth in demand in other areas,” Artigas said.

Looking at investment demand for physical bullion, the WGC said that consumers bought a total of 339.5 tonnes in the first three months of the year, up 36% compared to the first quarter of 2020. The report said this was the highest level of coin and bar demand since the fourth quarter of 2016.

“Bargain-hunting in key markets, notably China, was a major driver of growth in this sector of demand as the gold price fell back from the 2020 peak,” the analysts said in the report. “Fear over rising inflationary pressures was an added driver, as economies around the world responded to the massive fiscal and monetary stimulus introduced to combat the worst impacts of the pandemic.”

Physical bar and coin demand help to offset significant declines in investment demand. The report said that investment into gold-backed ETF saw outflows of 177.9 tonnes, down dramatically compared to 299.1 tonnes of inflows seen in the first quarter of 2020.

“Outflows quickly mounted through the quarter as inflationary expectations – and, by extension, expectations of higher interest rates – were unleashed. Outflows of this magnitude were last witnessed in Q4 2016, a time when there was a similar re-appraisal of the expected course of US growth and interest rates,” the analysts said.

Although gold investment demand and in turn prices struggled in the first quarter of 2021, Artigas said that the market can still bounce back fairly quickly. He added that rising interest rates at the start of the year had a significant impact on the gold market, but those headwinds should continue to ease through the rest of the year.

“I think investors will return to gold as the Federal Reserve continues to maintain low interest rates,” Artigas said. “Bond yields can’t increase indefinitely. At some point if yields rise too much we would expect the Fed to step in to keep interest rates anchored.”

Artigas added that even if bond yields continue to move higher, rising inflation pressures will mean that real interest rates will remain at historical low level.

The WGC also reported a recovery in gold jewelry demand. According to the data consumers bought 477.4 tonnes in the first quarter, up 52% from the first quarter of 2020. However, the WGC said that while jewelry demand has improved it still has a long way to go to get back to pre-pandemic levels.

“Longer-term comparisons show that [jewelry demand] remains relatively subdued, falling short of the quarterly average over the previous five years of 505.9 tonnes. And it remains well below average first quarter levels too,” the analysts said.

The third important pillar of support in the gold market remains central bank demand. The World Gold Council said that

central banks bought a net total of 95 tonnes of gold in Q1, down 23% compared to the first quarter of 2020.

Although central bank demand saw a slow start to the year, Artigas said that they still expect central banks to be net gold buyers.

“Sizeable purchases and sales from a small group of emerging market banks continued to drive overall central bank demand,” the analysts said in the report.

One interesting feature the WGC highlighted in central bank demand in the first quarter is that the Bank of Japan increased its gold reserves by 80 tonnes as a result of a government transfer between departments.

“Japan’s foreign reserves are held between the central bank and the Ministry of Finance, and this gold purchase has been transferred to the latter’s foreign reserves account. Because this was an intergovernmental transfer of gold, rather than a new purchase, it has not been included in our reported central bank net demand number for Q1,” the analysts said.

Artigas added that if the Bank of Japan didn’t think the gold would be useful the government wouldn’t have made the transfer.

“We can see that central banks think gold has a purpose as a reserve asset and can be a useful tool,” he said.

Looking at the gold supply, the WGC said that the global supply of gold totaled 1,092 tonnes, up 4% compared to the first quarter of 2020. However, total mine supply actually increased 4% to 851 tonnes as producers continued to work through last year’s COVID-19 induced disruptions.

“The overall fall in supply in the first quarter illustrates the importance of recycling and producer hedging to the gold market,” the analysts said.

 

By Neils Christensen

For Kitco

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David

'We are sitting on economic cliff' – Gold price will be 'well north of $2,000 this year' – ex-JP Morgan MD

nvestors could see a big move higher in gold soon, according to ex-JP Morgan managing director and now CEO of Trovio, Jon Deane, who sees prices trading well north of $2,000 an ounce this year.

Inflation is already here, and the world is sitting on an economic cliff, which makes assets like gold, silver, and bitcoin very popular with investors, Deane told Kitco News.

"We are already seeing inflation. If you look around the world, you see real estate prices, building supplies, and services skyrocket," he said. "What we created since the early 1990s is an entire financial infrastructure that is relying on debt, and we have accelerated that dramatically in our response to managing the COVID-19 crisis. In that regard, we will continue to increase the money supply globally, and we will continue to have a quite aggressive fiscal policy. We are sitting on an economic cliff."

After shedding weak long positions in gold, the precious metal's technical picture is looking much better.

"We'll see a real big move in gold. We've taken a lot of the length out. We are in a real position to move higher. We'll go well north of $2,000 this year. Realistically, $2,200 is probable. It may have some headwinds as we go through $2,000 again. Gold is in a much better position than where it was a few months ago," Deane said.

The outlook for silver and bitcoin is also bullish. "[Silver] can be somewhere between $35-$40 by Q1 next year. Bitcoin could be north of $100,000 or even $150,000 before the end of the year," he said.

What gold and bitcoin are likely to see is a wave of new investors joining the inflation hedge club. And for bitcoin, this theme is even more prevalent since it is a very new asset compared to gold.

"Bitcoin story is similar to gold but on a much bigger scale. You are introducing entirely new market participants to an asset class that has never seen that before. Every day, there is a new announcement of another major asset manager that is going to get involved in bitcoin. All those dollars add up," Deane said. "Whereas in gold, most of the people interested already have an allocation. And it is about increasing that allocation, not just getting exposure for the first time."

Either way, the interest will be there as investors are likely to want to own some sort of mix between gold and bitcoin.

"Asset managers will have a higher allocation to precious metals to protect their portfolios. New market participants will be coming into the space, and that will push prices higher," Deane noted. "We've seen a number of new generations' activity in the markets, whether it is the Reddit's Wall Street Bets community or other platforms. They will also start to look at these alternative assets."
 

Is our monetary policy system broken?

The response to COVID-19 around the world has been to lower rates to near zero and to print massive amounts of new money. But his action has consequences, especially considering that the world was already sitting on a large amount of debt prior to the coronavirus crisis.

"Monetary policy is broken because of the debt situation everyone is and it is impossible to get rates back up to a meaningful level without some form of significantly higher inflation," Deane explained. "Money printing creates stimulus in the economy. You are pushing those dollars out the door. And people are building houses, renovating their properties, starting new businesses, spending cash. That naturally creates inflation."

With all the debt out there, monetary policy cannot be as effective, Deane added. "If you are now at 50 basis points and you raise rates by 25 basis points. That is a 50% increase in your borrowing costs at a time when the world has the greatest amount of debt we ever had. It would be a huge economic shock to put it through the system," he stated.

The only way the governments have to get rid of some of that debt would be to inflate it away. "By inflating away the debt, that means getting inflation to uptick to get negative real rates," he said. "We backed ourselves into a corner. As a result, we actually need inflation to get us out of it. We need to inflate away the debt. We need modest secular inflation."

However, the problem with inflation is that once it starts to run hot, it is very hard to control, and that could be the problem the Federal Reserve encounters soon. "We don't want inflation to run too hot. And this is the risk of Fed's approach to inflation right now," Deane explained. "People are losing confidence in economic management. People are less likely to hold U.S. dollars. The return on them is zero."

 

By Anna Golubova

For Kitco News

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David