Gold, silver set back as chart-based sellers step in

Gold and silver prices are lower in midday U.S. trading Monday, as the shorter-term futures traders are again pressing the short side of the markets to start the trading week, amid a lack of fresh, markets-moving fundamental news. June gold futures were last down $13.40 at $1,731.60 and May Comex silver was last down $0.505 at $24.82 an ounce.

Global stock markets were mostly lower overnight. U.S. stock indexes are pointed slightly weaker at midday, on a routine corrective pullback from recent gains that put the indexes at record highs last week.

Markets did not paying much attention to Federal Reserve Chairman Jerome Powell's comments on the "60 Minutes" TV show Sunday evening, in which has reiterated the U.S. central bank will continue to support the economy until its fully recovered from the pandemic. He said it will "be a while" before the Fed raises interest rates.

Middle East tensions have up-ticked early this week on reports that a major uranium-enrichment facility in Iran was hit by a damaging cyberattack, likely coming from Israel. Major damage was reported. Still, markets showed no significant reaction.

In another sign of rising and possibly problematic price inflation from the world's major economies, reports say China is considering implementing price controls due to rising commodity prices. Reports also say China's central bank wants to tighten lending standards. Speaking of inflation, the U.S. consumer price index report for March is due out Tuesday morning, and will be extra closely scrutinized following last Friday's hotter-than-expected producer price index report.

The key outside markets today see the U.S. dollar index slightly down. Nymex crude oil prices are firmer and trading around $59.65 a barrel. Meantime, the yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.65%.

There was no major U.S. economic released Monday.

Technically, June gold futures prices are so far seeing a routine downside correction from recent gains after prices late last week hit a five-week high. However, the bulls need to step up and show power soon to keep the technical ground they have gained recently. The gold bears still have the overall near-term technical advantage. 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 today's high of $1,746.20 and then at $1,750.00. First support is seen at$1,725.00 and then at last week's low of $1,721.60. Wyckoff's Market Rating: 3.0

p>May silver futures prices are also seeing a corrective pullback from recent gains. The silver bears have the overall near-term technical advantage. Prices are still in a 10-week-old downtrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $26.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the March low of $23.74. First resistance is seen at $25.00 and then at today's high of $25.33. Next support is seen at $24.50 and then at $24.00. Wyckoff's Market Rating: 3.5.

May N.Y. copper closed down 320 points at 400.80 cents today. Prices closed nearer the session low today. The copper bulls have the overall near-term technical advantage. However, prices have been trending mildly lower for six weeks. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 420.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the March low of 384.90 cents. First resistance is seen at today's high of 405.90 cents and then at 410.00 cents. First support is seen at today's low of 398.80 cents and then at 395.00 cents. Wyckoff's Market Rating: 6.5.
 

By Jim Wyckoff

For Kitco News

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Gold price kicks off Q2 with gains, but can it break out?

The second quarter is already looking better for gold. The precious metal was up almost $50 dollars during the first week of April as it moved past its key resistance level of $1,750. But what happens next is critical — can gold finally hold above this level as analysts cite strength in the metal's latest move higher?

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Gold futures retrace much of this week’s gains

Gold futures basis the most active June 2021 Comex contract is currently fixed at $1744.10, after closing yesterday at$1756.50, the highest price since February 26. Gold futures basis the most active June 2021 Comex contract lost $14.10 in trading today.

Dollar strength was a minor component in today’s price decline. Today the dollar index gained 0.111 points or 0.12%. The vast majority of today’s decline was attributed to market participants bidding the precious yellow metal lower. Interestingly this was the exact opposite of yesterday’s price gains with the majority of gains due to market participants actively buying that dip and dollar weakness contributing only a fractional component of yesterday’s $14.90 gain.

Silver basis the most active May 2021 Comex contract lost $0.26 today after gaining $0.28 on Thursday. Currently silver futures are fixed at $25.325.

Bitcoin futures which are traded on the Chicago Mercantile continued in their price ascent, gaining $520 today and is currently fixed at $58,675 per coin.

While yesterday’s gains in the precious metals and U.S. equities were a direct result of the minutes released from last month’s FOMC meeting, the minutes underscored the current mandate of the Federal Reserve which has not changed since interest rates were dropped to between 0 and ¼%. Additionally, they continue to add $120 billion per month to their asset balance sheets through purchasing United States bonds and mortgage-backed securities.

The Federal Reserve continues to be aligned with the majority of central banks worldwide, with both the world bank and the Federal Reserve continuing to have an extremely accommodative monetary policy. In fact, on Tuesday the IMF backed the Fed’s decision to be patient and continue to keep interest rates extremely low with the intent of maintaining the current interest rate for years to come.

The International Monetary Fund through the central banks of its member nations continues to its intent 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.

Chairman Jerome Powell’s statement continues to propose that any rise in inflation is transitory and will be short-lived.

In disagreement, William Watts wrote an article in MarketWatch yesterday. The author spoke about his deep concern that there is the biggest inflation scare in 40 years which will become apparent extremely soon.

“It’s unclear whether inflation will see a lasting comeback, but a booming, stimulus-fed economy rebounding from the COVID-19 pandemic seems all but certain to send some near-term inflationary shock waves through financial markets in coming months.” He cites Christopher Wood, global head of equity strategies at Jeffrey’s in a note written on April 4 that states “there has been a sudden surge in demand following a supply shock which is a classic recipe for a pickup in inflation.”

Of course, if inflation does begin to ratchet up higher it will have an extremely bullish impact on gold and silver because it will devalue the U.S. dollar which has an inverse relationship between the price of those two precious metals. He also warned that investors should be paired for the biggest inflation scare in America on the reopening of the economy since the early 1980s when former Fed Chairman Paul Volcker crushed double-digit inflation by the late 1970s.

Which leads to the question he ponders, which is just how long-lasting will inflationary bout continue? And how the Federal Reserve will respond should that occur? Higher inflation will lead to higher gold and silver prices and have tremendous bearish implications for U.S. equities.

The Fed has also agreed that they will let inflation run hot in lieu of their primary mandate (which is maximum employment) above its former target of 2%. Also, members of the Federal Reserve have stated that they will let inflation run hot for an unspecified amount of time.

Unquestionably upticks in inflation will take gold and silver higher so the question becomes which hypothesis is correct? The analysts or the chairman of the Federal Reserve?

By Gary Wagner

Contributing to kitco.com

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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

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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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