Gold, silver, platinum and palladium are 'a form of currency'

Mar 20, 2021

Guest(s): Anna Golubova Social Media Reporter

A lot has happened in the gold space this week. And the tides may finally be turning for the precious metals. Here's a breakdown of the top three stories.

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Bullish sentiment in gold is growing but focus remains on rising bond yields

Sentiment continues to improve in the gold market among both Wall Street analysts and Main Street investors. However, there is some concern that rising bond yields will cap gold at critical resistance below $1,750 in the near-term.

"Gold has had a nice bounce from its recent lows, but this just could be a short-term correction as prices appear to be contained as inflation still isn't a major story for investors," said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Although Cieszynski is bearish on gold in the near-term, he added that gold has room to move higher in this corrective bounce.

This week, 13 analysts participated in the survey. A total of 6 voters, or 46%, called for gold prices to rise next week. Meanwhile, four voters, or 31%, said they see gold prices falling next week. Three analysts, or 23%, saw prices moving sideways.

Both sentiment and participation in the weekly gold survey are improving among retail investors. This week, 1698 votes were cast in online surveys. Among those, 1,101, or 65%, said they were bullish on gold next week. Another 355 participants, or 21%, said they were bearish, while 242 voters, or 14%, were neutral on the precious metal.

The increase in bullish sentiment comes as the gold market ends the week with modest gains but down from a one-week high. June gold futures last traded at $1,740 an ounce, up 1% from last Friday.

This week the gold market saw a brief push to $1,750 an ounce after the Federal Reserve left its ultra-loose monetary policies unchanged. The central bank also signaled that it doesn't expect to raise interest rates until at least 2024.

While the Federal Reserve is expected to remain extremely patient as the U.S. economy recovers, the gold market still has to deal with rising bond yields. Federal Reserve Chair Jerome Powell indicated that he wasn't concerned with the recent selloff in the bond market that has driven yields to a 13-month high above 1.7%.

For a lot of investors, higher bond yields, which are also supporting the U.S. dollar, are the biggest challenge for the gold market. However, gold's positive moves this week could indicate that the bond market is having less impact on the precious metal.

Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as bond yields might be close to peaking.

"The bond vigilantes may not have been defeated by Fed Chair Jerome Powell's assertions that the Fed would remain easy, but eventually, through more words or by action, the Fed will stop the rise in long yields, and that will be positive for gold," he said.

Sean Lusk, co-director of commercial hedging at Walsh Trading, said that he is also looking for bond yields to find a natural ceiling as the U.S. central bank is expecting to keep interest rates at the zero-bound range for the next three years.

However, Lusk added that it is a little too early to get excited about gold as the market remains in a solid downtrend.

"With interest rates at zero, bond yields can only go so high," he said. "But I want to see gold hold at least $1,740 and see some weakness in the U.S. dollar before I start getting excited about gold."

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is also neutral on gold in the near-term, but he wants to see a break above $1,765 an ounce before he starts to become bullish.

He added that gold is "trying to reestablish its reflation credentials, something that has been sorely missing for the past four months."

By Neils Christensen

For Kitco News

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Traders continue to bid yields higher in spite of the Federal Reserve statement

“There’s something happening here, what it is ain’t exactly clear” – Stephen Stills

Immediately following the conclusion of the FOMC meeting yesterday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

However, in trading overseas, gold continued to climb higher as it opened in Australia on Thursday morning but then began selling under pressure as it moved into Hong Kong and London. The primary events that caused gold prices to weaken were dollar strength and higher yields in U.S, Treasury notes. In fact, the 10-year Treasury yield gained in excess of nine basis points, moving the current return to 1.73%. An absolute negative factor for gold placing bearish pressure on the metal.

This signals that even with the definitive tone of Chairman Powell once again conveying the Federal Reserve’s intent to keep interest rates where they are for a long time. While market participants looking at good economic data nonetheless continued to bid yields higher in anticipation of a rate hike disregarding the dot plot produced by the Federal Reserve as well as Jerome Powell statements during the press conference yesterday.

However, by the close of trading in New York gold basis, the most active April 2021 Comex contract gained significant ground. And although it closed well off of its high, which was $1754, it did gain $7.50, or 0.43%, and is currently fixed at $1734.60. Concurrently the uptick in gold occurred with extreme dollar strength, which was also up approximately .045%. That means if the dollar had been neutral today, we would have seen a gold rise by approximately $15.

Another interesting aspect was the negative correlation in terms of price change between spot or Forex gold and gold futures. Although spot gold is still slightly above the price of April’s futures contract, the net change on the day was a decline of nine dollars in spot compared to a positive gain of $7.50 in gold futures. According to the KGX (Kitco Gold Index), today’s decline of $9.00 is a combination of dollar strength and selling pressure. The vast majority of today’s change occurred because of dollar strength which accounted for $7.85 of the decline, with the remaining $1.15 resulting in spot gold at $1736.50.

At least for today, gold futures were able to overcome both dollar strength and higher yields on U.S. treasuries which rose to a 14-month high. Many analysts believe that unless the Fed intervenes to address the differential between short-term and long-term bonds and notes that the yield in the 10-year note could trade as high as 2%. That is only 0.02% off of the pre-pandemic yield, which was at 2.2%.

There is no doubt that analysts, market participants as well as traders are still gleaming through the statement released yesterday and working through the statements made by Chairman Powell, not only focusing on the words but the demeanor. Although he has been emphatic about keeping interest rates near zero for at least two years, it seems market sentiment does not agree with that assessment. There are those analysts that believe that if solid economic data continues to be forthcoming, it will force the hand of the Fed to raise rates sooner than they had anticipated.

This is contrary to the statements and determination of the Federal Reserve to not make the same mistakes that didn’t 2008 by raising rates too quickly. In the words of Chairman Powell, it will be the pandemic that dictates action by the Federal Reserve, and they will not act in a way that could hinder a full recovery in the fastest period of time.

By Gary Wagner

Contributing to kitco.com

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Gold and silver are mixed heading into the EU open

Gold and silver are trading mixed this morning with the yellow metal trading 0.29% down and silver moving 0.54% in the black. Gold has been impacted by some strength in the greenback today as the DXY trades 0.10% higher overnight. The US dollar is not up against all the major currencies with AUD, NZD and CAD all performing well.

After inheriting a positive close from the US, the Nikkei 225 (1.01%) and Shanghai Composite (0.51%) closed higher. Australia's ASX however struggled and fell 0.73% due to weaks in tech, financial, healthcare and property sectors.

The rest of the commodities complex struggled overnight as copper fell 1.32% and spot WTI dropped 0.67%.

Late during yesterday's session, the Fed kept rates and QE unchanged. There was no mention of SLR but the NY Fed RRP facility to $80 bln from $30 bln. Importantly, the dot plot still reflects no rate rises till the end of 2023. GDP and inflation forecasts were revised higher.

Overnight, Japanese media reported that the BOJ will widen its target yield band for 10 year JGBs to plus/minus 0.25%. This could be a reaction to the recent moves in the bond markets.

As the US and China meet in Alaska, US Sec State Blinken says China aggression poses challenge. China state TV says the country will not compromise with the US over sovereignty.

Australia February employment change rose a massive +88.7K (vs expected +30K) & the unemployment rate dropped to hit 5.8% (vs expected 6.3%).

Sticking with data, New Zealand GDP for Q4 2020 fell -1.0% q/q vs the expected reading of 0.2%.

Over in the Netherlands, PM Rutte looks likely to be returned for a fourth term but the results are not official yet.

Glencore have said that Mitsubishi are to acquire 30% stake in the Aurukun Bauxite project.

Looking ahead to the rest of the session highlights include CRBT, Norges Bank and BoE rate decisions, US initial jobless claims, Philly Fed data. We will also get comments from ECB's Lagarde, BoE's Bailey, ECB's Schnabel, ECB's de Guindos and ECB's McCaul.
 

By Rajan Dhall

For Kitco News

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David

Gold and silver move marginally higher heading into the EU open

Gold has moved 0.20% higher again leading into the EU session and trades at $1734.65/oz. Silver is also up but only marginally as it flirts with the $26/oz figure.

After inheriting a mixed close for Wall Street bourses in the Asia Pac area moved lower. The Shanghai Composite (-0.03%), Nikkei 225 (-0.02%) and ASX (-0.47%) all closed in the red. Futures are pointing towards a negative cash open in Europe.

In FX markets, the US dollar was up against all its major counterparts but the pound. GBP/USD moved 0.08% higher while, AUD and NZD are both more than 0.10% lower against the greenback.

In the rest of the commodities complex, copper trades 0.88% higher and spot WTI is 0.76% in the black. All markets are slightly tentative ahead of today's FOMC meeting.

Looking at the news, the US have identified 24 China & HK officials who have reduced Hong Kong's autonomy and warn of sanctions. There are high-level talks taking place between US and Chinese officials in Alaska this week. A US official has said (on talks with China due this week) talks will be robust, frank. lastly, US Sec State Blinken says China acting more aggressively, repressively.

US House passed a two-month PPP extension in a 415-3 vote, The PP serves to support smaller business (mainly). There is still around USD93bn left in the kitty to disburse.

In company news, Honda is suspending some production at all US and Canadian plants due to supply issues. There have been some serious semi conductor shortages at the moment but it is unclear if this is the problem.

From central banks, RBA's Kent doesn't think monetary policy should or can control asset prices. He added he expects a rise in business failures as fiscal support is phased out.

ECB's Schnabel has said the EU's EUR 750bln recovery fund may not be large enough. He added what matters now is spending money as quickly as possible.

ECB's Kazimir believes the EU's fiscal response is lagging behind America's. He also said bond yields must reflect the fundamentals and the Euro-Area's yield moves are not dramatic.

The latest International Atomic Energy Agency report shows Iran edging closer to developing a nuclear weapon. This will not please the international community who may respond with sanctions.

France's PM says its time to think about a lockdown for the Paris area. Italy and France are now considering ending the suspension of the Oxford/AstraZeneca vaccine.

Looking ahead to the rest of the session highlights include the FOMC rate decision (statement), IEA reports, EZ CPI, Canadian CPI, DoE's, NZ GDP, Dutch general election and comments from ECB's Elderson and Fed's Powell.

By Rajan Dhall

For Kitco News

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‘Geological’ inflation is here; how does this affect gold and silver price?

Guest(s): Randy Smallwood

We're living through a period of "geological inflation" which describes an environment of ever increasing demand for metals, but dwindling reserves, said Randy Smallwood, CEO of Wheaton Precious Metals.

"It is getting tougher and tougher to find assets, to find opportunities, to grow, to find exploration," Smallwood said.

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