Traders are cautious as reflected in fractional declines in gold and the dollar

Market participants are trading cautiously with a wait-and-see attitude as this week contains multiple events that could have a deep impact on the financial markets across the board. Cautiousness is the overall demeanor of market sentiment as traders and investors await Chairman Powell's appearance before both the Senate and House beginning on Tuesday. This will be followed by the Labor Department's jobs report for February on Friday.

As of 4 PM EST, gold futures basis most active April contract is down $2.50 or -0.13% and fixed at $1852. Concurrently, the US dollar is also trading fractionally lower down 0.18% or 18 points with the dollar index currently fixed at 104.30.

The more hawkish faction of the Federal Reserve continues its strong narrative that was evident last weekend. On Saturday the San Francisco Federal Reserve President Mary Daly discussed economic and policy issues with Michael Strain, director of Economic Policy Studies at the American Enterprise Institute.

The first question presented to Mary Daly was, "how do you think things are going with the economy right now?" To which she replied, "I really think of it as a yes and situation. And what I mean by that is, yes, the economy has good momentum. Yes, the economy looks like monetary policy is starting to have an effect. We see some slowing in interest-sensitive sectors, we see that we feel a slowdown coming in a way that would be predicted by us raising interest rates."

Throughout the interview, she continued to underscore the narrative of the more hawkish faction of Federal Reserve officials by expressing that the policy of the Federal Reserve most likely will continue to tighten and maintain the more restrictive policy for a longer time.

Although hawkish members of the Federal Reserve are in the minority Chairman Powell is expected to maintain that more rate hikes are needed for a longer time than previously anticipated when he addresses the Senate Banking Committee tomorrow and testifies before the House Financial Services Committee on Wednesday.

Chairman Powell's testimony will be followed by two extremely important economic reports beginning on Friday when the Labor Department releases the most current data in the January jobs report which will be followed by the inflation data vis-à-vis the CPI report on Tuesday, March 14.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold Price to New Heights ?

Since its low in November 2022, the price of gold in dollars has climbed nearly +15% (compared to +4.5% in euros). The rising cost of gold production and the declining profitability of mining companies largely explain this movement. As early as November 2022, we were insisting on the strong probability of an effective gold reversal in 2023. This movement has now been confirmed. But will this rise be enough to drive new highs?

Throughout this publication, we will see that despite the slight drop in the dollar price of gold in 2022, demand is clearly on the rise. At the same time, production costs are rising and mining companies are less profitable. This context largely explains the strong rebound of gold. But what is most impressive is the appetite of central banks for gold, whose demand has increased at a rate not seen since 1967… Behind the structural changes in the market, gold seems to hide a geopolitical confrontation of considerable magnitude.

Strong increase in demand for gold in 2022

Contrary to what many had suggested, demand for gold was boosted considerably in 2022. Demand for the physical metal increased by 18% between 2021 and 2022, while supply increased by only 2%. The stability of the gold price in 2022 once again shows the lack of a link between the price and actual demand.

We should also note the particular case of Russia. The demand for coins and bars in Russia jumped by 374% in 2022 to 25 tons! This is a very significant increase for the reasons we know. In France, the increase in demand for coins and bars is still 21%, or 14% in Germany. The chart shows a clear interest in gold in European countries, mainly due to the fall of the euro in 2022. But the interest in gold is even stronger in the Middle East and Russia, driven by a desire for monetary independence.

Central banks are massively buying gold

One thing that catches our attention is the sudden and massive revival of interest in the yellow metal by central banks. Central bank demand for gold jumped 152% between 2021 and 2022! This is simply the largest amount of gold ever purchased by central banks in one year in decades. The equivalent of 1,135 tons.

These massive purchases are questionable, as they run counter to the trend observed in recent years. In 2019 and 2020, central bank demand had fallen by 7.7% and 5.8%, respectively. Central banks' purchases are taking place against a backdrop of balance sheet reduction, which seems contradictory. Turkey has thus increased its gold reserves by 147 tons in 2022, followed by 62 tons for China, and 44 tons for Egypt.

According to the World Economic Forum, the pace of gold accumulation by central banks is unprecedented since 1967! In a WEF article published on November 10, 2022, the WEF states that: “Gold is regarded as an effective inflation hedge, although some analysts believe this to be true only over extremely long time horizons stretching over a century or more.”

Gold is primarily considered in the same way as foreign exchange reserves. In order for the balance of payments between countries to be balanced, central banks must change their reserves. Foreign exchange reserves thus tend to decrease when a country experiences either capital outflows, a deterioration of its trade balance, or a decrease in prices. It is understandable why, in an inflationary context, the demand for foreign exchange reserves increases, and with it, the demand for gold. The case of Turkey, which has seen inflation rise to over 80%, is revealing. Faced with a rising dollar, many central banks are buying gold to ensure liquidity on the international scene. The real interest of gold for central banks is, above all, to guarantee a source of confidence and independence.

Time to Buy Gold and Silver

David

Gold price to take direction from Powell's testimony, U.S. jobs report next week

After five consecutive weeks of losses, the gold market posted its first weekly gain. Analysts say the precious metal will now take direction from the upcoming Federal Reserve Chair Jerome Powell's testimony and the February employment report.

After testing the lows at $1,810 an ounce, gold bounced back to the mid-$1,800s range. At the time of writing, April Comex gold futures were at $1,852.70 an ounce, up $35 on the week.

"I am impressed with how gold performed, especially when you look at yields, with the 10-years above 4%," OANDA senior market analyst Edward Moya told Kitco News. "It will be pretty wild next week because of the hawkish Powell testimony and U.S. payrolls data. We might see some gold weakness initially, but then some strength after payrolls."

On Tuesday, Powell will testify on the U.S. central bank's semiannual monetary policy report to the Senate Banking Committee. This will be followed by his testimony on the same topics to the House Financial Services Committee on Wednesday.

Markets will also digest the latest U.S. nonfarm payrolls report from February, with consensus calls projecting 200,000 new positions and the unemployment rate remaining at 3.4%.

"The February employment report and Fed Chair Jerome Powell's testimony to Congress next week should give a clearer indication of whether recent talk of interest rates going 'higher for longer' is justified," said Capital Economics' deputy chief U.S. economist Andrew Hunter.

Powell is likely to remain aggressive in his language, Moya noted. "He can't change that right now. It could weigh gold down in the first half of the week," he said. "The message 'higher for longer' will be firmly implemented."

One development that could move gold prices higher is the downward revision to January's strong employment report.

"We might have a significant downward revision. January's 517,000 positions could get revised. We're likely to see a sharper slowdown in hiring. The February number could also come in below the consensus," Moya said.

Gold's strong rally at the start of the year was reversed when the markets received the January employment news, RJO Futures senior market strategist Frank Cholly told Kitco News.

"Strong employment report was followed up with inflationary news — CPI, PPI, and retail sales," Cholly added. "All this data indicated that the Fed has to continue to raise rates, and gold fell."

The gold market continued to trend downward until it hit the $1,810s level, which coincided with the metal's 200-day moving average, Cholly pointed out. At that point, gold got a bounce.

"The market might do some consolidation here and wait for direction. But we probably found a bottom. There is value in gold between the $1,800-$1,825 range," Cholly noted.

Once gold can close above $1,860, more buying would kick in. And above $1,880 an ounce, Cholly sees the $1,900 level at play again.

"It will depend on how the data comes out over the next two weeks. The employment number and then the CPI and PPI the week after that. If we continue to see that the Fed will have to be aggressive with rate hikes, gold will re-test last week's lows," he said.

Moya added that gold's resistance is $1,880, and support is $1,820 an ounce.

In the short-term, gold remains very data-depended — just like the Fed. "It was all about payrolls last month. This time, the nonfarm payrolls, the CPI, and PPI will also be critical for the direction of interest rates and precious metals. If we are getting such good yields on fixed incomes, it is hard for gold to move higher," Cholly stated.
 

Next week's data

Monday: U.S. factory orders

Tuesday: Fed Chair Powell testifie

Wednesday: ADP nonfarm employment, Fed Chair Powell testifies, BoC rate decision

Thursday: U.S. jobless claims,

Friday: U.S. nonfarm payrolls

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

Gold/Silver -he next bull wave begins

It was a turning point for Precious Metals this week as Gold, Platinum, and Silver all rose after six straight down weeks. The rally came on the heels of a stronger U.S. Dollar and another cycle high in Treasury Yields. The physical buying this year has been robust, and once the Fed concludes hiking rates, news of the pivot will spark an additional buying frenzy. I expect Gold to take a forward-looking approach as it begins its recovery while the long end of U.S. rates makes another lower high.

Daily Gold Chart

While the upside momentum has been strong, it will take a move back through $1891 to neutralize the downward trend and, ultimately, a move through $1900 to get the bulls back on track. $1785 is where the 200 day moving average comes in and acts as long-term support. To further help you develop a trading plan, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold that can easily apply to Silver." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Silver.

Our Strategy

By systematically purchasing regular intervals of the 10-ounce Gold contract or 1000-ounce Silver contract, you can layer in over time and preposition for the next rally. One example with a $25,000 account size would be to focus on the December 2023 10-ounce Gold contract and use a dollar-cost average approach by purchasing 10 ounces of Gold at 1850/oz, 10 oz at 1800, and 10 oz at 1750 with a year-end target of $2100/oz.

If filled on all three contracts, your average price will be $1800/oz; therefore, every dollar move Gold makes on the three contracts will be $30 since you control 30 ounces. If the $2100/oz price objective is achieved by year-end, this will result in a gain of approximately $9,000 (30 oz times $300 rise). Traders should also consider proper risk management while using a dollar-cost averaging approach, such as a hard stop on three contracts at $1700. If that were to occur under this scenario, it would likely result in a loss of $3,000. If you have never traded futures or commodities or would like to learn more about taking delivery of Silver, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.

By Phillip Streible

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold at risk of a major drop as prices at 'pivotal point' – analysts

With the latest inflation numbers stressing out markets across the board, gold is at a "pivotal point," according to analysts who are not ruling out a deeper selloff if gold drops below $1,800 an ounce.

This week's big surprise was the hawkish Federal Reserve meeting minutes, which revealed that "a few" FOMC members were leaning towards a 50-basis-point hike instead of the more dovish 25-bps increase adopted at the February meeting.

On top of that, the Fed's preferred inflation measure — the annual core PCE price index — accelerated in January, coming in at 4.7% versus the expected 4.3%.

"There's a major reset in how high rates will go. People are now thinking over 6%. That's significant enough that it is breaking gold's back," OANDA senior market analyst Edward Moya told Kitco News.

If there is further momentum towards $1,800 an ounce, it could "get ugly" for gold, and prices could drop another $50, Moya added.

At the time of writing, April Comex gold futures were trading at $1,816.60 an ounce, down for the fifth week in a row.

"This is a pivotal point right here," Forex.com senior technical strategist Michael Boutros told Kitco News. "If we get a weekly close below $1,807-$1,805, you risk a big drop. And you could be looking at $1,750s."

It is the macro outlook that is weighing on gold. In January, the precious metal rallied on the idea that the Fed could cut rates at the end of 2023.

Now, the reality is starting to set in, Boutros explained. "And inflation numbers we got today are showing that. And that adjustment to higher rates is hitting the markets," he said.

The good news for gold is that this rate re-pricing is also impacting the equity space. And if the S&P 500 and the Dow keep falling, gold might see some support as the safety trade, Boutros noted. "That should put some sort of floor under gold's price," he added.

Geopolitical tensions are also not letting up, which is working in gold's favor in terms of finding a bottom in this downtrend.

"People are throwing around all these big words like 'nuclear threats.' It is the first anniversary of the war in Ukraine, and it is time for a reality check. The threat is there. And if that threat becomes more prominent on a global scale and if these talks continue to deteriorate, at some point, that will factor in," Boutros pointed out.

The volatility in the gold market is far from over, as prices can fall as quickly as they recover, said Gainesville Coins precious metals expert Everett Millman.

"Given gold's nature to have these quick selloffs and recoveries during times of panic, there is not an extremely strong floor right now. I wouldn't be surprised to see gold break below $1,700, with expectations that it would come back up pretty quickly if there is an escalation in Ukraine," Millman told Kitco News.

With markets realizing the difficulty in bringing inflation down to the Fed's 2% target, gold will remain vulnerable in the short term.

"There is some support at $1,750, but then you don't have anything major until possibly $1,730. This is a major change in sentiment," Moya said.

Next week's data

Analysts will monitor the macro data scheduled for next week for any signs of weakness after a solid start to the year.

"We cautioned that the stark contrast in weather between December's wintery, cold conditions … and January's almost spring-like temperatures played a big part in the strength of data," said ING's chief international economist James Knightley. "[Next] week, we will get a first test of that hypothesis with the ISM manufacturing and service sector reports for February."

Monday: U.S. durable goods orders, U.S. pending home sales,

Tuesday: U.S. CB consumer confidence

Wednesday: U.S. ISM manufacturing PMI

Thursday: U.S. jobless claims

Friday: U.S. ISM non-manufacturing PMI

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David