SocGen looks for bonds to outperform equities as Fed pivots in Q2 – gold remains a risk hedge

A mild recession in the U.S. in 2023 will force the Federal Reserve to pivot in the second quarter of next year, according to market analysts at Société Générale.

The French bank said Thursday that it was making some significant changes to its multi-asset portfolio ahead of the new year and is heavily weighted toward sovereign debt compared to equities and commodities. The bank also said that it is reducing its cash position to zero.

"Overall, expected return should be more positive than in 2022, with particular focus on Treasuries, EM and Credit. U.S. technology remains at risk and Chinese assets uninspiring," the analysts said. "We believe the clear prospect of an imminent Fed pivot offers the opportunity to increase cheap quality credit and strongly re-gear our strategy towards cheap E.M. assets, from unhedged local currency bonds to (mostly) non-China Asian equities."

As to how high the Fed Fund's rate will go, the economists said that market expectations of a terminal rate close to 5% would be appropriate. They added that that would bring real interest rates up to 1.5% to 2%.

"We believe that pivoting before the real Fed fund rate is firmly in positive territory would be a policy error and would trigger much stronger volatility," the analysts said.

As SocGen increases its exposure to government and corporate debt, it is also slightly reducing its commodity holdings to 9%, down from 10% in September. Gold still makes up the biggest portion of its commodity position, but has been reduced to 6%, down from 7% in September.

The analysts said they continue to see gold as a hedge against risks.

Investors thankful spot gold prices holding above $1,750

"Systemic risks are a common feature after a round of policy tightening of this kind," the analysts said. "Holding gold and CHF can help stabilize portfolio volatility, in our view."

Although the bank continues to maintain a solid position in gold, it remains fairly bearish on the price next year. The French bank sees gold prices falling to an average of $1,500 an ounce by the third quarter of next year. However, prices are expected to recover and average around $1,650 an ounce by the fourth quarter.

The French bank sees continued improvement in gold through 2024, projecting an average annual price of around $1,800 an ounce. The analysts forecast prices to rise to $1,900 by 2025.

By Neils Christensen

For Kitco News

Time to Buy Gold and Silver

David

Gold price firms after FOMC minutes lean a bit dovish

Gold and silver prices are higher and hit daily highs in afternoon U.S. trading Wednesday. The U.S. data point of the week saw the FOMC meeting minutes tilt slightly dovish on U.S. monetary policy. December gold was last up $5.70 at $1,745.50 and December silver was up $0.381 at $21.43.

The just-released minutes from the last FOMC monetary policy meeting showed FOMC members saying it would soon be appropriate to slow the pace of U.S. interest rate increases. However, they also see a higher terminal Fed funds rate than they had earlier expected. Some Fed officials were worried the Fed could be tightening monetary policy more than necessary. As always, traders were looking at the minutes to see if they contain any new clues on the future path and timing of Fed monetary policy.

Most global stock markets were slightly up overnight. U.S. stock indexes are higher in afternoon trading, following the dovish FOMC mintues. The marketplace remained tentative at mid-week as Covid-19 cases in China continue to rise and are crimping the world’s second-largest economy. Newswire reports this morning quoted Chinese officials as saying they will further ease China’s monetary policies in an effort to produce more economic growth.

Gold prices should be closer to $1,614 than $1,750 – Quant Insight

The key outside markets today see the U.S. dollar index sharply lower. Nymex crude oil prices are also sharply lower and trading around $77.50 a barrel. The yield on the benchmark U.S. 10-year Treasury note is presently around 3.71%.

U.S. markets are closed on Thursday for the Thanksgiving holiday.

Technically, the gold futures bulls and bears are on a level overall near-term technical playing field. A fledgling price uptrend on the daily bar chart has been negated. Bulls’ next upside price objective is to produce a close above solid resistance at the November high of $1,791.80. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,675.00. First resistance is seen at this week’s high of $1,755.00 and then at $1,770.00. First support is seen at $1,725.00 and then at today’s low of $1,719.00. Wyckoff's Market Rating: 5.0.

The silver bulls have the slight overall near-term technical advantage. Prices are in a choppy 2.5-month-old uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the November high of $22.38. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at $22.00 and then at $22.38. Next support is seen at $21.00 and then at this week’s low of $20.60. Wyckoff's Market Rating: 5.5.

December N.Y. copper closed up 80 points at 362.25 cents today. Prices closed near mid-range. The copper bears have the overall near-term technical advantage. A six-week-old uptrend on the daily bar chart has stalled out. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the November high of 396.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 330.00 cents. First resistance is seen at this week’s high of 366.90 cents and then at 370.00 cents. First support is seen at this week’s low of 354.75 cents and then at 350.00 cents. Wyckoff's Market Rating: 4.0.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

 

David

Gold, silver slightly up amid weaker USDX, higher crude oil

Gold and silver prices are slightly higher but well off daily highs in midday U.S. trading Tuesday. The metals are getting a slight lift from a lower U.S. dollar index and higher crude oil prices on this day. U.S. Treasury yields have down-ticked today and that's also limiting selling interest in the safe-haven metals. December gold was last up $2.20 at $1,741.80 and December silver was up $0.178 at $21.05.

Global stock markets were mixed overnight. U.S. stock indexes are higher at midday. Risk appetite remains subdued so far this week as Covid cases surge in China. News reports are calling China's largest city, Beijing, a "ghost town." Some analysts are saying 20% of China's economy is being negatively impacted by the Covid lockdowns.

Wednesday will be the busiest day for U.S. economic data, including the minutes from the last FOMC monetary policy meeting, to be released in the early afternoon. A Barron's headline today reads: "Don't tune out for the holidays; the Fed minutes will be a must watch." The minutes may contain fresh clues on the future path and timing of Fed monetary policy.

Turkey, Uzbekistan continue to buy gold, speculation grows that China is buying anonymously

The key outside markets today see the U.S. dollar index lower on a corrective pullback from solid gains posted Monday. Nymex crude oil prices are firmer and trading around $81.50 a barrel. The crude oil market was roiled Monday by reports Saudi Arabia is contemplating raising its crude oil production—only to have Saudi officials deny the report. Oil prices fell to an 11-month low shortly after the news reports hit the wires. The yield on the benchmark U.S. 10-year Treasury note is presently 3.773%.

Live 24 hours gold chart [Kitco Inc.]

Technically, the gold futures bulls and bears are on a level overall near-term technical playing field. A fledgling price uptrend on the daily bar chart has stalled out. Bulls' next upside price objective is to produce a close above solid resistance at the November high of $1,791.80. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,675.00. First resistance is seen at this week's high of $1,755.00 and then at $1,770.00. First support is seen at this week's low of $1,733.90 and then at $1,725.00. Wyckoff's Market Rating: 5.0.

The silver bulls have the slight overall near-term technical advantage. Prices are in a choppy 2.5-month-old uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the November high of $22.38. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at today's high of $21.37 and then at $21.80. Next support is seen at this week's low of $20.60 and then at $20.00. Wyckoff's Market Rating: 5.5.

December N.Y. copper closed up 525 points at 362.40 cents today. Prices closed near mid-range. The copper bears have the overall near-term technical advantage. A six-week-old uptrend on the daily bar chart has stalled out. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the November high of 396.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 330.00 cents. First resistance is seen at today's high of 366.90 cents and then at 370.00 cents. First support is seen at this week's low of 354.75 cents and then at 350.00 cents. Wyckoff's Market Rating: 4.0.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

 

David

Gold, silver down as USDX rallies, crude oil tanks

Gold and silver prices are solidly lower in midday U.S. trading Monday. The metals are feeling the heat of strong gains in the U.S. dollar index to start the trading week and a big drop in crude oil prices. December gold was last down $20.00 at $1,734.30 and December silver was down $0.302 at $20.70.

The key outside markets today see the U.S. dollar index in a strong rebound, including sharply higher prices today, after the index hit a three-month low last week. Nymex crude oil prices are sharply down today and hit a 10.5-month low. News wire reports today said Saudi Arabia is considering a modest increase in its crude oil production. The yield on the benchmark U.S. 10-year Treasury note is presently 3.819%.

Global stock markets were mostly lower overnight. U.S. stock indexes are weaker at midday. Risk aversion is keener to start a U.S. holiday-shortened trading week. U.S. markets are closed Thursday for the Thanksgiving holiday. China has recorded its first Covid deaths in six months as the world’s second-largest economy continues to struggle with rising Covid cases and lockdowns. Reports said infections in Beijing have more than doubled the past few days. This news has stock and commodity markets under pressure due to global demand worries.

FTX was running like a "fractional reserve" bank; its collapse is "the craziest thing" in crypto history – Crypto Megan

Wednesday will be the busiest day for U.S. economic data, including the minutes from the last FOMC monetary policy meeting, to be released in the early afternoon.

Technically, the gold futures bulls have lost the slight overall near-term technical advantage. A fledgling price uptrend on the daily bar chart has stalled out. Bulls’ next upside price objective is to produce a close above solid resistance at the November high of $1,791.80. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,618.30. First resistance is seen at today’s high of $1,755.00 and then at $1,770.00. First support is seen at $1,725.00 and then at $1,700.00. Wyckoff's Market Rating: 5.0.

The silver bulls still have the slight overall near-term technical advantage but are fading. Prices are in a choppy 2.5-month-old uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the November high of $22.38. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at today’s high of $21.04 and then at $21.50. Next support is seen at $20.50 and then at $20.00. Wyckoff's Market Rating: 5.5.

December N.Y. copper closed down 720 points at 356.00 cents today. Prices closed near the session low today and hit a two-week low. The key outside markets were bearish for copper today as the U.S. dollar index was sharply higher and crude oil prices were sharply lower. The copper bears have the overall near-term technical advantage. A six-week-old uptrend on the daily bar chart has stalled out. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the November high of 396.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 330.00 cents. First resistance is seen at today’s high of 364.80 cents and then at 370.00 cents. First support is seen at 350.00 cents and then at 342.00 cents. Wyckoff's Market Rating: 4.0.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

 

David

Market sentiment for gold adjusts to recent Fed officials' comments

The Merriam-Webster dictionary defines sentiment as, “an attitude, thought, or judgment prompted by feeling: predilection.: a specific view or notion: opinion.: emotion.: refined feeling: delicate sensibility especially as expressed in a work of art.: emotional idealism.”

As it pertains to the financial markets, market sentiment is the view or attitude that creates our opinion as to whether an asset class is overvalued or undervalued. It shapes and changes the value of a stock or commodity’s price.

Market sentiment is overly sensitive to statements and comments made by Federal Reserve officials because those individuals have the power and influence to change monetary policy. There is a dramatic difference between the perception of upcoming Federal Reserve monetary policy changes and the actions of Federal Reserve officials.

The Federal Reserve raised rates at every FOMC meeting this year except in January, from March through November, a total of six rate hikes. Over the last four FOMC meetings (June, July, September, and November) they raised rates by 75 basis points. The aggressive nature of the Federal Reserve’s monetary policy moved gold dramatically lower from March up until the beginning of November. Gold traded to its highest value this year of $2078 in March. By the beginning of November, gold prices had dropped to approximately $1621, resulting in a price decline of 21.99%.

During the first week of November, market sentiment shifted because inflation rates had declined fractionally and investors viewed this fractional drop as a signal that the Federal Reserve would begin to loosen its aggressive monetary policy. This caused gold to rise dramatically from $1621 to an intraday high of $1792 by Tuesday, November 15. Because the CPI index dropped from 8.2% year-over-year in September to 7.7% year-over-year in October investors believed that the Federal Reserve would become more dovish regarding upcoming rate hikes.

However, Federal Reserve Governor Christopher Waller told a conference in Sydney, Australia Sunday November 13, "We're not softening…Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a way out there." On November 14 multiple Federal Reserve officials made comments to the contrary.

San Francisco Federal Reserve President Mary Daly, “It’s far from a victory”. Lorie Logan the Federal Reserve’s president of the Dallas central bank said that last week’s report is, “a welcome relief”, but will not alleviate the need for more rate increases possibly at a slower pace.

The statements made over the weekend and on Monday, November 14 dramatically changed market sentiment concerning gold prices. Gold prices hit the intraday high above $1790 the following day and then began to have three consecutive days of price declines from Wednesday to Friday. To add fuel to the fire today St. Louis Federal Reserve President James Bullard said that the Fed’s benchmark policy right might need to rise as high as 7%.

The statements moved gold pricing from Tuesday's high to its current pricing. As of 4:27 PM EST, the most active December futures contract is currently fixed at $1751.30 after factoring in today’s net decline of $11.60. The statements will likely continue to create bearish market sentiment for gold.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

 

David

Did gold price rally run out of steam?

After nearly hitting $1,780 an ounce this week, gold is starting to backtrack amid hawkish comments from Federal Reserve officials. And analysts are warning that a drop below $1,750 an ounce could end the rally and open the door to a steeper pullback.

The extent of the rally in gold took many by surprise these past two weeks. But the precious metal might have moved too high, too fast, RJO Futures senior market strategist Frank Cholly told Kitco News.

Gold advanced from $1,631 at the beginning of November to nearly $1,780 an ounce this week. But the rally seems to have run out of steam, at least for now. December Comex gold futures last traded around $1,759 an ounce, down 0.6% on the week.

"Gold got close to $1,800. And now the market is seeing some profit taking. It does appear to be rolling over. I am not ready to get bearish yet. We are taking a breather," Cholly said Friday.

It is always a good idea to keep an eye on the U.S. dollar. But gold could be paying closer attention to how the U.S. Treasury yields are trading next week, Cholly added. "If gold closes under $1,750, I'd start to get bearish. At $1,725, things turn sour for gold," he said.

Fed officials are pushing back against market expectations

A slate of Fed officials pushed back against the idea of an early pivot because of cooler inflation data in the October report.

"The Fed is reinforcing the idea that they will stay hawkish. And although we'll probably see a 50 bps hike in December instead of 75 bps, the bond market is telling us a bit of a different story. Gold is really going to keep an eye on those interest rates. If interest rates start to come down, then gold will bounce back and be able to challenge $1,800 again and get closer to $1,820," Cholly explained.

Some of the comments markets had to digest this week included Fed Vice Chair Lael Brainard's statement that although the Fed had "done a lot," it still had "additional work to do." Fed governor Christopher Waller also noted that "one report does not make a trend," referring to the October CPI. And St. Louis Fed President James Bullard warned that the Fed would still need to raise rates to at least 5.25%.

But the Fed is known for quickly changing its tune, and Capital Economics is projecting that inflation will keep coming down.

"We still believe that October's CPI will be followed by more good inflation news over the coming months, which will mean the fed funds rate peaks at a lower 4.50% to 4.75% early next year," said Capital Economics chief North America economist Paul Ashworth. "At the end of its last tightening cycle in December 2018, officials were still projecting that rates would need to rise by an additional 75bp … And 12 months ago, the Fed was projecting only 100bp of tightening this year."

Next week will be a shortened holiday week, with U.S. Thanksgiving falling on Thursday. The Fed minutes from the October meeting and more Fed speakers are also scheduled for next week. Risk aversion is likely to settle in, and gold could drift lower, OANDA senior market analyst Edward Moya told Kitco News.

"We were so close to having most of Wall Street convinced that a soft landing was happening. But what seems the likely scenario is that the recent rebound in risk appetite is ultimately going to play out like a bear market rally," Moya said. "Inflation is going to prove difficult for the Fed to declare victory next spring, and that means the risks that they will have to tighten beyond February should be alleviated."

The Fed is still facing a strong labor market. And this weekend, markets will be parsing through the Black Friday sales data to see how bad was the demand destruction. But Moya is not ruling out that the U.S. consumer remains in good shape.

OANDA analyst also doesn't see gold holding $1,750 an ounce next week.

TD Securities described the rally in gold as a short-covering move. "Positioning risk remains skewed to the upside. A break above $1,850 could catalyze additional gains. But if that occurs, positioning would be skewed to the downside," TD Securities commodity strategist Daniel Ghali told Kitco News Friday.

Longer-term, gold's price action depends on how inflation behaves. "If inflation does subside, it opens the door for the Fed to pivot," Ghali added.

Next week's data

Wednesday: U.S. jobless claims, durable goods orders, U.S. new home sales, FOMC meeting minutes

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

 

David

Gold’s recent short-term trend is in a defined cycle – Rally, Consolidate, Repeat

Gold has shifted gears from extended rallies followed by a multi-month correction to its current almost parabolic upside move. This move began during the first week of November and continues to this day. In fact, we are getting the first indications that the extended correction at least for now has concluded and a new stage has begun. The best way to describe the characteristics of this recent rally is using a short-term 60-minute chart which clearly shows that gold is in a defined cycle. That cycle has three components; rally, consolidate, and repeat. The chart below is a 60-minute candlestick chart of gold futures which visibly illustrates that characteristic.

Gold has in all likelihood concluded the multi-month correction that began in March 2022. This extended correction began after gold completed a dynamic rally. This rally took gold futures from approximately $1780 during the first week of January to gold’s highest value in 2022 at approximately $2078, resulting in a $300 gain per ounce. After gold traded $10 below the record high of $2088 the precious yellow metal began an extended multi-month correction from March to November.

The chart below is a daily candlestick chart of gold futures from the beginning of January to November 16. After hitting $2078 in mid-March gold would trade through a series of lower highs and lower lows. Gold would trade to four consecutive lower highs and two consecutive lower lows before finding potential support defined by a near triple bottom that began at the end of September and concluded at the beginning of November at $1621.

Concurrently the Federal Reserve dramatically changed its extremely accommodative monetary policy during the FOMC meeting in March. On March 16, the Federal Reserve implemented its first interest rate hike since 2018. The Fed raised their benchmark “Fed funds” rate by 25 basis points taking the rate from 0 to 25 basis points to between 25 and 50 basis points. During the next FOMC meeting on May 4, the Fed would raise rates by 50 basis points taking Fed funds rates to between 75 and 100 basis points.

The Federal Reserve adjusted the size of each rate hike beginning at the June FOMC meeting. For the next three consecutive FOMC meetings (June, July, and September) the Federal Reserve raised its benchmark rate by 75 basis points after each of their Federal Open Market Committee meetings. Currently, the Federal Reserve has set its benchmark rate between 375 and 400 basis points.

The chart below is also a daily Japanese candlestick chart of gold futures with the timeline of rate hikes added to the chart. There is not an exact correlation between the timeline of rate hikes and the lower lows that resulted from them, gold’s price decline of approximately $457 or -21.99% was for the most part the direct result of an exceedingly aggressive series of rate hikes.

It is now anticipated that the Federal Reserve will begin to change the size of any additional rate hikes beginning in December. According to the CME’s FedWatch tool, there is an 85.4% probability that the Fed will only raise rates by 50 basis points rather than 75 at the December FOMC meeting. The thought of the Federal Reserve easing the amount of each rate hike has given a tremendous boost to the price of gold.

The recent climb from $1621 to $1777 (the current price of December futures) is directly attributable to the belief that the Fed will ease the magnitude of the rate hikes in December and 2023. This is why we have seen such a strong rise which has taken gold futures to a higher high than its previous high for the first time since March. In under two weeks, gold has moved over $150 by having a rally, then consolidating, and then repeating the process.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

 

David

Gold advances on geopolitical trepidation as Russian missiles hit Poland

Russia’s invasion of Ukraine has been escalating to accelerated levels of military action. According to sources in Ukraine and reported by Reuters news, “Russia rained missiles on cities across Ukraine on Tuesday in what Ukraine said was the heaviest wave of missile strikes in nearly nine months of war, echoing a pattern in recent weeks of Moscow lashing out far from the front after battlefield losses.”

Today the Russian military launched over 100 missiles and drone attacks into Ukraine in the latest escalation of its invasion.

This escalation has led to missiles landing in Poland and killing two people in an explosion in Przewodow, a village in eastern Poland approximately 10 km from the border with Ukraine. Concerns have emerged that because Poland is a member of NATO, the Russian missile strike could certainly risk widening the war in Ukraine.

In a report by Reuters today, “Ukraine's President Volodymyr Zelenskiy said on Tuesday, without producing evidence, that Russian missiles had hit Poland, a NATO country, in what he called a "significant escalation" of the conflict.”

However, the Pentagon and the US State Department said they could not confirm the report but were working with the Polish government to gather information. The State Department did acknowledge that the report was “incredibly concerning”.

Russia’s invasion of Ukraine is now in its ninth month and has worsened with the largest wave of missile strikes many of which have targeted the Ukrainian civilian population. This most recent missile strike into Poland if confirmed triggers treaty articles by NATO under which NATO members will meet to assess the threat and if necessary take concrete action.

 

NATO Secretary General Jens Stoltenberg said on Monday, “It is up to Ukraine to decide what terms are acceptable for negotiations to bring an end to the war Russia is waging against the country, warning Moscow's strength should not be underestimated despite Kyiv's recent battlefield successes.

This is raised geopolitical uncertainty in the region to a new and heightened level which is been highly supportive of gold prices today. As of 4:54 PM EST gold futures basis, the most active December 2022 contract is up $4.90 and fixed at $1781.80. Today’s geopolitical uncertainty took gold to an intraday high of $1791.80. The dollar was trading higher earlier in the trading session but is currently trading fractionally lower. The dollar index is currently trading down 0.10% and fixed at 106.42.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David