Gold has respectable gains, but still based on dollar weakness and not buying

Golf futures basis the most active December 2022 Comex contract is currently up $11.20 and fixed at $1669.70. Noteworthy was today’s intraday high of $1679.40 which came in just below the first level of resistance at $1680. However, once again we can see that while gold’s gains are respectable, they are based entirely upon dollar weakness. Furthermore, market participants bid the precious metal lower.

According to Reuters, “Gold prices rose to a two-week high on Wednesday as the dollar and U.S. bond yields slipped on expectations the Federal Reserve will temper its aggressive rate-hike stance starting December.”

As of 4:05 PM EDT, the dollar index is down 1.290 points or 1.16% and fixed at 109.54. The lack of market participants bidding gold higher can be seen through the eyes of the Kitco Gold Index (KGX). The screen print above of the KGC was taken at 3:53 PM EDT and shows spot gold was currently fixed at $1665 with a net gain of $11.90. However, as we have seen on multiple occasions recently it was dollar weakness that moved spot gold pricing up by $17.20, and selling pressure taking gold lower by $5.30.

This clearly shows that market participants continue to have their primary focus on the pace and magnitude at which the Federal Reserve continues to raise interest rates. It is widely accepted that the Federal Reserve will raise rates by 75 basis points in November and for the most part, has already been factored into current market pricing. It is also widely believed that the Federal Reserve will continue to raise rates at the December FOMC meeting.

According to the FedWatch tool there is a 55% probability that the Federal Reserve will raise rates to between 425 and 450 basis points, and a 37.7% probability that they will raise rates to between 450 and 475 basis points in December.

In February 2023 there is no decisive consensus about the size of the rate hike. According to the CME’s FedWatch tool, there is a 26.8% probability that the Federal Reserve’s benchmark rate will be between 450 and 475 basis points, a 42.4% probability that the fed funds rates will be between 475 and 500 basis points, and a 23.7% probability that by the end of the year the benchmark rate will be between 500 and 525 basis points.

The uncertainty in regards to the magnitude of upcoming rate hikes is directly related to anticipating how the Federal Reserve’s will be modified as more data becomes available to them. This week there will be critical reports that will help shape the Federal Reserve’s decision on rate hikes in both November and December.

On Thursday the government will release its data on the third quarter GDP as well as updated figures on the national debt of the United States. On Friday the government will release its report on the core inflation numbers or PCE. This could provide key and important data that will guide what upcoming actions of the Federal Reserve might be.

The most important question is while economists and analysts are expecting to see an economic contraction based upon the rapid rate hikes that began in March. However, how inflationary pressures will react if we don’t see a reduction in inflation following five consecutive rate hikes by the Federal Reserve this year?

The fear remains that after all of the rate hikes by the Federal Reserve Friday’s report reveals it had only a nominal effect on lowering inflation.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Gold’s tepid response to dollar weakness and geopolitical uncertainty

One might think that with the increased geopolitical uncertainty and recent dollar weakness that gold would have strong gains. However, that is absolutely not true in trading today. As of 5:15 PM EDT, the most active December contract of gold futures is currently up only $3.30 or +0.20% and fixed at $1657.40.

Fractional gains in gold today have occurred with extreme dollar weakness. The U.S. dollar index is currently down -1.02% and fixed at 110.77. To illustrate gold’s weakness in light of dollar weakness we simply need to compare spot gold pricing and dollar weakness through the eyes of the Kitco Gold Index (KGX). Currently, spot gold is fixed at $1653.10 which is a net gain of $3.40. On closer inspection, we can see that dollar weakness has added +$16.80, and normal trading has resulted in a decline of -$13.40 resulting in today’s tepid gains.

Geopolitical uncertainty escalates to an exceedingly high level

On top of today’s weak U.S. dollar which has added significant value to gold, the world is facing an escalating level of geopolitical uncertainty in both North Korea as well as the war in Ukraine.

On Tuesday the President of South Korea Yoon Suk-Yeol said that North Korea has completed its initial preparations for its seventh nuclear test. As reported by Bloomberg News the president of South Korea told his Parliament on Tuesday, “We assess that it has already completed preparations for a seventh nuclear test”.

The threat of nuclear tests by North Korea is only part of a much more complex geopolitical framework. The article in Bloomberg News articulated the complexities of the current geopolitical environment saying, “The US push to isolate Russia over Vladimir Putin’s war in Ukraine, coupled with increasing animosity toward China, has allowed Kim to strengthen his nuclear deterrent without fear of facing more sanctions at the UN Security Council”.

There are also reports that Russia is planning a false flag attack. On Monday Putin and the Kremlin claimed that Ukraine was planning to use a radioactive “dirty bomb” against Russian forces. Putin has used “false flags” before as a rationale to escalate

Russia’s military operations. This has raised concern that the Russian president is creating a narrative in which he will escalate the war in Ukraine to include tactical nuclear weapons or a dirty bomb to preempt Ukraine from using a “dirty bomb”.

On Tuesday Air Force Brigadier General Patrick Ryder said, “From a US standpoint, the allegations that Ukraine is building a dirty bomb are false.”

Today President Biden said that Russia would be making a “serious mistake” by launching a “false flag” nuclear attack in Ukraine and that it’s unclear if such an operation was underway.

With today’s backdrop of extreme dollar weakness giving up more than 1%. As well as an extreme escalation of geopolitical uncertainty from North Korea and the fact that gold is only up $3 clearly illustrate that gold is currently not reacting as a safe haven asset.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Market participants continue to be headlined driven as seen in gold on Friday

Gold investors and traders are reacting strongly to any shift in the Federal Reserve’s narrative concerning upcoming interest rate hikes. This was seen on Friday when a single article published by the Wall Street Journal resulted in strong gains for gold. On Friday Mary Daly the president of the San Francisco Federal Reserve Bank said, “I think the time is now to start talking about stepping down – the time is now to start planning for stepping down,”.

While the consensus amongst investors and economists is that the Federal Reserve will raise rates by 75 basis points at the FOMC meeting in November, we saw a dramatic shift in market sentiment for the December rate hike as seen through the eyes of the CME the FedWatch tool.

On Friday the FedWatch tool predicted that there is a 46.3% probability that the Fed funds rate will be between 450 and 475 basis points by the end of 2022. This greatly differs from last Thursday’s prediction which indicated a probability of 75.4 %. Today the FedWatch tool is predicting that there is a 53.7% probability that the Fed’s benchmark by year-end will be between 450 and 475 basis points.

What caused the dramatic shift in Fed funds futures contract pricing on Friday was speculation amongst Federal Reserve officials as to whether or not to begin to decrease the size of the rate hike in December.

It is quite plausible that market participants looked closer at statements by Mary Daly who qualified her statements “that slowing down was not the same as stopping rate hikes” and that the Federal Reserve benchmark rate will ultimately rise to “4 ½ or 5%” which is “a very reasonable estimate of where we’ll need to go”.

Today gold futures pricing is down slightly after trading to its highest value since the beginning of October. Gold futures traded to a high of $1675.50 today before moving lower on the day. As of 5:40 PM EDT, the most active December contract is currently fixed at $1654.10 after factoring in today’s decline of $2.20 or 0.13%.

On Friday gold traded to its lowest value this month matching the lows achieved during the last week of September at $1622. However, following the release of the Wall Street Journal article on Friday which highlighted Mary Daly’s comments about upcoming rate hikes gold rallied strongly closing at $1656. Today’s fractional decline of $2.20 is impressive considering that Friday’s gains were based on a single Federal Reserve member's narrative. Earlier in the week two Federal Reserve presidents

Bullard & Kashkari said and confirmed that the Fed can’t pause hikes. It seems as though market participants want to react to any Fed statements that are more dovish than the recent extremely strong hawkish statements made earlier. What can be construed from this is that markets are pricing in more the more hawkish scenario of two more 75 point hikes this year.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Gold price erosion continues amid strong U.S. dollar, higher bond yields

Gold and silver prices are again lower in early U.S. trading Friday, with gold hitting a three-week low. The seemingly relentless appreciation of the U.S. dollar on the foreign exchange market and the resulting rise in U.S. Treasury yields continue to undermine the precious metals markets. December gold was last down $11.50 at $1,625.20 and December silver was down $0.434 at $18.255.

Global stock markets were mixed to lower overnight. U.S. stock indexes are pointed to lower openings when the New York day session begins. The marketplace late this week is more risk averse and focused on the march higher in U.S. Treasury yields. The U.S. 10-year note yield is presently fetching 4.278%, which is the highest level since 2008. The Federal Reserve is hellbent on taming problematic inflation and is willing to let the U.S. economy stall out to get the job done more quickly. This scenario is bearish for stocks, bonds and commodity markets, but bullish for the U.S. dollar.

Goldman Sachs sees a scenario where gold rally's sharply to $2,250 by 2025

The key outside markets today see the U.S. dollar index solidly higher. Nymex crude oil prices are near steady and trading around $84.50 a barrel.

There is no major U.S. economic data due for release Friday.

Technically, the December gold futures bears have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at $1,650.00 and then at Wednesday’s high of $1,659.80. First support is seen at $1,615.00 and then at $1,600.00. Wyckoff's Market Rating: 1.0

September silver futures bears have the solid overall near-term technical advantage and have momentum. Silver bulls' next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at the September low of $17.40. First resistance is seen at today’s high of $18.625 and then at $19.00. Next support is seen at $18.00 and then at $17.40. Wyckoff's Market Rating: 2.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold investors still need to be patient

After falling to a new two-year low, the gold market was thrown another lifeline after the Wall Street Journal reported that the Federal Reserve could start to slow the pace of interest rates after its November monetary policy meeting.

Gold prices have managed to end the week back above $1,650, which has been an important short-term psychological level for many investors and technical analysts.

Unfortunately, gold investors have been burned by false hope before. Every time markets start whispering about a potential pivot, gold investors jump into the market and spark a short-term buying frenzy.

So far this year, Rallies have proven to be short-lived because the reality is that with persistently high inflation, the Federal Reserve and other global central banks aren't finished tightening monetary policies.

Although the Fed may slow down its rate hikes into 2023, expectations of a terminal rate above 5% remain in place. According to many market analysts, until that changes, the U.S. dollar will continue to see significant bullish momentum.

And it's not just the U.S. dollar. The Federal Reserve's tightening cycle has pushed the yield on 10-year notes to its highest level since 2008 and is above 4%. Real yields, measured by Treasury Inflation-Protected Securities (TIPS), are trading at 1.7%, a 13-year high. No matter how you look at it, this is a challenging environment for gold and precious metals.

For now, it appears that patients remains the keyword for gold investors. This was a central theme during the London Bullion Market Association's Global Precious Metals Conference. While gold remains an attractive asset in the long term, many analysts have said that now is not the time to buy as the U.S. dollar and rising interest rates will keep prices contained.

Although the market is challenging, many analysts have said that solid physical demand highlights the explosive potential in gold and silver once the Fed Funds rate tops.

Of course, what could make this new rally in gold a little different and sustainable is that consumers are starting to feel the effects of rising interest rates and tighter market conditions are roiling financial markets.

LBMA delegates see silver prices rallying 54% in the next 12 months

Massive uncertainty in the British bond market, followed by the collapse of the Truss government after only 44 days in power, shows how much turmoil there is in the global economy. At the same time, the Bank of Japan is now consistently intervening in currency markets to protect its economy from the unprecedented strength of the U.S. dollar.

Even some major economists are warning about the growing threat of a severe recession looming on the horizon. Dr. Doom himself, Nouriel Roubini, CEO of Roubini Macro Associate and professor at the NYU Stern School of Business, wrote in a recent commentary that the U.S. could fall into a recession by the end of the year. He warned investors that in the decade ahead, the world may face a "Stagflationary Debt Crisis the likes of which we've never seen before."

Roubini also said that in this environment, consumers need to invest in assets that will protect them against inflation, geopolitical risk and environmental damage.

"These include short-term government bonds and inflation-indexed bonds, gold and other precious metals, and real estate that is resilient to environmental damage," Roubini said.

Although the latest rally in gold may be short-lived, the sentiment is that investors should be focused on the long-term potential.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold is an 'unexpected loser,' but silver price is the one stuck with the downgrade from S&P Global

Fundamentals no longer matter as much for the precious metals outlook, with rate hike expectations and concerns around energy having a bigger impact on all metals prices, said S&P Global.

"Metals prices face macroeconomic headwinds. September was characterized by more significant interest rate hikes to combat inflation in major economies as central banks became increasingly concerned by the possibility of a global economic recession in 2023," said Aude Marjolin, associate commodity analyst at S&P Global Commodity Insight.

Next year's gloomy macroeconomic picture is the one weighing on metals, not the fundamentals. And persistently higher inflation is not giving the Federal Reserve any room in the short term to change or pause its tightening course.

"On the cards is the possibility of further interest rate hikes in November, should the Fed strive to meet its 2% inflation target rate," Marjolin wrote in the latest price forecast from S&P Global. "The European Central Bank and the central banks of Norway, Sweden and Switzerland also raised rates in September, as inflation in the eurozone reached 10% — the highest since the inception of the euro."

In the gold outlook, S&P Global introduced a slight update to its consensus price forecasts, with an average upgrade of 0.4% annually through 2026. Marjolin mentioned gold's role in an investment portfolio during economic uncertainty and rising geopolitical risks.

S&P Global sees gold averaging this year at $1,842 an ounce, next year at $1,800, 2024 at $1,769, 2025 at $1,757, and 2026 at $1,753. "Gold has been the unexpected loser of the current macroeconomic environment, with its safe-haven status in direct competition with the U.S. dollar," Marjolin noted.

In its silver outlook, S&P Global has downgraded its prices for the next two years but upgraded its longer-term projection. The latest consensus forecast is now down by an average of 2.3% annually through 2026. "Despite the expected near-term weakness, the silver price is expected to remain broadly stable through to 2026, averaging $22.34/oz," Marjolin said.

S&P Global looks for silver to average this year at $22.50, next year at $22.20, 2024 at $22.31, 2025 at $22.21, and 2026 at $22.47. "With most industrial activity pressured by the weakening economy, demand for silver will likely remain subdued, and so will the price," Marjolin added.

Price forecasts for palladium and platinum were downgraded by about 3% annually through 2026, with S&P Global citing the current macroeconomic environment as weighing on price expectations for palladium and platinum. The outlook sees platinum averaging $1,282 an ounce and palladium at $1,436 in 2026.

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold struggles in light of weak dollar as rate hikes loom

Gold continues to struggle even in light of a strong decline in the U.S. dollar. Gold had respectable gains in New York trading today, but gave up those gains in Globex trading. By the close of trading in New York today gold had added $15.10 of value and was fixed at $1664. As of 4:30 PM, EDT gold futures basis most active December contract is up only $5.80 or 0.35% and fixed at $1654.70. The December contract traded to a high of $1674.30 and a low of $1649.10 after opening just $0.80 above today’s low.

Dollar weakness was a major contributor in supporting gold prices from moving lower. Currently, the dollar is down 1.182 points or -1.04% and fixed at 112.025. As seen through the KGX (Kitco Gold Index) market participants were predominantly sellers with spot gold currently fixed at $1649. That is a net gain of $4.60 today. However, on closer inspection market participants were aggressive sellers taking physical gold lower by $12.80. If not for dollar weakness which added $17.40 gold’s gains would have been nonexistent.

Market participants witnessed a strong risk-on sentiment in U.S. equities. The Dow gained 1.86%, the S&P 500 gained 2.65%, and the NASDAQ composite gained 3.43%.

Market participants trading the precious metals are still genuinely concerned about the remaining two FOMC meetings in November and December. It is widely anticipated that there is a high probability that both Federal Reserve meetings will contain interest rate hikes of 75 basis points each.

According to the CME’s FedWatch tool, there is a 97.4% probability that the Federal Reserve will raise rates by ¾% at the November FOMC meeting and a 65.3% probability of a ¾% rate hike in December. This would take the fed funds rate from between 300 and 325 basis points currently to between 450 to 475 basis points by the end of 2022.

Last week market participants were active buyers of both 30-year bonds and 10-year Treasury Notes resulting in an inverted yield curve with yields in the 10-year Notes priced slightly above the 30-year bond. Today that inversion has been neutralized with both the 10-year note and the 30-year bond yielding 4.015%.

Inflation continues to run at a record level with the latest CPI core data revealing a slight uptick in inflationary pressures from 6.3% in August to 6.5% in September. However, the Eurozone is experiencing much higher levels of inflation than the United States with the CPI index registering at approximately 10%. As long as inflation remains extremely hot and persistent it is unlikely that the Federal Reserve will reduce the magnitude and frequency of rate hikes. It remains highly likely that the extremely aggressive monetary policy of the Federal Reserve will result in a recession in the first quarter of 2023. The question remains how deep of a recession will result from the Fed's aggressive rate hikes.

By Gary Wagner

Contributing to kitco.com.

Time to buy Gold and Silver on the dips

David