Gold prices drop sharply as U.S. CPI rises 0.4% in September

Gold prices have dropped sharply into negative territory as U.S. consumer prices rose more than expected in September, raising prospects that the Federal Reserve will maintain its aggressive monetary policy stance through the rest of the year.

Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.4% last month after a 0.1% rise in August. Economists were looking for an increase of 0.2%.

The report said that annual inflation rose 8.2% last month. Economists were expecting to see a rise of 8.1%.

Core CPI, which strips out volatile food and energy prices, rose sharply by 0.6% last month. According to consensus estimates, economists were looking for a 0.4% rise.

For the year, core inflation rose 6.6%.

The gold market has been unable to withstand solid momentum in the U.S. dollar and rising bond yields. December gold futures last traded at $1,666 an ounce, down 0.69% on the day.

The report noted that the inflation threat is growing and flowing through to the general economy as food, shelter and medical costs outpace falling energy prices. The report said gasoline prices fell 4.9% last month, with the overall energy index dropping 2.1%.

The hotter-than-expected inflation data came one day after the minutes from the Federal Reserve’s September monetary policy meeting showed that the central bank is committed to cooling down consumer prices even as the economy weakens.

In reaction to the CPI numbers, markets have fully priced in a 75-basis point move next month and see a small possibility of a full 1% move. Expectations for a 75-basis point hike also jumped sharply for December.

Analysts have said that rising interest rates, supporting the U.S. dollar at a 20-year high will continue to be strong headwinds for gold prices.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold/Silver – Where is the bottom?

It was another volatile week in the markets, both for the longs and the shorts, with the technical backdrop continuing to deteriorate. Rampant inflation reaffirms the Federal Reserve will continue to reverse the loose monetary policy after CPI on an annualized basis came in at 8.2% versus expectations of 8.1%. The latest CME Fedwatch tool is pricing in a 97.8% chance of a 75 bps rate hike at the November 2 meeting and now a 2.2% of 100 bps. Meanwhile (as I am writing this), the U.K. Finance Minister was fired as they now attempt to reverse the proposed dovish economic plans previously outlined. It seems unwinding over a decade of quantitative easing and interest rates near zero will be very difficult, resulting in stocks, bonds, and housing crashing even from these levels.

When will the Federal Reserve pivot? Unemployment is hovering near multi-decade lows, and economic data continues to beat expectations, keeping the Fed's foot on the rate hike cycle until spring 2023. The first sign of a rate "cut" is not priced in until fall 2023, meaning this bear market is not even close to over. The Fed is attempting to remove all the excess leverage and irresponsible risk-taking in the market while crushing inflation at the same time. I say, "Good luck with that," and "operation break stuff" is underway.

Daily Gold Chart

Our Strategy

If you have been reading my commentary or working closely with me, you would know that my view on Gold and Silver had changed after the early October bounce. Both precious metals are lumped in with other risk assets with an 80%+ inverse correlation to the U.S. Dollar. That correlation alone, bundled with the Global liquidation of risk assets, will keep both metals in bear markets. However, before you cancel me, I acknowledge that both assets could quickly change directions resulting in another massive short-covering squeeze. That is why we maintain upside exposure through calculated option call spreads with extended durations to give us the most prolonged opportunity for "something" to give way.

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By Phillip Streible

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Gold price drops nearly $90 from October highs, Wall Street turns exceedingly bearish on precious metals

The short-term outlook on gold remains bleak, with analysts turning overwhelmingly bearish on the precious metal as the $1,650 an ounce level breaks.

The precious metal is down nearly $90 from its October highs of $1,737 an ounce, with December Comex gold futures last trading at $1,648.70, down 1.69% on the day.

The technical picture is also quite bearish as the selloff opens the door to $1,600 an ounce. "Near-term technicals remain bearish," Kitco's senior analyst Jim Wyckoff said Friday. "Gold and silver bulls remain perplexed by their metals' inability to catch a safe-haven bid amid heightened geopolitical and marketplace uncertainties."

The main culprit making things challenging for gold is the hotter-than-expected inflation forcing the market to re-price the aggressive Federal Reserve rate hike expectations. And that is giving the U.S. dollar an additional boost.

"Gold is still struggling. In the cash market, it has fallen seven of the past eight sessions. The momentum indicators are trending lower," said Bannockburn Global Forex managing director Marc Chandler. "A break of $1,642 may signal a retest on $1,615. The most bullish development would be a move above $1,685. A close above $1,672 could help stabilize the tone."

Survey results

Kitco's weekly gold survey results revealed that Wall Street is now exceedingly bearish on gold prices next week. Out of nine analysts participating in the survey, 78% said they expected lower prices next week, and only 22% were bullish. There were no votes expecting sideways action next week.

The Main Street side remained bullish for next week, but the bearish segment was growing. Out of 858 retail participants, 45% expected higher prices, 35% called for a move lower, and 20% remained neutral, Kitco's survey showed.Kitco Gol

Re-pricing of Fed's rate hike expectations

Keeping the U.S. dollar near 20-year highs are the expectations of a 99.7% chance of another 75-basis-point hike in November, a 74% chance of an additional 50-basis-point hike in December, and possibly a series of smaller rate hikes in February and in March, according to the CME FedWatch Tool.

Gold is a 2023 story, but these are the currencies to buy it in right now

As long this macro-environment exists, there will be more downside in gold.

"December gold has not finished off the short-term downtrend on its daily chart, with the target still down near $1,645. This past week got close as the contract hit a low of $1,648.30," said Darin Newsom Analysis president Darin Newsom. "The flip-side of the coin is the U.S. dollar index continues to indicate its intermediate-term trend has turned down, from a technical point of view."

And even those few analysts who remain bullish on the precious metal in the short-term are not ruling out a drop lower before the rally kicks in. "I am a bull on gold and silver, but I feel we will see the March 2020 lows (at least in the shares) taken out first," said VR Metals/Resource Letter publisher Mark Leibovit.

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold, silver recover most of sharp, early losses

Gold and silver prices are modestly lower in midday U.S. trading Thursday but have made a solid rebound from early-morning losses following another hot U.S. inflation report. Strong losses in the U.S. dollar index and higher crude oil prices today are working in favor of the precious metals market bulls. However, rising U.S. Treasury yields are still keeping buyers in gold and silver timid. December gold was last down $4.30 at $1,673.30 and December silver was down $0.093 at $18.845.

Today’s highly anticipated U.S. consumer price index report for September showed a rise of 0.4% from August, which was just above the expected rise of 0.3%. Year-on-year, the CPI was up 8.2%. The report was expected to come in at up 8.1%, year-on-year, following a rise of 8.3% in August. On Wednesday the U.S. got a hot producer price index reading for September, at up 8.5%, year-on-year. U.S. Federal Reserve officials have recently reiterated their aggressively hawkish stance on monetary policy, which has kept the general marketplace uneasy, for fear of pending U.S. and/or global recession. Today’s CPI report suggests the Fed is correct regarding its belief that inflation is still not under control.

Global stock markets were mixed to weaker overnight. U.S. stock indexes are solidly higher at midday after dropping sharply after the CPI report.

Now is the time to find value in the junior mining sector – Radisson Mining director Michael Gentile

Before the CPI data, risk appetite in the general marketplace had up-ticked on reports the U.K. government is going to roll back its controversial tax and spending plans that had roiled the financial markets the past two weeks. The British pound rallied and U.K. bond yields fell on the news.

The key outside markets today see the U.S. dollar index sharply lower. Nymex crude oil prices are higher and trading around $89.25 a barrel. The U.S. Treasury 10-year note yield is presently fetching around 3.9%.

Technically, the 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 the October high of $1,738.70. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the September low of $1,622.20. First resistance is seen at today’s high of $1,688.90 and then at $1,700.00. First support is seen at today’s low of $1,648.30 and then at $1,635.00. Wyckoff's Market Rating: 2.0

The silver bears have the solid overall near-term technical advantage. 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 $18.00. First resistance is seen at today’s high of $19.29 and then at Tuesday’s high of $19.725. Next support is seen at today’s low of $18.41 and then at $18.00. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed up 205 points at 344.50 cents today. Prices closed nearer the session high today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the September high of 369.25 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at this week’s high of 347.70 cents and then at 350.00 cents. First support is seen at today’s low of 335.40 cents and then at 330.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold prices remain down as Fed stays committed to reducing inflation even as economy slows – FOMC minutes

The gold market remains under pressure but is not seeing any new price action as the Federal Reserve remains committed to tightening its monetary policy to cool down the growing inflation threat.

Although the U.S. central bank sees growing downside risks to the economy, the minutes of the September monetary policy meeting show that the committee remains focus on brining inflation down by raising interest rates.

“Participants reaffirmed their strong commitment to returning inflation to the Committee’s 2 percent objective, with many stressing the importance of staying on this course even as the labor market slowed,” the minutes said.

According to some market analysts, the latest minutes did not reveal much new information on U.S. monetary policy.

“I don't see much here that's a surprise. The Fed and market are aligned with hiking to around 4.75% and then pausing. Markets are largely unmoved on the headlines,” said Adam Button, chief currency strategist at Forexlive.com.

The gold market has largely ignored the hawkish sentiment in the minutes. December gold futures last traded at $1,683 an ounce, down 0.18% on the day.

The minutes also reiterated the Federal Reserve’s outlook that even if the pace of rate hikes slow, the central bank will maintain the restrictive level for some time.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation,” the minutes said.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

 

David

Gold gains on short covering, bargain buying, pullback in USDX

Gold prices are higher in midday U.S. trading Tuesday, on short covering in the futures market and some bargain hunting and/or safe-haven demand in the cash market. A weaker U.S. dollar index and pullback in U.S. Treasury yields on this day is also working in favor of the metals market bulls.

December gold was last up $9.70 at $1,684.70 and December silver was down $0.10 at $19.52.

U.S. stock indexes are mixed at midday. Dour comments Monday on the global economic/political outlook from the respected chief of JP Morgan, Jamie Dimon, as well as an escalation in the Russia-Ukraine war, are keeping a “risk-off” trader and investor mentality in the general marketplace.

The U.K. government bond market is still roiled, as the Bank of England was forced to stepped in to buy inflation-linked bonds to its bond-buying program. There are worries U.K. pension funds could be lost in any more serious U.K. bond market rout.

The key outside markets today see the U.S. dollar index weaker on a corrective pullback from recent strong gains. Nymex crude oil prices are lower and trading around $89.25 a barrel. The U.S. Treasury 10-year note yield is presently fetching around 3.9%.

Traders are looking ahead to key U.S. inflation reports on Wednesday and Thursday mornings. The producer price index report for September is out Wednesday and the consumer price index report for September is out Thursday. The consumer price index is expected to come in at up 8.1%, year-on-year, following a rise of 8.3% in August.

Technically, the gold futures bears still have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at the October high of $1,738.70. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the September low of $1,622.20. First resistance is seen at $1,700.00 and then at this week’s high of $1,707.40. First support is seen at today’s low of $1,667.50 and then at $1,650.00. Wyckoff's Market Rating: 2.5.

The silver bears have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the October high of $21.31. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at $20.00 and then at this week’s high of $20.21. Next support is seen at today’s low of $19.225 and then at $19.00. Wyckoff's Market Rating: 3.5.

December N.Y. copper closed up 215 points at 345.20 cents today. Prices closed nearer the session high today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the September high of 369.25 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at 350.00 cents and then at the September high of 359.30 cents. First support is seen at last week’s low of 335.20 cents and then at the September low of 324.30 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

David

Strong USDX, rising U.S. Treasury yields, stingy Fed punish gold, silver prices

Gold and silver prices are sharply lower near midday Monday. The safe-haven metals are being hit hard by a higher U.S. dollar index, rising U.S. Treasury yields and weaker crude oil prices to start the trading week. An aggressively tight monetary policy from the U.S. Federal Reserve is also serving as an anchor on the precious metals markets. December gold was last down $34.30 at $1,675.00 and December silver was down $0.61 at $19.645.

Global stock markets were mostly lower overnight. U.S. stock indexes are weaker at midday. U.S. government offices and many banks are closed Monday for the Columbus Day national holiday. Stock market traders will focus on a barrage of corporate earnings reports out this week.

Risk aversion is still elevated. The Russia-Ukraine war has escalated as Russia launched missiles into several Ukrainian cities after a strategic bridge for Russia in the Crimea region suffered major damage from explosions, with Ukraine’s military likely the culprit. Meantime, North Korea has test-fired ballistic missiles to provoke the West in an already-tense global geopolitical environment.

The short-squeeze won't last, silver price to end the year lower warns Metals Focus

The key outside markets today see the U.S. dollar index solidly higher. Nymex crude oil prices are weaker and trading around $92.00 a barrel. The U.S. Treasury 10-year not yield is presently fetching 3.9%.

Traders are looking ahead to key U.S. inflation reports on Wednesday and Thursday. The producer price index for September is out Wednesday morning. The consumer price index report for September is out Thursday, which is expected to come in at up 8.1%, year-on-year, following a rise of 8.3% in August.

Technically, the gold futures bears have the solid overall near-term technical advantage and gained fresh power on momentum today. Bulls’ next upside price objective is to produce a close above solid resistance at the October high of $1,738.70. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the September low of $1,622.20. First resistance is seen at $1,700.00 and then at today’s high of $1,707.40. First support is seen at $1,662.00 and then at $1,650.00. Wyckoff's Market Rating: 2.0

The silver bears have the slight overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the October high of $21.31. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at $20.00 and then at today’s high of $20.21. Next support is seen at $19.25 and then at $19.00. Wyckoff's Market Rating: 4.5.

December N.Y. copper closed up 560 points at 344.35 cents today. Prices closed nearer the session high today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the September high of 369.25 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at 350.00 cents and then at the September high of 359.30 cents. First support is seen at last week’s low of 335.20 cents and then at the September low of 324.30 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold and silver need more than a short squeeze

Precious metal analysts have been warning investors for a few weeks now that a sharp downtrend through the summer pushed gold and silver into oversold territory. Bearish sentiment in the marketplace is at its highest level in years, and both precious metals were ripe for a short squeeze.

Those forecasts proved to be correct, with silver seeing, at its peak, a 12% gain this week, as prices pushed above $21 an ounce. Meanwhile, the gold market saw a 4% rally as prices drove above $1,730 an ounce.

However, heading into the weekend, momentum is starting to wane as gold ends the week testing support at $1,700 an ounce and silver tries to hold on to $20. While this past week's rally has been a welcome move for some, analysts note that the market still lacks a critical ingredient: bullish investors.

Ultimately, the gold and silver market lacks solid bullish conviction to see a sustained rally for now. Many investors continue to sit on the sidelines as the Federal Reserve and the U.S. dollar dominate financial markets.

Despite the growing threat of a severe global recession, the Federal Reserve continues to aggressively raise interest rates, which is supporting the U.S. dollar at its highest level in 20 years. At the same time, bond yields are near 12-year highs. This is not a positive environment for gold.

These headwinds for gold are not expected to ease anytime soon. Even some market heavyweights are starting to embrace the idea of a strong U.S. dollar. Ray Dalio made headlines this week, announcing on Twitter that he no longer thinks cash is trash, a position he has held for a few years.

"The facts have changed and I've changed my mind about cash as an asset: I no longer think cash is trash," wrote Dalio. The following day Dalio announced that he would step down as Bridgewater's co-CIO

Last month, Dalio said that he expects the Federal Reserve to push interest rates to 4.5%, which will cause the S&P 500 to fall another 20%. In the current environment, the U.S. dollar is seen as the safest asset right now.

There is a growing divergence between physical gold and the paper market – WisdomTree

The reality is that gold continues to face a difficult environment and the volatility we have seen this week can frustrate many investors; however, one recurring message we keep hearing from market analysts is that investors need to look past this volatility and keep their eye on the larger picture.

The Federal Reserve is maintaining its aggressive monetary policy action in a vacuum. They are focusing on the domestic labor market and ignoring the impact that the U.S. dollar is having on the global economy.

While the U.S. economy has remained relatively resilient, the global marketplace is at a breaking point. Monday, the United Nations even stepped into the debate and warned that central bank rate hikes will push the global economy, particularly emerging nations, into a recession.

In its latest economic projections, the United Nations Conference on Trade and Development lowered its economic growth forecasts seeing global GDP expanding 2.5% this year, down from its previous estimate of 2.6%. At the same time, global growth is expected to slow to 2.2% in 2023.

The advice I am hearing from market analysts is that even as this short squeeze fails, the current price still represents long-term value.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

 How to interpret today’s jobs report, and what does it mean fo price of gold ?

Today’s jobs report for September showed a decrease in monthly gains, with 263,000 new jobs added last month, a decline from the prior month in which 315,000 new jobs were added.

The deep impact it had on almost every asset class in the financial markets was not because of the tepid numbers but rather hopes by the Federal Reserve that these numbers would be even lower. The Federal Reserve had hoped that today’s report would reveal even slower growth because that would indicate progress by the Federal Reserve in reducing inflation.

Inflation is still greatly elevated at a 40-year high even after the Federal Reserve has raised interest rates at every FOMC meeting since March. The Fed raised rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June, July, and September. The Fed took their benchmark Fed funds rate from between 0 and 25 basis points in February to between 300 and 325 basis points in September.

Although today’s report indicated slowing job growth it is believed that this contraction is not enough for Federal Reserve to slow down its current pace of interest-rate hikes.

According to CME’s FedWatch tool, last week there was a 56.5%% probability, yesterday there was a 75.2% probability which today swelled to an 82.3% probability that the Federal Reserve will raise rates by 75 basis points for the fourth consecutive time at the November FOMC meeting. This probability indicator forecast the probability of FOMC rate moves by using the 30-day Fed Funds futures pricing data.

Today’s report had a profound effect on U.S. equities. As of 2:35 PM EDT, the Dow is currently trading off by 661 points a decline of 2.22%. The NASDAQ is currently down 3.75% a decline of approximately 415 points, and the S&P is down 106.16 points or 2.90%.

Today’s report also had a deep impact on gold pricing which opened at $1721 and then traded to a high of $1722.80 before the release of the report which took gold futures basis the most active December contract to today’s low of $1698.40. Gold futures did recover trading to approximately $1714 a few hours after the release of the report. However, as of this writing at 3:20 PM, EDT over the last hour gold has been trading between $1702 and $1706.

So, what does this mean for the future of gold pricing? I believe that although this report is extremely important in an exceedingly important data set that the Federal Reserve will use at their November 2 FOMC meeting, it will be next week’s CPI inflation report for September that will be much more significant. But in terms of the long-term effect of the Federal Reserve on gold pricing, it is highly likely that if the Fed continues to raise rates and inflation remains persistent at some point market participants will have to focus on the high level of inflation rather than being laser-focused on rising rates. If that assumption is correct, it could take gold dramatically higher. But it is also likely that there will be more pain ahead.

Our technical studies indicate that the first level of resistance occurs at $1710 the 23.6% Fibonacci retracement which is based on a very short-term Fibonacci retracement data set from September 28 to October 7. Major resistance occurs at $1738 the recent high of the rally which began after gold hit its lowest value in years at $1621. The first level of support occurs at $1693.80 the 38.2% Fibonacci retracement and then at $1689.40 a 42% retracement.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

The short-term future of gold’s price is tied to two upcoming reports

There is an adage when investigating a crime that says to “follow the money”. In the same way, when investigating where gold prices will be headed short-term it is wise to follow the upcoming reports. Two key reports will shape the short-term direction and price of gold. The first report is tomorrow’s jobs report, and the second report is the next CPI inflation report for September which will be released on October 13.

The forecast for tomorrow’s jobs report according to FactSet is expected to show an increase of 250,000 jobs being added in September which would be down from the 315,000 new jobs added in the prior month. Bloomberg’s predictions are close, forecasting an additional 260,000 new jobs were added in September. The Wall Street Journal is expecting that Friday’s jobs report will show that an additional 275,000 new jobs were added last month. In other words, expectations for tomorrow’s report are fairly aligned and in agreement.

If these various forecasts are correct, it would represent the slowest month of job growth since December 2020. However, analysts and economists will focus on whether or not the labor market is showing signs of contracting as a positive indication. In other words, in the case of tomorrow’s report, good news would be bad news for U.S. equities and gold. This is because slower growth in terms of jobs being added would help the Federal Reserve loosen its pace of rate hikes in its fight to bring down the 40-year high and inflation.

This week’s ADP private sector jobs report showed that 208,000 additional jobs were added last month. These numbers came in above expectations and forecasts. If tomorrow’s jobs report comes in above estimates it would harden the Federal Reserve’s resolve to continue to raise rates at an extremely rapid pace.

But the most important report that the Federal Reserve will use in their decision process about their monetary policy is next week’s CPI inflation report for September. It will provide clear-cut and undeniable evidence as to whether or not recent action by the Federal Reserve has begun to reduce inflationary pressures. Currently, the CPI inflation index is at 8.3% down 0.2% from the prior month’s 8.5%. However, the most recent data on the preferred inflation index of the Federal Reserve the PCE showed that inflation had a slight uptick from the previous month.

According to the CME’s FedWatch tool, there is a 68.7% probability that the Federal Reserve will raise rates for the fourth consecutive time by 75 basis points. This would take the fed funds rate which is currently at 300 – 325 basis points to 375 – 400 basis points on November 3, the final day of the November FOMC meeting.

For those who would like more information simply use this link.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David