How long the recession will last and how it will affect gold and silver

With the US Economy probably shrinking for the second consecutive quarter, the United States likely is now in a recession. CPM Group's Jeffrey Christian looks at some of the previous recessions to discuss how long this one may last, CPM Group's Economic Outlook, and what effect this all may have on Gold, Silver, Platinum, and Palladium.

By CPM Group

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Silver surges 7.45%, gold gains 2.07%, and precious metals participants rejoice

While gold and silver traders are not dancing in the streets, they are quietly rejoicing. Their assumptions, knowledge, and expectations that both gold and silver have been oversold and undervalued were greatly rewarded today. Goods and service prices continue to become more costly and the fact that the Federal Reserve's four consecutive rate hikes have made only a fractional difference in "core" inflation is a strong confirmation that the Federal Reserve is ineffective in reducing inflation to its target level of 2%.

However, when it comes to "headline" inflation which adds the costs of energy, food, and shelter into the equation the net result of their monetary policy has had zero impact with inflation continuing to spiral to higher levels.

Since March the Federal Reserve has raised its Fed funds rate by 2.25% leading to only one major accomplishment if you can call it that. They have effectively contracted the U.S. economy for the last two consecutive quarters. Consumer spending is now growing at the slowest pace in two years as business expenditures decline. Whatever spin government officials put on today's second quarter GDP report the facts speak for themselves.

If I could convey the current economic environment better than Reuters News I would, however, it is the most eloquent description of our current economic environment.

"U.S. teetering on brink of recession as GDP contracts in second quarter,"

The headline above is based upon the following facts; first, second quarter GDP decreased by 0.9%. Secondly, inventories account for a large decline in GDP. Lastly, consumer spending has slowed and business investment has contracted.

The Oxford language dictionary defines a recession as "a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. The country is in the depths of a recession."

It is emphatically clear that the United States economy has met the definition of a recession regardless of what the government wants us to believe. Therefore today's extremely robust move in both gold and silver are highly warranted and long overdue.

As of 5:15 PM, EDT August gold futures are currently up $34.30 which is a net gain of 2%. The December contract which will soon become the most active futures contract and is currently up $35.50 and fixed at $1773.30.

However, it was silver that outshined the precious metals complex today rising by 7.45% with the September futures contract currently up $1.385 and fixed at $19.98.

Over the last month, our daily articles have assumed that gold prices were extremely undervalued and oversold. More so, we identified a key price point at $1680 which we believed had a realistic probability to define a major support level in which a key reversal could take place. Because of that assumption we made a recommendation to our premium subscribers on July 14 to enter an order to buy August gold at $1681 or better. On July 21 gold traded to a low of $1678.60 allowing our open order to be executed. Today we recommended closing the trade out and our effective exit price was just above $1745.

For weeks before gold traded below $1700, we informed our readers at Kitco in our "After Hours" column that $1680 was a major level of support giving them not only the opportunity but the time to act upon that assumption.

 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

Gold stages a relief rally after the Fed announces a 3/4% rate hike

As anticipated the Federal Reserve concluded the July FOMC meeting with an announcement that they will raise rates by 75 basis points or 3/4%. While this was overwhelmingly expected as opposed to a larger 1% rate hike, there were subtle changes in the statement as well as comments made by Chairman Powell during the press conference.

A change in the Chairman's tone

In essence, for the first time in any press conference this year, the chairman expressed a slightly more dovish tone than previously expressed regarding rate hikes. While he continued to toe the line that all future decisions will be data-dependent, he added for the first time since the Fed began to raise rates that the Federal Reserve feels it is 'likely appropriate to slow increases at some point. That being said, he offered no real insight as to a timeline of when this might occur.

With the second quarter GDP report coming out tomorrow and advanced estimates by the Atlanta Federal Reserve predicting an economic contraction of 1.6%, Chairman Powell put a spin on the current economic outlook.

"I do not think that the U.S. is currently in a recession, and the reason is there are just too many areas of the economy that are performing too well. To be sure, growth is slowing for reasons that we understand. Growth was exceptionally high last year, 5.5%. We would have expected growth to slow. There's also more slowing going on now."

The chairman did add that preliminary GDP numbers should be taken with a grain of salt.

Gold reacts with positive price gains and the dollar weakens

Gold traded to a low of $1709.10 in overseas trading before the release of today's report. Gold began to gain strength immediately following the release of the report and strengthened as Powell spoke during the press conference. Gold futures basis the most active August contract traded to a high of $1739.60.

As of 4:43 PM, EDT August gold is currently fixed at $1733.10 a net gain of $15.40 or 0.90%. Concurrently, the dollar declined in value today giving up 0.68% or 0.729 points with the dollar index currently fixed at 106.315.

Tomorrow the financial markets will react to the latest numbers on the second quarter GDP, this will be the next opportunity for traders to factor in the most recent data about the current strength of the economy. The Federal Reserve will not hold another Open Market Committee meeting until November 2 which means that there will be additional PCE and CPI inflation reports to determine their future forward guidance.

This will allow market participants to factor in additional reports as they become available into current pricing without the added pressure of upcoming rate hikes by the Federal Reserve.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

David

Gold prices remain under pressure as U.S. consumer confidence falls to 95.7

Gold prices are struggling to push into positive territory as pessimism grows among U.S. consumers, further raising fears of a potential recession.

American consumer confidence index fell to 95.7 down from June's reading of 98.7, the U.S. Conference Board reported Tuesday. Economists were expecting to see the index at 97.3.

According to economists the sharp drop in consumer sentiment could have a major impact on consumption and weigh on the economy heading into year end.

The gold market is seeing some renewed momentum following the data. August gold futures last traded at $1,716.60 an ounce, down 0.16% on the day.

The report said that the drop in consumer optimism was due to a decline in the Present Situation Index, which fell to 141.3, down from June’s reading of 147.2. At the same time the Expectations Index dropped to 65.3, down from June’s reading of 65.8.

Lynn Franco, senior director of economic indicators at The Conference Board, pointed out that the Expectations Index suggests recession risks continue to grow.

“Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers,” said Franco. “As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July. Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold prices start the week down despite weak USD, silver prices down 2%

Gold investors appear hesitant to jump into the precious metal even as the U.S. dollar starts the week on a soft note.

According to some analysts, the Federal Reserve's impending monetary policy decision this week has pushed many investors and traders to the sidelines. According to the CME FedWatch Tool, markets see a more than 77% chance of a 75-basis point move. Although the prospect of a 100-basis point move is effectively off the table, analysts have said that gold continues to struggle as the Federal Reserve expects to reiterate its hawkish positioning for further aggressive rate hikes in the fall.

August gold futures last traded at $1,718.50 an ounce, down 0.5% on the day. Although some analysts expect gold has room to run higher this week, it will remain at the mercy of the U.S. dollar, which could see new momentum following the central bank's monetary policy decision.

Currency analysts at Brown Brothers Harriman said that they remain bullish on the U.S. dollar even as it sees three days of consecutive losses.

"We are not yet ready to change our strong dollar call. Yes, the U.S. economic data have been weakening, but we do not think a recession is imminent. When all is said and done, we believe the U.S. economy remains the most resilient. However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer," the analysts said in a note.

Commodity analysts at TD Securities have said that despite some shifting sentiment in the marketplace, gold faces a uphill battle. The analysts said that gold prices need to push above $1,775 an ounce to threaten the current downtrend.

Will gold survive another 75 basis point hike

Although gold continues to struggle in the shadow of the Federal Reserve, it remains one of the best-performing assets in the precious metals space and is significantly outperforming silver prices.

September silver futures last traded at $18.26 an ounce, down nearly 2% on the day. The gold/silver ratio is trading at a fresh two-year high above 93 points. Analysts have said silver will continue to struggle due to growing recession fears. Industrial demand accounts for 60% of silver demand and analysts point out that weak economic growth will lead to lower demand for silver.

In a recent interview with Kitco News, Christopher Vecchio, senior market analyst at DailyFX.com, said that because of the strong U.S. dollar, he prefers to play gold in a pair trade with silver. He added that he is long gold and short silver and expects the grey metal to continue to underperform.

However, some analysts are optimistic that silver can find some footing in a strong gold market.

"Silver is still trying to figure out what it wants to do around long-term support area between $18 to $19," said Fawad Razaqzada, market analyst at City Index. "But the lack of follow-thru has frustrated both the bulls and bears alike. Given gold's lead, the risks are skewed to the upside for silver."

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

Gold/platinum/silver – Is the bottom in?

Every bear market ends, and a bull market begins with a short covering rally. Whether you use fundamental or technical analysis, the end result is the same with a change of direction. Since the March peak, Platinum has been trending lower for four months and is finally showing signs of a potential bottom. Thursday's trading range helped create the right shoulder of an inverse head and shoulder pattern. The consolidation over the past four trading sessions has created a flag that has helped accelerate prices through the 21-day moving average. To help you identify additional long-term support and resistance levels, we created a Free "5-Step Technical Analysis Guide that 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 Gold.

Daily Platinum chart

Blue Line Futures correlation matrix

I wanted to share one of the slides I keep pinned on my desktop and will help you to understand how connected the precious metals are to the underlying currencies. On Thursday, the ECB raised rates by 50 bps for the first time in 11 years while rolling out the "Transmission Protection Instrument." That action created volatility across both the currencies and precious metals. TPI is a flexible bond-buying program that tames volatility as the ECB raises rates. Call this strategy bullish and bearish at the same time.

Commitment of traders

Every week the CFTC releases the commitments of traders report to help the public understand the dynamics of the market. Diving into the report, we can see that managed money and hedge funds have been short Platinum. We can also see that large speculators in Silver have taken their long exposure down to levels not seen in years, given the $8 sell-off since March. For the second time in history, we saw managed money go net short on Gold. The first time was 2015, which marked the low in Gold, and the second was in 2018, and from that point, Gold went into a multi-year bull market.

Daily Silver Chart

Daily Gold Chart

Our strategy and trend reversal points

We remain bearish, taking tactical shorts on U.S equities on any significant bounce targeting the Nasdaq and Russell 2000. The leveraged stocks that make up these indices are most at risk during a recession. We also maintain our bearish stance on crypto and traditional currencies such as the British Pound, Euro, and Yen. We are also bearish and targeting economically sensitive commodities such as Cocoa, Corn, and Soybeans on bounces. We maintain a bullish stance on China as it continues stimulating its economy. Crude Oil should remain firm in the front months while weakening over time as we get deeper into the recession. One of the most popular precious metals questions I fielded this week was, "at what levels will the "bearish trend" shift to "bullish/neutral"? Those levels are $1787 for August Gold, $3.82 for September Copper, $903.1 for October Platinum, and $20.20 for September Silver. If we see closes above these levels, you can expect the short covering to accelerate into outright longs. Any new positioning should be in December 2022 or into 2023 on futures contract purchases. If you have never traded Silver futures, we completed a new educational guide that answers your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. Additionally, you will receive a free two-week trial to our flagship report, "The Morning Express," giving you critical levels of support in resistance in the Gold and Silver. You can request yours here: Trade Metals, Transition your Experience Book.

By Phillip Streible

Contributing to kitco.com

Time to buy Gold and Silver on the dips

David

Will gold survive another 75 basis point hike

The gold market is ending a five-week losing streak and while sentiment appears to be shifting, some analysts say that the precious metal still faces a challenging environment next week.

August gold futures are looking to end the week with a more than 1% gain, last trading at $1,721.40 an ounce.

All eyes will be on the Federal Reserve next week as markets expect the U.S. central bank to raise interest rates by another 75 basis points. Some currency analysts have said that while the U.S. dollar has fallen from its recent 20-year highs, the Federal Reserve's aggressive stance will continue to support the greenback.

"Amid a backdrop of a hawkish Fed and slowing global growth, we think the dollar will resume its broad-based strength before long," said economists at Capital Economics in a report Friday.

Marc Chandler, managing director at Bannockburn Global Forex, said that while gold prices have room to move higher next week, the central bank's decision could limit gains.

"Not only will the Fed most likely hike by 75 basis points, but it will also signal it is not done with the adjustment. I imagine gold will struggle near $1750 and the 20-day moving average is just above there [$1,752]," he said.

However, some analysts see the Federal Reserve's tightening cycle as having less impact on the U.S. dollar and financial markets. Currency analysts at T.D. Securities see Wednesday's decision as more neutral for the greenback as the market has priced in a lot of hawkishness.

"This meeting carries far less weight compared to the last two and the bar seems high to drastically shift the landscape in F.X. tactically. That said, we see little reason for USD resilience to be undermined, even though we see little reason for it to surge higher from this meeting," the analysts said.

Faced with growing recession concerns, some analysts have said that the Federal Reserve could be closer to the end of its tightening cycle, which will be outright bullish for gold.

PIC

Is the bottom in? Gold could see a bullish correction, bouncing off $1,700 – Moor Analytics

"Gold prices are rising as global recession fears are resetting rate hiking expectations for all the major central banks. Gold is starting to act like a safe haven as weakening economic growth will force many central banks to abandon their aggressive tightening plans," said. "Edward Moya, senior market analyst at OANDA. "Gold might find resistance at the $1750 level, but if it doesn't, not much will get in the way until the $1800 level."

Friday, preliminary data from S&P Global Market Intelligence shows that activity in the U.S. manufacturing and service sectors dropped to their lowest level in two years. The drop in activity reflected a similar weakness in Europe.

"The market is sensing that the rate hiking cycle will end sooner because of rapidly slowing growth. Friday's U.S. services PMI was shockingly soft and means the Fed will pause around 3% and is likely to cut in 2023. When those cuts truly come into view, gold will surge on USD weakness," said Adam Button, chief currency strategist at Forexlive.com.

Thursday, markets will be anxiously waiting to see if the U.S. has fallen into a technical recession following the release of the first reading of second-quarter GDP. Many economists have dismissed first-quarter weakness as a trade imbalance; however, data from the Atlanta Federal Reserve, shows GDP contracting 1.6%, matching the decline in the first quarter. The traditional definition of a recession is two quarters of consecutive declines.

Last week Bank of America said that they see the U.S. falling into a mild recession by the end of the year.

Another European crisis

Along with the Federal Reserve's monetary policy decision, analysts have also said that they will be watching the ongoing geopolitical uncertainty that is unfolding in Europe. Thursday, Italy fell into political turmoil after Prime Minister Mario Draghi resigned following the collapse of his national unity government. The nation is expected to hold snap elections in the fall.

At the same time, economists are continuing to digest the European Central Bank's announcement of its Transmission Protection Instrument. The program will be used to buy bonds from members of the eurozone to make sure all yields are in line and avoid any fragmentation risks.

John Hathaway, Portfolio Manager of Sprott Hathaway Special Situations Strategy, said in an interview with Kitco News, that Europe could be close to a sovereign debt crisis as the central bank continues to expand its balance sheet.

"Gold prices could easily push back above record highs if there is any crisis in foreign exchange markets," he said. "The next black swan out there will be connected to unruly F.X. markets."

Christopher Vecchio, senior market analyst at DailyFX.com, said he also sees a growing risk of a sovereign debt crisis in Europe. He added that in this environment, both gold and the U.S. dollar will benefit.

"As long as there are concerns about the euro, there is room for gold and the U.S. dollar to both trend higher," he said.

Data to watch

Other economic data economists will be watching next week include consumer confidence from the U.S. Conference Board, pending home sales and personal income and spending data.

Tuesday: Consumer Confidence, New Home Sales,

Wednesday: Durable Goods Orders, Pending Home Sales, FOMC decision and statement

Thursday: Advance Q2 GDP, Weekly Jobless Claims

Friday: Personal Consumption, Person Income, PCE Inflation
 

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

David

The Fed will 'abandon' tightening, causing gold to soar higher – Rich Checkan

Gold's performance has been tumultuous this year, with the war in Ukraine sending the metal above $2,000 per ounce. Recently, however, gold has fallen in price, and is down year-to-date by 7.8 percent.

Spot gold is currently trading at $1,725.

Speaking with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News, Rich Checkan, President and Co-Founder at Assets Strategies International, said, "people want to know why gold isn't doing its job. I submit it is… it's falling in value, but at a much slower rate than other asset classes."

The S&P 500 is down 16.6 percent year-to-date, and Bitcoin is down by 51 percent over the same period.

Checkan said that what the Federal Reserve does next could send gold soaring to $2,400 per ounce within the next 12 months.

He spoke with Makori at the FreedomFest 2022 conference in Las Vegas.
 

A Fed pivot?

The Federal Reserve has raised its key interest rate by more than 100 bps since February to combat inflation. The June 2022 inflation figure is 9.1 percent, the highest since 1981.

Checkan said that the Fed will reverse course on its tightening once the economy starts to crumble. He added that "we've got one or two more rate hikes [left] in the U.S.," before the Fed reduces rates.

The record inflation of 2022 has been compared to the late 1970s and early 1980s' high inflation. During the latter period, Chairman of the Fed Paul Volcker raised rates to a peak of 20 percent, which historians say brought inflation down from almost 14 percent to less than 2 percent.

Today's Fed Chairman, Jerome Powell, has been compared to Volcker, but Checkan said that Powell lacks Volcker's "fortitude."

"I don't think that [Powell] is willing to risk a horrible recession," said Checkan. "The bottom line is inflation is so much further away, at this point, from interest rates than what Volcker started dealing with. I think [Powell] waited too long."

Jim Rogers: A 'positive development' in Ukraine 'in the next few weeks' could cause a big rally, before a huge crash in stocks

Gold's price

As the Fed reverses course and reduces rates, Checkan said that gold's price will soar higher.

He suggested that inflation would remain permanently higher, and since gold is an inflation hedge, this would cause gold to reach $2,400 within 12 months.

In the ensuing bull market, he said that $3,500 could be a peak for gold, before the price returns to a new support level.

"I think, realistically, we're looking at about $3,500 as the peak for gold before we pull back and then start the cycle again," said Checkan.

To find out Checkan's long-term forecast for gold's price, and his further thoughts on monetary policy, watch the above video.
 

By Kitco News

For Kitco News

Time to buy Gold and Silver on the dips

 

David