Gold price wants clarity after Powell's hawkish stance – analysts

As markets come to grips with a more hawkish Federal Reserve and omicron fears, can gold find its safe-haven appeal next week? The focus in December will be the Federal Reserve's monetary policy meeting, according to analysts.

After a turbulent week in gold and the U.S. equities, the markets were hit with a mixed employment report from November. Despite the big miss in the headline number, the details were quite optimistic. The latest data showed the U.S. economy only adding 210,000 jobs last month versus the expected 535,000.

"Algorithms first saw the big headline miss, and gold popped. But as analysts read the report, it was fairly positive. Minority employment rose, and the participation rate increased. That showed labor market recovery heading in the right direction. Overall, the report was still in line with the Fed's goal to accelerate tapering," OANDA senior market analyst Edward Moya told Kitco News.

Next week, the inflation report will be the critical data point determining just how aggressive the Fed could get.

Fed Chair Jerome Powell told the U.S. Congress this week that the central bank will be considering wrapping up tapering a few months earlier, citing more problematic inflation. Powell also retired his "inflation is transitory" phrase, noting that the threat of persistently higher inflation has grown.

Gold market is ugly with no clear price direction

"Inflation number next week could see the Fed increase pace by $5-$10 billion. This is why a lot of traders are anticipating some dollar strength to last a little bit longer, and that's why gold is stuck below $1,800 an ounce," Moya said.

Also, the Fed meeting on Dec. 15 looms large, especially considering that the U.S. central bank could be making a policy mistake, said Gainesville Coins precious metals expert Everett Millman.

"Gold has been up and down because of the uncertainty that the Fed has introduced with a more aggressive in tapering stance. Markets are unsure that it is the right expectation. Everything seems to be coming back to the Fed. There's widespread volatility across markets," Millman told Kitco News. "I've been talking a lot about the Fed potentially making a policy mistake. And Powell commenting on accelerating tapering might have already been that mistake. Gold is on its back foot trying to react."

Important to keep in mind that the last month of the year is challenging to trade, noted Moya, warning of thin trading and unexpected catalysts.

"We are coming to year-end, and we could see some major repositioning as far as profit-taking and thin conditions. You might see investors really lock in some of their profitable trades. There is fear that when you are beyond peak monetary and fiscal support, you will see a pullback. That could lead to a major stock market selloff," Moya said.

Millman also reminded investors that the expiration of the December gold futures contract is approaching, stating that "any time we are near that, we can expect more volatility."

Both Moya and Millman anticipate that gold will be able to sustain a more convincing rally at the beginning of next year, as the Fed situation clarifies.

"Longer-term, you are not seeing real yields really improve. The gold market is going to have a major move once there is a strong consensus on when that first rate hike will happen and whether it will be two or three within the first year. Once that is priced in, that is when you'll see gold attract some flows," Moya explained.

 

Levels to watch

Gold is ending the week relatively flat, with February Comex gold futures last trading at $1,783.90, up 1.20% on the day.

Looking at the technical picture, support is at $1,770 and then at $1,750 an ounce. And resistance remains at the $1,800 an ounce level.

"If the price of gold breaks below $1,750, we could see further losses. The $1,680 could come into play. That is the low for this year," Millman said. "The key is to watch whether or not gold can keep making those higher lows. That is one thing I am encouraged by — gradual building of positive momentum."

For now, the market is in the wait-and-see mode in terms of inflation and the omicron variant, noted Moya.

"It is going to be a choppy period. There is still a lot of optimism that we won't have the same number of lockdowns as at the beginning of the pandemic, but some states will struggle. Gold might consolidate between $1,750-$1,800 leading up to the inflation report and the Fed meeting," he added.
 

Next week's data

On the radar next week will be the U.S. jobless claims on Thursday and the inflation report on Friday.

"The most important data point will be November consumer price inflation. Rising gasoline, housing and second-hand car prices will be the big movers, but growing evidence of rising corporate pricing power is also likely to be evident," said ING chief international economist James Knightley. "This is likely to leave annual rates close to 7% for headline inflation with the potential for core inflation to beak above 5%."

By Anna Golubova

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Powell is just stalling for time, gold and silver look attractive as inflation spiral starts – Degussa

Physical gold and silver will continue to be attractive assets as investors look to protect their wealth and purchasing power as one precious metals firm sees signs of an inflation spiral.

In his latest market report, Thorsten Polleit, chief economist of Degussa, said not only are consumer prices at multi-decade highs around the world but growing economic data points to elevated inflation pressure for years to come.

One sector Polleit said he is watching that highlights the growing inflationary trend is the housing market. This year U.S. home prices are up nearly 20%. Over in Europe, German home prices are up more than 13%.

Polleit said that rising home prices are good indications that sustained inflation across the board is "rearing its ugly head."

He added that the threat now is that inflation spirals out of control.

"If people expect goods price inflation to rise and remain high in the future, they will adjust their wage, rental and credit agreements. For instance, employees will demand higher wages, property owners will ask for more money for the right to occupy a home, and lenders will increase their lending rates," he said.

Ireland buys gold for the first time in 12 years

Polleit noted that so far, central bankers worldwide have been able to talk down the rising inflation threat. Earlier this week, Federal Reserve Chair Jerome Powell said in testimony before Congress that the central bank will be discussing speeding up the process to reduce the amount of bonds they purchase every month.

He also said it is time to "retire" the world "transitory." While Powell is striking a more hawkish tone on monetary policy, Polleit said that he is still maintaining dovish policies.

"Clearly, there is no desire to change the course immediately. What seems to be intended is that people expect the Fed to do something about the inflation at some point in the more or less far future and that this will suffice to keep them sitting still," he said. "So far, it seems to be working, as central banks are getting away with it. And while the money supply continues to expand at elevated rates, goods price inflation will likely remain high in the years to come, and people will probably get used to it – as they have become used to extremely low interest rates."

Polleit said that central banks have no desire to stop the growing inflation threat.

"The higher inflation has become, and the higher inflation expectations have risen, the more restrictive monetary policy must be," he said. "Unfortunately, central banks shy away from abandoning their inflationary policy course, fearing that stepping on the brakes would plunge economies into recession and crash financial markets."

The growing risk as central banks stall for time is that consumers get punished, Polleit said. He added that inflation would ultimately create winners and losers in the global economy.

"Owners of assets, which increase in price, benefit while the holders of money suffer: They can buy fewer assets for their money," he said.

Polleit said investors need to start looking at holding some physical gold and silver in their portfolios to protect themselves.

"For long-term oriented investors, holding physical gold and silver as part of their liquid portfolio should be particularly worthwhile, as in the coming years, especially when purchased at current prices – which we consider to be relatively cheap, appearing to promise a substantial upwards potential, they can be expected to be both risk-reducing and return-enhancing," he said.

 

By Neils Christensen

For Kitco News

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Gold price at $10k, silver at $500 due to 'a decade of shortage', says Goehring & Rozencwajg

his will be a "decade of shortage" defined by high inflation and a failed attempt to raise rates – the perfect combo to trigger a massive rally in gold, said Goehring & Rozencwajg Associates managing partner Leigh Goehring.

Next year, inflation could already be pushing 9%, and it could get a lot worse, Goehring told Kitco News in an interview.

"We're getting closer to the explosion of gold prices to the upside. I'm a big believer that inflation is not going away. It's going to continue to be a problem. We could be looking at a black swan event in inflation. It could be an oil shock, natural gas shock or agricultural shock," Goehring said.

Federal Reserve Chair Jerome Powell already shocked the markets this week by dropping the phrase that "inflation is transitory" and stating that the U.S. central bank will be discussing accelerating the pace of tapering at the upcoming December meeting.

An inflationary black swan event could kick-start that inflationary psychology, which has been missing despite annual U.S. inflation running hot at 6.2%.

"It is going to force the Fed to raise rates. The central bank will start, but that will create such havoc that the Fed will have to stop. In response, gold will first pull back. But that will be the final retreat before the massive gold bull market," Goehring described.

There are too many similarities between now and the late 1960s and early 1970s, and they cannot be ignored. Back then, inflation was going up about 5%-6% per year — the same as now. And then, in 1973, there was the black swan event — the oil embargo.

"Oil went from $4 a barrel up to $15 a barrel literally overnight. And that triggered a huge surge of inflationary psychology. And the Fed raised rates aggressively. Gold spent the next two years going down, bottoming in 1975," Goehring said. "This time around, however, the Fed will have to give up on raising rates because it will be too painful for everyone."

And that would be the perfect scenario for gold, Goehring added. "Once the precious metal bottoms from the Fed's tightening action, it will begin its massive bull market."

Yellen says stimulus only 'small contributor' to inflation, Powell sees Fed ready to adapt policy to higher price pressures

When Fed Chair Jerome Powell began his first term, he tried to raise rates, which backfired in the Treasury market. "That's why I think that Powell will have to give up on raising rates just like he did in October of 2018. And once he gives it up, the great bull market in gold starts," Goehring pointed out.
 

$10k gold and $500 silver?

How big of a bull market will it be? Goehring is expecting gold to reach $10,000 an ounce by the end of the decade. And for silver to eventually catch up and trade around $500 an ounce.

"By 2028, gold could be over $10,000. If gold is over $10,000 and we go back to the 20:1 gold-silver ratio. That's $500 silver," he said. "It will be the decade of shortages, and everyone's going to get poorer except for the people that own physical gold and silver."

Silver is another quintessential inflationary metal to buy and hold during the next decade. "I'm convinced that in this bull market, there's going to be another corner attempted at the silver market," Goehring said.

Inflation will get a lot worse during this decade of shortages. And the underinvestment in the resource sector will play a big role.

"When we look back on this decade and ask what happened. It's going to be looked upon as the decade shortage. It's going to be a shortage of everything. Over the last ten years, we've radically underinvested in our resource spaces relative to demand. Look at what's happening with Exxon and Chevron and the ESG concerns. They are not talking about replacing their resource base," Goehring stated.

This underinvestment in the resource sector will manifest itself and that is going to be highly inflationary, the Goehring & Rozencwajg managing partner said. "This year, inflation accelerated from under 3% to over 6%. At some point in 2022, we could approach 9%," he noted.

And the one key metric to watch is the bond market, which has so far largely dismissed the rising price pressures.

"We have inflation now, but we don't have inflation psychology. And that's what the bond market is saying too. However, what happens if the bond market changes its mind? We could see massive panic selling. And that's going to be a big problem for equities. In 2022, the bond market could finally incorporate inflationary expectations," Goehring described

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Gold price sheds gains as Powell talks more aggressive tapering, wants to drop 'inflation is transitory' term

During the last month of 2021, gold is still in its corrective phase after hitting new record highs last year, but the long-term investors have been using this opportunity to buy.

"Gold hasn't been the place to be for performance reasons this year. And I think that performance discrepancy will continue for another six months. But for people that are looking to buy gold for the long term, they are buying now. Gold stocks too. They are the cheapest they've ever been."

Another big winner for next year will be the agricultural sector, especially fertilizer stocks, according to Goehring.

"The only thing that's done better than fertilizer prices in 2021 had been natural gas price. There are improving fundamentals in global fertilizer markets. Energy fertilizer is very energy intensive. China has already curtailed fertilizer production. Increased demand in light of supply-side constraints could make these stocks the super winners of 2022," he added.
 

By Anna Golubova

For Kitco News

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Gold price recovers, ASX tumbles

Australian markets opened lower after Friday's sell off due to new pandemic concerns.

The Australian Stock Exchange is down as of 10:30 a.m. Sydney time with the S&P/ASX200 off 57.60 points or 0.79% to 7,221.70. The exchange set a new 20-day low, according to an update on the ASX homepage.

Spot gold dropped $10 at open to trade as low as $1,783 a ounces before recovering.

Comex February gold futures are up +0.53% to $1,797.5 an ounce as of 6 p.m. ET.

Oil is up with WTI Crude gaining 3.23% to $70.35 a barrel.

On Saturday Britain, Germany and Italy detected cases of the new Omicron coronavirus variant, according to a report by Reuters. British Prime Minister Boris Johnson announced new social distancing measures. Nations are imposing travel restrictions on southern African states, where the variant was first detected.

On Sunday two cases of omicron COVID-19 variant were reported in Ontario. Other cases have been reported in Australia, the Netherlands, Denmark, United Kingdom, Germany, Israel and Hong Kong, according to CNN.
 

By Michael McCrae

For Kitco News

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Gold price remains well supported above $1,800 an ounce in 2022 – Scotiabank

Gold prices continue to languish below $1,800 an ounce as investors interpret the re-nomination of Jerome Powell to remain the head of the Federal Reserve as a hawkish development for monetary policy.

However, commodity analysts at Scotiabank said in a report Wednesday that the selloff in gold could be overdone and the precious metal price looks well supported in 2022.

The Canadian bank looks for gold prices to average next year around $1,850 an ounce, representing a 3% gain from current prices. U.S. markets are closed for the Thanksgiving holiday, but gold's spot price last traded at $1,788.30 an ounce, roughly unchanged on the day.

"The yellow metal lost almost $50/oz on Monday as news broke that U.S. President Biden would keep Jerome Powell as Chair of the Federal Reserve, which markets interpreted as a hawkish signal. Still, our forecast of above-target inflation and still-low U.S. interest rates into next year implies well-supported bullion values in 2022," the analysts said.

The gold market has struggled this week as markets start to price in more aggressive action from the Federal Reserve as inflation pressures remain at elevated levels. Wednesday Core PCE, the U.S. central bank's preferred inflation measure, saw an annual rise of 4.1% in October, the highest level since 1991.

Because of rising inflation, markets are expecting the Federal Reserve to raise interest rates as early as June with a total of three rate hikes priced in.

Although gold continues to face some headwinds, the bank sees more potential in the yellow metal compared to silver.

"Also perceived as a safe haven and an inflation hedge, the metal's value is influenced by many of the same factors as that of bullion. However, given silver's range of industrial applications and our expectations of some China-driven near-term slowdown in construction and manufacturing activity, we are less optimistic about its near-term prospects than we are for bullion," the analysts said.

The recent selling pressure in gold dragged silver down below critical psychological levels; however, the precious metal appears to be finding some support above $23.50 an ounce.
 

By Neils Christensen

For Kitco News

 

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Gold near steady, shows little initial reaction to FOMC minutes

Gold and silver prices are trading not far from unchanged in afternoon U.S. trading Wednesday, after huge day for U.S. economic data that produced not much markets reaction. December gold was last up $0.50 at $1,784.30 and December Comex silver was last up $0.04 at $23.475 an ounce.

The just-released FOMC minutes from the last meeting of the Fed's monetary policy-setting committee showed FOMC members getting more concerned about rising inflationary pressures and now believe that inflation will hang around longer than previously thought. Inflation will subside significantly in 2022, believes the committee members. Some Fed officials wanted a faster pace of “tapering” of the Fed's bond-buying program. Others were worried about elevated asset valuations. The members said labor participation would likely be lower in the coming months because of early retirements. Markets showed little initial reaction to the FOMC minutes.

It was a very busy day for U.S. data releases Wednesday. The big batch of data was a mixed bag, overall, but generally upbeat, and had little impact on the metals or other markets. Traders and investors in the U.S. apparently were more focused on the Thanksgiving holiday feasting.

Global stock markets were mixed in overnight trading. The U.S. stock indexes are mixed in afternoon trading.

Rising Covid-19 cases in Europe and Asia continue to prompt risk aversion in the marketplace. Austria is on a virtually complete lockdown and German officials are warning Covid cases are rising at an alarming rate.

Traders are closely watching the Turkish lira this week, which has dropped sharply to a record low against the U.S. dollar. Turkey's president forced its central bank to lower its main interest rate recently despite rising inflation concerns. That sent the lira into a downward spiral. The lira did rebound a bit Wednesday.

The key outside markets today see the U.S. dollar index higher and hitting another 15-month high. Nymex crude oil prices are near steady and trading around $78.50 a barrel. The yield on the U.S. Treasury 10-year note is presently fetching 1.657%.

Technically, December gold futures prices hit a three-week low today. Bulls still have the slight overall near-term technical advantage but have faded badly this week and need to show fresh power soon to keep their edge. A seven-week-old uptrend on the daily bar chart has stalled out. Bulls' next upside price objective is to produce a close above solid resistance at this week's high of $1,850.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,758.50. First resistance is seen at today's high of $1,796.20 and then at $1,800.00. First support is seen at today's low of $1,777.40 and then at $1,758.50. Wyckoff's Market Rating: 5.5

December silver futures bears have the overall near-term technical advantage. A seven-week-old uptrend on the daily bar chart has stalled out. Silver bulls' next upside price objective is closing prices above solid technical resistance at the November high of $25.49 an ounce. The next downside price objective for the bears is closing prices below solid support at the November low of $23.045. First resistance is seen at $24.00 and then at Tuesday's high of $24.34. Next support is seen at this week's low of $23.28 and then at $23.045. Wyckoff's Market Rating: 4.0.

December N.Y. copper closed up 390 points at 446.20 cents today. Prices closed nearer the session high today and hit a four-week high. The copper bulls have gained the slight overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 460.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the November low of 419.15 cents. First resistance is seen at today's high of 449.10 cents and then at 455.00 cents. First support is seen at today's low of 439.15 cents and then at this week's low of 435.20 cents. Wyckoff's Market Rating: 5.5.

By Jim Wyckoff

For Kitco News

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Gold's advantage over bitcoin

Before gold went on a run earlier this month, company financings in the precious metal space picked up, said CEO of Oreninc Kai Hoffmann.

Hoffmann spoke to Kitco in mid-November at the Deutsche Goldmesse show in Frankfurt, Germany. Oreninc tracks financings for juniors and miners.

Early this month, two pieces of news propelled gold higher: headline inflation rose to 6.2%, and the $1 trillion U.S. infrastructure bill was signed into law. Gold had a solid breakout trading above $1,850 an ounce. Today, precious metals have dropped along with the broader equity index.

Hoffmann said the Oreninc index had a "bit of a rally" with an "uptick in the last three to four weeks. [Financings] have been front running the pop in the gold price."

Hoffmann also weighed in on gold versus bitcoin, noting that the latter is "very volatile."

"Themes we've been hearing [at the conference] is outflows from crypto into gold. Bitcoin [supply] … is limited and gold is not, meaning that bitcoin may pop. It's very, very volatile. Gold is more stable," said Hoffmann adding that gold may perform better in a black swan event.

 

By Michael McCrae

For Kitco News

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Gold hit hard by profit taking as Fed Chair Powell stays

Gold and silver futures are sharply down in midday U.S. trading Monday, with gold notching a two-week low. The metals’ prices were under pressure overnight and then selling pressure accelerated when it reported early this morning that President Biden plans to keep Federal Reserve Chairman Jerome Powell for another term. December gold was last down $41.10 at $1,810.40 and December Comex silver was last down $0.421 at $24.36 an ounce.

The yellow metal slumped, the U.S. dollar index rallied to a 15-month high and U.S. Treasury yields rose when it was announced Biden chose Powell to continue in his position for another term. Speculation had been that Biden might choose the more monetary-policy-dovish Lael Brainard as Fed chair. With Powell remaining as chairman of the Federal Reserve, traders and investors reckon U.S. monetary policy will remain on its present course, compared to notions that Brainard as a new Fed chair would have leaned easier on U.S. money policies.

Sell stop orders were triggered in gold futures when prices dropped below several key near-term technical support levels this morning, which drove prices still lower.

It can be argued that the Powell news was just an excuse for the shorter-term gold and silver futures traders to ring the cash register and take profits after recent good price gains. Reason: The marketplace generally expected Powell to be reappointed and gold should not have reacted the way it did. Nothing has changed for the metals markets, fundamentally, from last Friday’s closes. No significant chart damage was inflicted in gold or silver today and their near-term price uptrends remain in place. The metals markets are likely to continue to be supported by the inflation trade—meaning the metals will continue to be sought out as a hedge against rising and even problematic price inflation.

Global stock markets were mixed in overnight trading. The U.S. stock indexes are mixed at midday. It may be a quieter rest of the trading week in the U.S. as the Thanksgiving holiday is on Thursday, with an abbreviated trading session Friday being historically one of the lowest-volume days of the year. European traders and investors remain worried about Covid lockdowns as infections in Europe and Asia are on the rise. The world is also keeping a wary eye on the buildup of Russian troops near the Russia-Ukraine border.

The key outside markets today saw the U.S. dollar index higher and hitting a 15-month high. Nymex crude oil prices are up and trading around $76.50 a barrel. Oil prices hit a six-week low overnight and it appears a market top is in place. The 10-year U.S. Treasury note yield is presently fetching 1.605%.

Technically, December gold futures bulls still have the overall near-term technical advantage. Prices are in a seven-week-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at today’s high of $1,850.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at $1,825.00 and then at $1,839.00. First support is seen at today’s low of $1,810.90 and then at $1,800.00. Wyckoff's Market Rating: 6.0

December silver futures bulls still have the slight overall near-term technical advantage amid a seven-week-old uptrend in place on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the November high of $25.49 an ounce. The next downside price objective for the bears is closing prices below solid support at the November low of $23.045. First resistance is seen at $24.75 and then at $25.00. Next support is seen at today’s low of $24.25 and then at $24.00. Wyckoff's Market Rating: 5.5.

December N.Y. copper closed down 30 points at 440.55 cents today. Prices closed nearer the session high today. The copper bulls and bears are on a level overall near-term technical playing field. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 460.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the November low of 419.15 cents. First resistance is seen at today’s high of 442.35 cents and then at last week’s high of 448.90 cents. First support is seen at today’s low of 435.20 cents and then at 430.00 cents. Wyckoff's Market Rating: 5.0.
 

By Jim Wyckoff

For Kitco News

Buy, Sell Gold and Silver, with Free Storage and Monthly Yields

David