Gold – Another Volatile Week

Gold – Another Volatile Week

Commentary for Friday, May 19, 2023 (www.golddealer.com) – Today gold closed up $22.20 at $1978.70, and silver closed up $0.42 at $23.92. To say that gold had a volatile week would probably be an understatement. In February of this year gold topped $1950.00 with the requisite buzz, but when gold lost $150.00 in a month the analysts were sure that $1800.00 would not hold, and the next stop was $1750.00. By early March, however the bulls were counting on a dovish interest rate program and gold pushed through $2050.00 before bullish sentiment again turned sour, and gold crashed through $1990.00 support on its way to recent lows ($1950.00). Early today the same professionals suggested that bearish news will continue, and gold will trend lower. And then, out of nowhere gold surged higher as Fed Chief Jerome Powell suggested that interest rates may be less aggressive. It is easy to forget about volatility when prices are moving higher. But the truth is benign – the price of gold usually reflects our economic tension level. Buying on dips in these troubling times makes sense because as you saw today – a sentiment whipsaw may be right around the corner. Last Friday gold closed at $2014.50 / silver at $23.99 – on the week gold was down $35.80 and silver was off by $0.07.

Please note that FedEx is no longer asking for delivery signatures. They are scanning IDs. We have complained to FedEx, but they remain resolute. Scanned identification is safer, but if you have a problem with this decision, please make your feelings known to FedEx. Unfortunately, the present delivery time for the USPS alternative is 2-3 weeks.  

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for understanding.

On Monday the price of gold was choppy with a surprising upward bias. The bulls challenged overhead resistance ($2022.00) three times but could not hold this higher ground as traders sold the rallies. The upward challenge, however, encourages the “higher gold faithful” and was supported by a weaker Dollar Index, moving from 102.07 through 102.40 in the early trade.

I can’t believe that traders are waiting for debt ceiling talks to move the sentiment needle. A waste of time and taxpayer money in my opinion as neither the Democrats nor Republicans will make the needed monetary changes. Talk, talk, talk and more talk!

Reuters (Deep Kaushik Vakil) – Gold gains on dollar pullback, debt-ceiling talks in focus – “Gold advanced on Monday on a weaker dollar as traders stuck to bets on interest rate cuts before year-end despite comments from Federal Reserve officials, with focus also on the U.S. debt ceiling talks. The dollar eased from a five-week high, making bullion cheaper for overseas buyers. “Investors will continue to deploy their capital in gold as the prospect of a rate-cutting cycle continues to firm over the next 12 months,” said Daniel Ghali, commodity strategist at TD Securities. Minneapolis Fed President Neel Kashkari said there was more work to be done to rein in inflation, while Atlanta Fed president Raphael Bostic played down chances of rate cuts this year. Any hawkish comments are “essentially disregarded” because the market is inferring what the Fed might end up doing based on incoming data as opposed to what they are saying, Ghali added. Focus will be on more Fed speakers this week, including Chair Jerome Powell. Wall Street, meanwhile, gained on optimism for a likely deal to raise the U.S. debt limit. Most market participants were still betting on at least one rate cut before 2023 ends, according to the CME’s FedWatch tool. Higher interest rates dim appeal for zero-yield gold.  While gold remains supported by factors including rate cut bets, a “major risk-on wave stemming from a deal could drag gold into the sub-$2,000 domain”, said Han Tan, chief market analyst at Exinity. Rising demand from automakers, industry and investors will push the global platinum market into its biggest deficit in years, three industry reports predicted.”

On the day gold closed up $3.50 at $2018.00, and silver closed up $0.14 at $24.13.

Zaner (Chicago) – “With the significant jump in the US dollar at the end of last week, a new high in the Dollar this morning, a slight rise in US interest rates and softer than expected Chinese new loan data last week, the commodity markets are facing signs of slowing instead of signs of out-of-control inflation. Fortunately for the bull camp, the recent correction in gold prices prompted fresh buying interest in India after seeing those buyers back off with prices above $2,020. Unfortunately for the bull camp, soft US scheduled data, strength in the dollar and global economic slowing fears leaves global gold demand expectations disappointing and leaves the bear camp with an edge with respect to demand fundamentals. Even though we suspect the latest COT positioning report overstates the net spec and fund long (due to the washout late last week), the net spec and fund long was near 12-month highs. Gold positioning in the Commitments of Traders for the week ending May 9th showed Managed Money traders were net long 146,626 contracts after decreasing their long position by 1,190 contracts. Non-Commercial & Non-Reportable traders net bought 4,932 contracts and are now net long 251,980 contracts. However, the bull camp should be cheered with gold ETF holdings last week seeing inflows of 426,772 ounces resulting in a year-to-date gain of 0.3%. While we suspect the gold market will continue to erode on its charts, we expect the market to generally respect support around $2,000. However, we see critical/failure support at $1,982. Like the gold market, the silver market saw inflows to silver ETF holdings last week of 2.91 million ounces resulting in a year-to-date gain of 0.6% While the net spec and fund long positioning in silver was not as overbought as gold on a relative basis recently, the market was long enough to justify last week’s late selling wave. On the other hand, into the low on Friday, July silver was trading nearly $2.00 lower likely balancing the net spec and fund long and increasing the potential of $24.00 as a solid support level. The May 9th Commitments of Traders report showed Silver Managed Money traders are net long 27,169 contracts after net buying 38 contracts. Non-Commercial & Non-Reportable traders added 857 contracts to their already long position and are now net long 48,305.”

On Tuesday the gold bulls were disappointed to see gold sell off after pushing to highs on the day ($2014.00). Gold traders sold the early rally and pushed gold below the important $2000.00 support over new hawkish comments by Cleveland Fed President Loretta Mester.

Once again bullish sentiment struggles with questions about how aggressive the Fed will be in controlling inflation. This is an old story and an open question. But the information offered today by Mester has created another wave of speculation. The significant dip in gold caught a tepid bid at $1985.00. The weak aftermarket suggests that gold may turn into a heavy trade without fresh bullish information either from the Fed or perhaps worldwide safe haven demand.

Reuters (Deep Kaushik Vakil) – Gold slips as US data, Fedspeak sow doubts on rate cuts – “Gold fell on Tuesday after U.S. economic data and hawkish remarks from Federal Reserve officials drove bets that interest rate cuts may be delayed, but debt default jitters kept a floor under safe-haven bullion. U.S. retail sales increased less than expected in April, but the underlying trend was solid, driving an uptick in the dollar and Treasury yields. Meanwhile, Cleveland Fed President Loretta Mester said she does not think the U.S. central bank is at a point yet where it can hold rates steady for a period of time, given stubborn inflation, adding to hawkish comments from other Fed officials on Monday. “We needed to see more signs of a pivot from the Federal Reserve, and we haven’t really fully seen that yet,” said Craig Erlam, a senior market analyst at OANDA. High interest rates dull non-yielding bullion’s appeal, although it’s considered a hedge against economic uncertainties. But overall, “traders are going to remain buying any kind of dip on the gold market as they wait out this debt ceiling fiasco,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, adding the $2,000 mark remained a key technical support level. Democratic President Joe Biden and top congressional Republican Kevin McCarthy will sit down at 3 p.m. EDT to try to make progress on a deal to raise the debt ceiling and avert an economically catastrophic default.”

On the day gold closed down $29.60, and silver closed down $0.39 at $23.74.

Zaner (Chicago) – “Despite noted weakness in the dollar this morning the gold market continues to retrench, and its charts look bearish into today’s potentially critical US debt ceiling negotiations. Perhaps the gold market is undermined following reports from the Indian government that their April gold imports declined 45%-to-3-month lows largely attributable to record prices crimping demand. India reportedly imported only 16 tons of gold in April compared with 29 tons last April. Reuters pegged the average monthly Indian import tally for April is 71 tons! A measure of flight to quality buying of gold, silver, platinum, and palladium could return if today’s meeting between the US President and Congressional leaders fails to solve the debt ceiling problem. If the debt ceiling negotiations unfold as in the past, no deal will surface until the last minute. In fact, it may be the job of the gold, silver, equity markets, currency markets and the treasury markets to apply pressure to the negotiators to get a deal. According to Bloomberg and other market pundits, gold remains the “best” flight to quality instrument, especially if the crisis is isolated within the US. China released industrial production and retail sales readings for April today, both of which failed to rebound as significantly as predicted. In our opinion, the precious metal markets have transitioned from markets needing signs that inflation is not contained and is becoming more sensitive to investment interest. In a minimally negative development gold ETF holdings yesterday declined by 20,722 ounces but remained 0.3% higher year-to-date. Uptrend channel support in June gold today is $2,013.30 with that support level increasing to $2,017.15 on Wednesday. The silver market appears to have failed at solid support this morning at the $24.00 level, shifting the charts bearish and potentially targeting $23.73. Therefore, the bull camp will need positive action in US equities following the adjournment of the US debt ceiling meeting today between the US President and Congressional leaders. Unfortunately for the bull camp in silver, silver ETF holdings yesterday declined by 542,140 ounces but remain 0.5% higher year-to-date.”

On Wednesday traders did not take advantage of yesterday’s dip in prices and gold tested lows on the day (1976.00) so this market remains defensive as the Dollar Index moved higher (103.00) on the day. The Dollar Index began rising last Thursday and has moved between 102.00 and 103.00 since last Friday, reflecting the growing belief that better-than-expected US economic numbers will give the Fed more room to tackle inflation.

This hawkish view comes in and out of focus like the wind but in fact is the assessment which makes the most sense because the FOMC has, from the very beginning, stated that controlling inflation is their number one priority. The Fed game plan is also clear – when this view begins to create trading grief or frowns on Wall Street Chief Powell uses the media to assuage the faithful. This is his genius, and in my opinion is the reason gold is trading at the higher end of its current trading range. But the reality of aggressive interest rates will eventually either cap or push gold prices lower – as is now the case. But this process is not simple or straightforward.

The lower gold and silver move in price the more demand will grow in the physical market. What we see today, which is rising complacency, will soon be replaced with strong bargain hunting. I like to think that gold and silver bullion are simply doing their job. Keeping everyone honest in a world which believes in “free lunch” politics. A system which creates ever larger piles of debt but somehow can never manage to balance its checkbook.

My feeling has remained pretty much the same for decades. The average person should not consider the metals a “get-rich-quick” proposition. Placing a portion of your savings in physical bullion on a regular basis is just another good financial habit. This good stewardship turns into a kind of valuable piggy bank and is available for quick cash whenever the need arises.

If you are wealthy and do not have a portion of your wealth in bullion, consider our growing debt mountain to be the “handwriting on the wall”. You should not need a biblical prophet to caution against the danger of creating fiat paper money out of thin air. The following insightful proverb “forewarned is forearmed” makes a lot of sense: “prior knowledge of possible dangers or problems give one a tactical advantage”.

On the day gold closed down $7.70 at $1980.70, and silver closed up $0.01 at $23.75.

On Thursday the price of gold continued lower as the dollar moved to 2-month highs. The Dollar Index has moved a full point higher (103.50) since Tuesday as traders see our growing economy as another reason for the Fed to continue its fight against inflation.

Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the overall near-term technical advantage but are fading. A price uptrend on the daily bar chart has been negated. Prices are starting to trend down on the daily bar chart. Bulls’ next upside price objective is to produce a close in June futures above solid resistance at the May high of $2,085.40. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,950.00. First resistance is seen at the overnight high of $1,988.80 and then at $2,000.00. First support is seen at the overnight low of $1,974.60 and then at the April low of $1,965.90. The silver bears have the overall near-term technical advantage. Prices are now trending lower on the daily chart. Silver bulls’ next upside price objective is closing July futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at $24.00 and then at this week’s high of $24.39. Next support is seen at today’s low of $23.575 and at $23.00.”

Wall Street Journal (Greg Ip) – We May Be Getting Used to High Inflation, and That’s Bad News – “Last fall, Americans were obsessed with inflation. The issue dominated the midterm elections. One in five respondents called it the nation’s most important problem, according to Gallup. These days, their attention is elsewhere. Just 9% of Gallup respondents now call inflation the most important problem, behind government leadership and the “economy in general” and just ahead of immigration and guns. It has barely come up in Washington’s fight over raising the debt ceiling. Good news? Maybe not. It may mean people are getting used to higher inflation, which would be very bad news. The more people behave as if high inflation is here to stay, the likelier it is to stay. That would force the Federal Reserve to choose between inducing a potentially deep recession to force inflation lower or giving up on its 2% inflation target.”

Reuters (Deep Kaushik Vakil) – Gold slides as robust US data drives hawkish Fed bets – “Gold extended declines on Thursday after more strong economic readings from the U.S. further soured bets that the Federal Reserve may ease up on interest rates hikes, with safe-haven bullion also pressured by optimism for a debt deal. A lower-than-expected number of new U.S. jobless claims last week was accompanied by a milder fall in a business index from the Philadelphia Fed. Along with a relatively vibrant jobs markets, some optimism over the debt ceiling negotiations has also strengthened the dollar, denting the need for safe havens a bit, said David Meger, director of metals trading at High Ridge Futures. “We’re no longer as positive on the gold market as we’ve been for really several months.” Pressuring gold, the dollar and 10-year Treasury yields climbed to multi-week peaks after the economic data, with markets now pricing in a 20% chance of another interest rate hike in June, compared with 20% bets of a cut around a month ago. Non-yielding bullion suffers when higher rates boost returns on competing assets like bonds. Dallas Fed President Lorie Logan said inflation is not cooling fast enough yet to allow the Fed to pause rate hikes in June, while Fed Governor Philip Jefferson said it was too early to judge the full impact of the rapid increases so far. Both sit on the Fed committee that sets monetary policy. “Gold’s failure to hold technical support at the 50-day moving average will likely encourage further tests of the downside,” said independent analyst Ross Norman.”

On the day gold closed down $24.20 at $1956.50, and silver closed down $0.25 at $23.50.

On Friday a simple comment about interest rates from Jerome Powell was enough to change trading sentiment from bearish to bullish in minutes. But I would not read too much in this latest revelation. We are still likely in the middle of a “wait and see” moment.

In the early trade today, insiders were considering further price breakdown. Today’s bounce to higher ground was surprising and supported by significant short covering. But in hindsight it is easy to see that gold was already oversold. We have seen no big sellers at these levels and the walk-in trade was already taking advantage of lower prices. A definitive answer as to whether gold will continue to recover or move lower will have to wait until the Fed makes up its mind.

Reuters (Kavya Guduru) – Gold gains on dollar pullback but faces weekly loss – “Gold prices advanced on Friday, tracking a pullback in the dollar, but increased optimism around a U.S. debt limit deal set prices on track for a weekly drop. The dollar index slipped 0.3% on the day and made gold more affordable for holders of other currencies, but the index was headed for a second straight weekly gain. “Gold has been dragged below the psychologically-important $2,000 level this week due to optimism surrounding a U.S. debt deal,” said Han Tan, chief market analyst, Exinity. Democrat Party negotiators told President Joe Biden on Friday that they are making “steady progress” in talks with Republicans aimed at avoiding a U.S. default, according to a White House official. Gold soared to $2,072.19 earlier this month, just cents away from an all-time high of $2,072.49, but has since lost about 5% following data that showed a tight labor market and still-high inflation. Moreover, “the hawkish undertones from recent Fed speak, along with some still-resilient U.S. economic data have prompted markets to now forecast a 30% chance of a June rate hike,” Tan added. The yellow metal was on track for its worst week since early February, down about 2.3% so far. High interest rates discourage investment in non-yielding bullion. The latest comments from Fed officials on Thursday that inflation was not cooling fast enough to allow the Fed to pause its interest-rate hike campaign added to the hawkish rhetoric. Gold might slide further into a range of $1,938-$1,947 per ounce, according to Reuters technical analyst Wang Tao.”

On the day gold closed up $22.20 at $1978.70, and silver closed up $0.42 at $23.92.

Platinum closed up $22.20 at $1978.70, and palladium closed up $73.60 at $1531.80.

Zaner (Chicago) – “While the gold and silver markets are receiving a small measure of lift this morning from weakness in the dollar, a bearish bias lingers in the marketplace. With a relatively thin US economic report slate today, the primary focus of the gold and silver trade is likely to be three Fed speeches with particular focus on the Fed Chairman speech. Even though the debt ceiling issue remains the primary focal point of most markets, with Biden outside the country we doubt he will allow progress to be made without his presence. On the other hand, a growing chorus of Democrats are supporting a move to use the 14th amendment to circumvent Congress under the guise of protecting the solvency of the United States and that nuclear option will likely be a hot topic on Sunday. Therefore, those pressing the short side of gold and silver should not discount the potential for a sudden revival of flight to quality buying interest next Monday. Since May 10th, gold has lost nearly $80 in value, while silver has lost more than $2.00 in value with both markets reaching their lowest levels since late March. Not surprisingly, gold, and silver ETF holdings this week have declined in sync with futures prices, but we now feel the risk of fresh shorts is on the rise! Clearly, declines in gold and silver prices this week have been the result of declining flight to quality interest from “hope” of a debt ceiling deal, but that outcome is far from certain.”

Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special favor – talk to Harry or Eric. We are now back to our traditional business model. Thank you for your patience. Have a blessed day. Richard Schwary

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