Gold – Are the Bears Returning?

Commentary for Friday, Feb 3, 2023 (www.golddealer.com) – Today gold closed down $53.40 at $1862.90, and silver closed down $1.20 at $22.33. Gold’s sudden drop in price this morning introduced a new round of uncertainty into an already confusing pricing picture. I would not overreact to this downward swoop, but it does take a significant buzz out of a market which was already looking for a boost in positive bullish sentiment. It reminds everyone that the Fed’s interest rate expectations are always tenuous. The FOMC remains in unchartered waters when it comes to dealing with the debt load created by the extreme pandemic years. (Reuters) – Gold prices dropped over 2% on Friday to more than a three-week low after stronger-than-expected U.S. jobs data raised fears that the Federal Reserve could keep hiking interest rates. U.S. employment growth accelerated sharply in January, with 517,000 positions added, almost double the gain in December. The unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a persistently tight labor market. “This (data) is going to add support to the argument that the Fed might have to remain a little bit more aggressive going forward,” said Edward Moya, senior market analyst at OANDA. The dollar jumped 0.9%, reaching a three-week high earlier in the session, making gold a less attractive bet. The yield on 10-year Treasury notes also climbed.” Last Friday gold closed at $1928.60 / silver at $23.53 – on the week gold lost $65.70 and silver was lower by $1.20.

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On Monday gold was again choppy – trading between $1930.00 and $1923.00. This was the case most of last week. The closest FOMC meeting (Jan 31^st – Feb 1^st) will help define the short-term picture. And most traders expect a lighter hand on the interest rate throttle – perhaps ¼ point hikes will do the trick! The March 21^st / 22^nd confab will carry more weight because it is associated with what the Fed calls a Summary of Economic Projections on their website.

Keep in mind however that opposing inflation forces create dynamic and changing economic tensions. Reuters notes that US consumer spending fell for a second straight month in December, suggesting a slowdown. However, the number of people filing for jobless benefits keeps dropping – signaling a tight labor market which may force the Fed to keep hiking rates.

It may be best to keep your eye on the short-term speculation. Traders figure the more recent and dovish Fed inclination is already factored into today’s pricing. This is a kind of “working theory” which can to some degree be verified.

Today the focus will be on the upcoming Federal Open Market Committee meeting (Jan 31^st – Feb 1^st). An interest rate hike of ¼ point would help those looking for higher gold prices. It would provide the bullish base with needed encouragement in an otherwise flagging gold market struggling with overhead resistance ($1950.00).

On the other hand, if inflation begins to rise, the Fed does not want to be caught behind the inflation curve like they were the first time around. This could encourage larger interest rate hikes. And the return of bearish sentiments would likely be back in the driver’s seat.

On the day gold closed down $5.70 at $1922.90 and silver closed up $0.12 at $23.65.

Grant on Gold (Zaner) – (1) Gold ended last week with a scant 0.09% gain, but it was the sixth consecutive higher weekly close. (2) Silver closed down 1.3% last week, its second consecutive lower weekly close. The white metal is down over 1% in January. (3) Platinum posted a 3% loss last week, falling to a 5-week low of $1001.12. It was the third consecutive lower weekly close and the market remains defensive in this week. (4) Palladium fell to a 13-month low of $1591.35 last week, leaving the low from December 13, 2021, at $1528.00 vulnerable to a challenge.

On Tuesday the price of gold moved steadily lower in the overnight Hong Kong and London markets. And in typical fashion the New York domestic trade reversed those losses – moving back into the mildly green region on what some experts have called “bargain hunting”. I hope that is the case. And for now, the US trade in gold does remain firm in the short term.

I’m not convinced the talk about slowdown in Fed interest rate hikes is the end of this complicated story. I view “the slowdown” possibility as just another “transitory” piece of gold’s pricing puzzle. In short order the Fed could wake up and see itself as under “inflation attack”. The bears return in large numbers. And recent pricing gains would be turned on their head.

Reuters (Seher Dareen) – Gold set for third monthly rise on softer dollar, Fed slowdown bets – Gold prices on Tuesday were on track for their third straight monthly gain, helped by an overall weaker dollar and expectations around slower rate hikes from the U.S. Federal Reserve. The dollar was heading for its fourth consecutive monthly loss, making bullion more attractive for holders of other currencies. “We have so many event-driven risks throughout this week and investors have to pay attention to that. Gold prices are likely to be volatile,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “(However), $1,950 per ounce is an easily achievable target in the short-term for bullion,”, Streible added. The U.S. central bank policy decision is due at 1900 GMT on Wednesday, followed by a news conference from Fed Chair Jerome Powell. Markets are pricing in a 25-basis-points hike (bps) by the Fed, after slowing its pace to 50 bps in December, following four straight 75-bp hikes. Additionally, the Bank of England and the European Central Bank are likely to be raising rates on Thursday. Lower rates tend to be beneficial for bullion, decreasing the opportunity cost of holding the non-yielding asset. Meanwhile, analysts and traders have raised their predictions for gold prices but expect high rates to keep a lid on rallies, a Reuters poll showed. “Given how markets are expecting the FOMC, BoE, and ECB to make a move, the focus is likely to be on what they say rather than the actions they take,” said Lukman Otunuga, senior research analyst at FXTM.”

On the day gold closed up $6.60 at $1929.50 and silver closed up $0.10 at $23.75.

On Wednesday gold was choppy with a tight pricing range ($1923.00 through $1933.00). Most analysts expect a ¼ point interest rate hike today. But the real focus will be on what Fed Chief Powell has to say about further rate hikes in the near future. Traders are more interested in what is around the next corner than what is on the table at the present time.

The Fed raised interest rates a ¼ point today – a plus for gold bullish sentiment. And this rather dovish FOMC move did create a strong after market in the gold trade ($1955.00). But one with a kind of variable offset. (Barron’s) – “In a statement, the central bank acknowledged that price growth “has eased somewhat” but that it remains elevated. It also didn’t alter language that suggests further rate increases are on the horizon, noting that the committee “anticipates that ongoing increases in the target range will be appropriate.” That suggests another rate increase will be on the table when the Fed’s policy-making committee meets again in March, and that more could follow. “For those looking for today to represent a pivot, future increases (emphasis “S”) in the target band means it is still too soon to look for the Fed to shift to an on-hold stance,” wrote Benjamin Jeffery, a strategist with BMO Capital Markets.”

Hawkish commentary continues to make the short-term gold trade pensive. One which will likely favor downward dips, testing support. Even as Powell tiptoes around the interest rate dilemma.

The Dollar Index was drifting lower before Powell’s speech, losing a full point. Obviously supporting the bullish gold scenario and reflecting the expected ¼ point interest rate hike.

This pricing pattern in gold is familiar. We have seen this set of circumstances in the past. The professional trade will likely look for lower prices because of three important reasons.

First, gold is higher by more than $100.00 this past month. This suggests that the paper trade will sell this recent rally and take profits. Second, the Chief has used his public platform on many occasions to remind the faithful that inflation is his primary concern. Today such talk was at least “muted” as Powell was “gratified” that the disinflation process has started.

But he was candid enough to admit that it is too soon to call even this round of the ongoing fight a victory. And third, three weeks ago the gold rally turned flat in a channeling pricing pattern between $1920.00 and $1940.00, suggesting a tired bull. Still, it will be interesting to see how this strong aftermarket will fare in Thursday’s domestic trade.

On the day gold closed down $1.70 at $1927.80 and silver closed down $0.23 at $23.52.

On Thursday the bulls were disappointed as the Dollar Index bounced off recent lows and trended higher today. The early New York domestic market sold yesterday’s strong aftermarket and the price of gold moved from $1955.00 through $1920.00.

Yesterday’s ¼ point rise in interest rates created a kind of “relief” rally which created another chance for paper traders to book profits. This may sound a bit cynical but may help the bullish sentiment if you consider gold is at least holding up considering the potential pounding it might take if the Fed turns back to the dark side of its interest rate program.

Keep in mind this trade may yet get bumpy. Nothing is sure in this “unwinding” mess and traders are anxious to see Friday’s jobs report. If this report comes in “hot” (favoring employment) it might lead traders to believe the Fed will once again turn hawkish. The dovish and favored FOMC position today of “easing inflation” could turn into a busted flush.

On the day gold closed down $11.50 at $1916.30 and silver closed up $0.01 at $23.53.

On Friday gold opened flat but the bears quickly roared as employment numbers beat expectations by a wide margin – unemployment is the lowest seen in this country since 1969. Again, introducing uncertainty into exactly what the Fed might do if inflation does not continue to “ease”. Of course, gold should have weakened, the Dollar Index gained a full point on the strong jobs data. But frankly this looks like an overreaction. Nonetheless the technical picture was damaged, the important $1900.00 psychological level is in the rear-view mirror and traders are dealing with the reality of $1865.00 gold and perhaps even a progressively bearish trade.

On the day gold closed down $53.40 at $1862.90 and silver closed down $1.20 at $22.33.

Platinum closed down $51.70 at $971.80, and palladium closed down $24.20 at $1614.60.

Jim Wyckoff (Kitco) – Technically, the gold futures bulls still have the overall near-term technical advantage but are now fading. A three-month-old uptrend on the daily bar chart has at least temporarily been negated. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at this week’s high of $1,975.20. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,850.00. First resistance is seen at $1,925.00 and then at today’s high of $1,932.40. First support is seen at $1,885.00 and then at $1,875.00. The silver bulls have the firm overall near-term technical advantage. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at the January high of $24.775. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at today’s high of $23.66 and then at $24.00. Next support – January low of $22.845 and then at $22.50.”

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