Gold – Interest Rate Quandary

Gold – Interest Rate Quandary

Commentary for Friday, August 4, 2023 (www.golddealer.com) – Today gold closed up $7.60 at $1939.60, and silver closed up $0.03 at $23.62. It looks like another quiet week for gold and silver considering the weekly price spreads. According to the experts the technical picture for gold and silver is back to a push between the bulls and bears. So, the momentum players are not interested, and the proprietary trading platforms are in the same boat. The plus for gold even in this quiet market is that it is holding up on both sides of $1940.00. The plus for silver is that $23.50 may turn out to be its next staging area for higher prices, even though the technical picture is less optimistic. Both metals are a bit surprising, I thought this market would be defensive, even worried about higher interest rates. The smart money now claims that the Fed will leave interest rates unchanged in September. Last Friday gold closed at $1960.40 / silver at $24.37 – on the week gold was down $20.80 and silver was down $0.75.  

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On Monday the price of gold opened flat but quickly moved to daily highs. I would question whether the dollar’s weakness is pushing gold higher. The Dollar Index has been trending lower since late June when its most recent top reached 104.00 but it has been steady around 101.62 since last Thursday. It makes sense that some experts believe today’s push to higher ground may be the result of an improving technical picture favoring the bulls.

I would be suspicious of, yet another wave of bullish optimism based on the Fed changing its aggressive interest rate policy. Still, gold moving above $1970.00 this morning encourages the bulls. And this move will at least keep the short paper trade at bay for the time being.

Still, I don’t think this recent interest is sustainable. It is too early to claim some sort of transition period that would favor gold. The Fed’s interest rate position needs more definition.

In the meantime, the fact that gold is closer to $2000.00 than $1900.00 encourages the physical trade. Especially during these traditionally slower and quiet summer months.

Reuters (Brijesh Patel) – Gold set for best month in four as rate-hike cycle nears end – “Gold prices rose on Monday, putting them on track for their best month in four as an overall weaker dollar and expectations that major global central banks are nearing a peak with interest rate hikes boosted investor sentiment. The dollar index, meanwhile, was heading for its second straight monthly decline, making gold more attractive for other currency holders. Recent data showing signs of cooling inflation in the United States has raised expectations that the Federal Reserve was closer to ending its fastest rate hiking cycle since the 1980s. According to the CME’s FedWatch Tool, the probability that the Fed will leave rates unchanged this year is at 60%.”

On the day gold closed up $10.10 at $1970.50, and silver closed up $0.48 at $24.85.

On Tuesday gold dipped on the open this morning, quickly falling to daily lows of $1940.00 driven by several factors. The dollar is moving higher, pushed over expectations of further interest rate hikes. Gains for gold last month were solid, perhaps suggesting profit taking.

The main reason gold is moving lower is an old dynamic. Yesterday’s weekly high of $1970.00 stirred the trading pot but with no follow through this happiness turned into a busted flush.

The enthusiasm speculation that the Fed will “pause” is usually short lived. It does not make any sense that the Fed will take its foot off the interest rate pedal when interest rates are beginning to move lower. This and a deteriorating technical picture caps higher prices for gold.

At the same time, there does not seem to be any improvement in the amount of money still sloshing around these closed systems. So, it also makes sense that the downside for gold and silver is also limited in this upside-down financial world, pulled in dangerous directions by leaders who are basically crazy, some even threatening nuclear options.

Be patient in this interest rate transition. The physical market is looking for that “price” which offers “relative value”. Something low enough to compete with higher interest rates. And a option that is “real money” if this grand experiment goes off the track.

Reuters (Brijesh Patel) – Gold slips 1% as US dollar, Treasury yields tick higher – “Gold prices fell 1% on Tuesday, weighed down by a stronger dollar and an uptick in bond yields, while investors looked forward to more U.S. economic data this week that could influence the Federal Reserve’s policy stance. “Gold prices are softening as we see movement higher in the U.S. dollar. There is also some profit taking ahead a nonfarm payroll report in the week,” said Edward Moya, senior market analyst at OANDA. The dollar index rose 0.5% to a three-week high against its rivals, making gold more expensive for other currency holders. Benchmark U.S. 10-year Treasury yields climbed above 4%. Data on Tuesday showed U.S. job openings fell to the lowest level in more than two years in June but remained at levels consistent with tight labor market conditions. Meanwhile, U.S. manufacturing appeared to stabilize at weaker levels in July amid a gradual improvement in new orders. The focus now shifts to the key U.S. nonfarm payrolls report for July due on Friday. Overall payrolls are forecast to rise by 200,000 jobs in July after increasing by 209,000 in June. Gold ended July with 2.5% gains – its biggest monthly increase in four months- driven by hopes that major global central banks are nearing a peak with interest rate hikes amid signs of slowing inflation. “I think the Fed is going to skip rate hike in the next meeting if we see inflation come down … gold prices could be range bound in the near-term, but it will eventually go higher to above $2,000 per ounce,” Moya said.”

On the day gold closed down $29.80 at $1940.70, and silver closed down $0.64 at $24.21.

On Wednesday the bears again tested support as gold opened choppy but again slipped to daily lows, testing support at $1932.00. This trading pattern should now be familiar as the technical picture for gold is slowing turning bearish, likely reacting to the consensus that interest rates will be moving higher, sooner than later.

I’m not saying the bears are out in force these days, there is recent support in the 1920.00 range. We might just be seeing gold traders adjusting their prices relative to short term changes in interest rates. But the closer gold gets to $1900.00 the more emphasis you may see on bear raids, as the proprietary computer trade senses change.

Reuters (Brijesh Patel) – Gold pares gains as US dollar, bond yields resume climb – “Gold prices pared gains on Wednesday, hurt by a stronger dollar and a rebound in bond yields as investors digested Fitch’s U.S. credit rating downgrade and focused on nonfarm payrolls data later this week. “Higher interest rates would ultimately put pressure on gold. Also, we are seeing more strength in the dollar. Prices are trapped below $2,000 and above $1,900 for the time being,” said Daniel Pavilonis, senior market strategist at RJO Futures. The dollar rose 0.4% to more than a three-week high, making gold more expensive for other currency holders. Benchmark U.S. 10-year Treasury yields rose to their highest since July 10. Data showed U.S. private payrolls increased more than expected in July, pointing to continued labor market resilience that could shield the economy from a recession. The Federal Reserve raised interest rates by 25 basis points last month. According to the CME’s FedWatch Tool, the probability that the Fed would leave rates unchanged at the September meeting was at 83%.”

On the day gold closed down $3.30 at $1937.40, and silver closed down $0.46 at $23.75.

On Thursday gold remained choppy on both sides of $1934.00 in a typical and sleepy summer trade. Our trading desk has also turned quiet, likely reacting to higher interest rates, and a deteriorating technical outlook for the bulls. What this market really needs at this point is some fresh buzz to create interest. Continued flat prices is like watching the grass grow.

Reuters (Brijesh Patel) – Gold at three-week low as higher dollar, yields dim shine – “Gold was near a more than three-week low on Thursday, dragged by a robust dollar and elevated bond yields, while investors remained cautious ahead of July U.S. nonfarm payrolls data. The dollar rose to a four-week high, making gold more expensive for other currency holders. U.S. 10-year Treasury yields rose to their highest since November. “There is a lot of focus heading into the jobs numbers tomorrow, especially as we’ve had some stronger data lately, which has weighed on the sentiment and sort of fueled the idea that the Fed may have to keep the higher rates for longer,” said Ryan McKay, commodity strategist at TD Securities. Data on Wednesday showed U.S. private payrolls increased more than expected in July, pointing to continued labor market resilience. The U.S. jobs report due Friday could influence the Federal Reserve’s policy stance. The number of Americans filing new claims for unemployment benefits rose slightly last week. Rising U.S. interest rates increase the opportunity cost of holding non-yielding bullion. “Gold prices could drift down towards the $1,900 level, but there is probably strong support there as well, just because we are certainly getting towards the end of the hiking cycle,” McKay said. Earlier in the day, the Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak. While investors digested Fitch’s downgrade of the U.S. credit rating, independent analyst Ross Norman said gold’s failure to rally on that news may be behind redemptions seen in gold exchange-traded funds.”

On the day gold closed down $5.40 at $1932.00, and silver closed down $0.16 at $23.59.

On Friday gold drifted mildly lower on the open ($1930.00). Yet moved higher on the latest jobs number, which should have you scratching your head – it came in as expected. Yet the Dollar Index dipped on the news, so speculation is gaining speed around the water cooler.

Yet, this speculation did create a modest yet firm upward pressure in the price of gold. This underscores how starved traders are for fresh information that might suggest a change in price direction is in the wind.

Reuters (Brijesh Patel) – Gold gains as US dollar, yields tick lower after jobs data – “Gold prices rose on Friday after a slightly weaker-than-expected U.S. jobs report pushed the dollar and Treasury yields lower, offering some respite to bullion which was still on track for its worst week in six. Nonfarm payrolls increased by 187,000 jobs last month, the Labor Department said in its closely watched employment report. Economists polled by Reuters had forecast a gain of 200,000 jobs. “The jobs report has allowed the market to propose that the Federal Reserve is not as likely to raise interest rates. As a result, we’ve seen bond yields drop along with the dollar and that is certainly supporting the price of gold,” said David Meger, director of metals trading at High Ridge Futures. Following the data, the U.S. dollar fell 0.6% against its rivals, making gold less expensive for other currency holders. Benchmark U.S. 10-year yields retreated from a nine-month high.  According to the CME’s FedWatch Tool, the probability that the Fed leaves rates unchanged at its September 19-20 meeting is now around 85% from around 78% just prior to the data coming out. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion. “The data was bit weaker-than-expected, but not dramatically so, which is why a slight rise in prices this morning… Any dips (in gold) over the course of the next couple weeks, is likely going to be a buying opportunity,” Meger said.”

Jim Wycoff (Kitco) – “Technically, the gold futures bulls and bears are on a level overall near-term technical playing field. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at the July high of $2,028.60. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the June low of $1,939.20. First resistance is seen at $1,975.00 and then at Wednesday’s high of $1,992.20. First support is seen at the overnight low of $1,954.50 and then at $1,950.00. The silver bulls and bears are also on a level overall near-term technical playing field. Prices are starting to trend lower on the daily bar chart. Silver bulls’ next upside price objective is closing September futures prices above solid technical resistance at the July high of $25.475. The next downside price objective for the bears is closing prices below solid support at the June low of $22.34. First resistance is seen at $24.00 and then at $24.50. Next support is seen at the overnight low of $23.275 and then at $23.30.”

On the day gold closed up $7.60 at $1939.60, and silver closed up $0.03 at $23.62.

Platinum closed up $6.60 at $919.40, and palladium closed up $7.20 at $1253.70.

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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