Gold – Interest Rates Rule

Gold – Interest Rates Rule

Commentary for Friday, Jan 5, 2024 (www.golddealer.com) – Today gold closed up $0.10 at $2042.40, and silver closed up $0.13 at $23.12. As the New Year develops, interest rates are still the determining factor controlling the price of gold. Commentators are split as to whether the bullish trade got carried away with the notion that the FOMC would remain dovish after the Fed’s recent “pause”. Our Wednesday post this week outlines the reasoning. The Fed may know what it is doing, but they are stingy with the details. This makes investment planning for anything other than the short term a risky venture. Keep your options open, the “key” here is to remain nimble, looking for shifting opportunities which come and go quickly. Today’s price swing between $2027.00 and $2061.00 suggests a jittery trade. Still, gold finished lower on the week – not a plus going into the weekend. Last Friday gold closed at $2062.40 / silver at $23.85 – on the week gold was down $20.00 and silver was down $0.73.

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 a 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.

Our offices were closed on Monday (Jan 1^st) for the New Year.

On Tuesday the price of gold threatened $2070.00 in the early morning, but this modest rally reversed itself, moving to lows on the day, as traders reacted to a stronger dollar. Gold recovered to around unchanged on the day, but it is not surprising to see that a stronger dollar can sidestep bullish sentiment. Overhead resistance for gold in the present pricing range also remains a formidable adversary. Still gold’s strong technical picture and the possibility of a continued dovish Fed interest rate policy in 2024 suggests higher prices may be in the offing.

Reuters (Sherin Varghese) – Gold starts 2024 brightly on Fed rate cut bets, Red Sea worries – “Gold prices made a positive start to 2024, boosted on Tuesday by expectations the U.S. Federal Reserve will cut interest rates this year and concerns over attacks on shipping in the Red Sea. “I think there is a possibility of escalation in the Red Sea and that probably could push gold prices even higher,” said Daniel Pavilonis, senior market strategist at RJO Futures. Gold prices surged 13% in 2023 in their first annual rise since 2020 and are forecast to reach record highs in 2024, with lower interest rates reducing the opportunity cost of holding non-yielding bullion. “As we saw how much of a lift the price of gold obtained from expectations of rate cuts in 2023, we could well see significant gains in 2024 when central banks actually start loosening their polices and yields move further lower,” said Fawad Razaqzada, market analyst at City Index. “Inflationary pressures are likely to ease further across the world, leading to the start of the great rate-cutting cycle,” he said, adding that the actual timing and extent of the rate cuts will depend on incoming data. This week, market attention is on the minutes from the last Fed meeting due on Thursday. Data on U.S. job openings and December non-farm payrolls, both due on Friday, will also be closely followed. Elsewhere, spot silver rose 0.8% to $23.9526 per ounce while palladium fell 0.3% to $1,095.55. Platinum edged down 0.1% to $986.44 per ounce. “The outlook for palladium demand partly hinges on the pace of the energy transition, particularly growth in EV demand, as higher battery electric vehicle growth is negative for palladium demand,” HSBC said in a note.”

On the day gold closed up $2.00 at $2064.40, and silver closed down $0.12 at $23.73.

On Wednesday gold prices dipped on the open moving to daily lows of $2030.00 likely on the combination of two factors. The dollar remains strong, the Dollar Index moved from 102.10 through 102.75 in early trading which is counterintuitive if traders really believe that the Fed will lower interest rates in 2024. Still, “lowering” interest rates is a moving target depending on inflation. Will they “lower” early or “later” in the year? Or change their mind and stand pat?

Today’s drop in the price of gold could reflect a simple round of profit taking. The thinking here being that the combination of overhead resistance and the fact that gold is higher by $200.00 year over year sent the bulls to the sidelines, waiting for Fed confirmation relative to interest rates in 2024. There could also be some squaring of paper trading accounts in the new year.

Still this pricing picture should be discouraging to the bullish scenario because prices have been defensive these last 5 trading days, moving from $2080.00 highs through lows approaching $2030.00. Which does not seem to discourage the public, at least across our trading desk. The physical market is getting back into the game after the holidays. Yesterday we saw a large increase in both the buying and selling of bullion products, including IRA accounts.

Today’s dip in prices is not a big deal, the metals continue to trend lower, waiting for some finality with the interest rate question. The dip would be more compelling if traders did not buy this latest weakness. Gold would again be threatening the important $2000.00 support. Perhaps suggesting that all the higher price expectations this year based on lower interest rates have been exaggerated. Today’s comments by Richmond Fed President Fred Barkin are also worth noting – “Potential rate hike remains on the table”. Keeping their options open does not help the bulls.

On the day gold closed down $30.20 at $2034.20, and silver closed down $0.78 at $22.95.

On Thursday gold pushed to daily highs ($2050.00) before turning choppy with a bit of turbulence at these higher levels, before dipping to daily lows ($2030.00) and rebounding nicely, providing mild bullish support as gold finished the day mildly in the green. The weakening of the US dollar is creating this typical back and forth “chop”. Gold ignored today’s jobs report but will get another chance to ponder the release of December’s numbers this Friday. Gary Wagner (Kitco) – FOMC minutes rattle investors about the timing of first rate cut – “The primary component taking both gold and silver lower was today’s release of last month’s FOMC minutes. At issue was a lack of clarity concerning the timing of rate cuts, specifically when the Federal Reserve will implement its first rate cut of the year. Clearly, market participants and investors have been unrealistically optimistic. The consensus amongst analysts and economists believe that the Fed will implement its first rate cut as early as the second quarter of the year, and possibly as late as mid-year. This differs greatly from traders who according to the CME’s FedWatch tool believed that there is a 64.8% probability that the Federal Reserve will initiate its first quarter percent rate cut at the March FOMC meeting. The minutes released contained no insights as to the timing of upcoming rate cuts this year and tempered optimism with “an unusually elevated degree of uncertainty” as it pertains to the monetary policy path. The minutes also left the door open for further interest rate hikes if the data necessitates it. That being said, they continue to underscore their confidence that inflation is coming under control and “upside risks” have diminished. The minutes addressed concern that “overly restrictive” monetary policy might damage the economy. Recent data confirms that assumption, as the December ISM figures revealed an additional month in which US manufacturing activity has contracted. Currently, the important nonfarm payrolls report to be released on Friday.”

FXEmpire (Christopher Lewis) – Gold Markets do Very Little on Thursday – “You can see that the gold market has been somewhat quiet during the early hours on Thursday as we are trying to sort out whether or not there is enough support underneath to keep the gold market afloat. Another thing to pay close attention to is the fact that Friday is the non-farm payroll announcement and therefore Thursday probably more or less is a day that is going to be quiet by default. The non-farm payroll announcement will have a major influence on the bond market, which in turn could move the gold market as falling interest rates could be very positive for gold and of course vice versa. That being said, there are plenty of geopolitical concerns out there that could lift gold as well. So, I still believe that there are plenty of buyers underneath. In fact, I think the 50 day EMA and the $2,000 level just below there will continue to be a major floor in the market. On some type of pullback and a bounce, I am willing to start to build up a bit of a position, but I also recognize that the next 24 hours could be very noisy and therefore, it might be a bit difficult to read too much into the market, but liquidity should start to pick up on. By Monday I think once we get to that point where gold will show its true colors. If we were to break down below $2000 that would be a very negative sign. On the other hand, if we turn around and break above the $2075 level, then the market could really start to take off to the upside and we could continue the overall uptrend. In that environment, I suspect that it will be a breakdown of the US dollar that leads the market, not necessarily some type of major desire to own gold. Furthermore, you would also need to get paid to hold on to gold, so momentum is very important. Remember, gold does not pay any type of yield, so traders tend to prefer yield due to the fact that they don’t have to pay for storage. This is the one downfall of gold but ultimately with everything that’s going on in the world, it’s not a bad idea to own some.”

On the day gold closed up $8.10 at $2042.30, and silver closed up $0.04 at $22.99.

On Friday gold closed almost unchanged and was only marginally down on the week. Traders will carefully watch the CME FedWatch which today figures a 66% chance of a rate cut in March. Underline the word “carefully” because the same source offered a 90% chance a week earlier, a more bullish suggestion. In other words, this bullish balloon is losing altitude.

On the plus side for the bulls: The dollar is moving lower. The Fed may still lower interest rates in March. And even with the daily ruckus the price of gold remains above $2000.00. On the minus side: This market has believed the Fed will lower interest rates in March for some time and if the FOMC does not follow through gold may suffer. The price of gold at recent highs presents tough overhead resistance. We are seeing an increase in buying and selling of large gold positions across our trading desk which may prompt further selling if prices fade.

Reuters (Hissay Ongmu Bhutia) – Gold under pressure from stronger US dollar, Treasury yields – “Gold prices slipped on Friday and were on track for their first weekly fall in four, weighed down by a stronger dollar and higher bond yields, while investors keenly awaited U.S. non-farm payrolls data due later in the day. “Gold is currently trading down less than 1% for the week as stronger than expected U.S. economic data drove bond yields up and U.S. rate cut expectations down,” said Ole Hansen, Saxo Bank’s head of commodity strategy. “A stronger-than-expected U.S. (payrolls) report may challenge gold’s resolve given its potential further dampening impact on future rate cut expectations.” Data on Thursday showed that U.S. private employers hired more workers than expected in December, pointing to persistent strength in the labor market. Benchmark U.S. 10-year Treasury yields hit a three-week peak, while the dollar rose 0.3% and was heading for its biggest weekly gain since May, making gold more expensive for other currency holders. Focus now shifts to the U.S. non-farm payrolls report due at 1330 GMT for more clarity on the Federal Reserve’s rate path outlook. Economists polled by Reuters forecast that 170,000 jobs were created in December, fewer than the 199,000 in November. Traders are now pricing in about a 66% chance of a rate cut from the Fed at its March 20 policy meeting, compared with a 90% chance a week ago, according to the CME FedWatch tool. Elsewhere, spot silver was down 0.1% to $22.96 per ounce, while platinum slipped about 1% to $947.77. Palladium fell 1.3% to $1,023.89 per ounce in its ninth consecutive session of decline. “A combination of healthy availability of inventory, growing short positions, declining market share of internal combustion engines and palladium substitution have weighed on prices, we expect these trends to set the tone of trading in 2024,” (Standard Chartered analyst Suki Cooper).

On the day gold closed up $0.10 at $2042.40, and silver closed up $0.13 at $23.12.

Platinum closed up $5.40 at $959.30, and palladium closed down $0.70 at $1032.30.

Jim Wycoff (Kitco) – “Technically, the gold futures bulls still have the overall near-term technical advantage but are fading a bit. Prices are still in a three-month-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in March futures above solid resistance at $2,100.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,000.00. First resistance is seen at Thursday’s high of $2,058.10 and then at Wednesday’s high of $2,074.30. First support is seen at the overnight low of $2,030.80 and then at $2,025.00. The silver bears have the overall near-term technical advantage. A choppy, three-month-old uptrend on the daily bar chart has been negated. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at the November low of $22.26. First resistance is seen at the overnight high of $23.38 and then at $23.75. Next support is seen at $23.00 and then at this week’s low of $22.88.”

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

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