Gold – Technically Weaker

Gold – Technically Weaker

Commentary for Friday, Feb 24, 2023 (www.golddealer.com) – Today gold closed down $9.20 at $1808.80, and silver closed down $0.49 at $20.81. The price of gold drifted lower in the early New York trade but managed to hold above the psychologically important $1800.00 support on the day. The technical picture, however, for gold and silver is turning bearish. Obviously, gold has been in a downtrend since late January so my defensive guess is that our shiny friend should stabilize between $1750.00 and $1800.00.

I don’t think there is much downside at the lower end of this trough, but higher prices are capped by potentially higher interest rates later this year. Last Friday gold closed at $1840.40 / silver at $21.69 – on the week gold was down $31.60 and silver was down $0.88.  We will be closing early today but will be back to regular hours on Monday. Thanks for your patience.

Please note and thanks – 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 we were closed, and the domestic markets were closed for Martin Luther King, Jr Day. The banks, Post Office, FedEx, and Brinks were also closed for this national celebration.

On Tuesday gold opened steady as the Dollar Index traded on either side of its weekly highs (104.00) and traders continued to consider the ebbs and flows of interest rate driven trading sentiment. Reuters – The focus this week will be on the release of the Federal Open Market Committee’s January meeting minutes on Wednesday after strong recent U.S. economic readings raised bets for more Fed rate hikes. Money market participants see the benchmark level peaking to 5.3% in July and staying near those levels throughout the year.  High interest rates discourage investors from placing money in non-yielding assets such as gold. Also on the radar, U.S. gross domestic product data is due on Thursday and core PCE price index is scheduled for release on Friday. Swiss customs data showed that Switzerland sent 58.3 tonnes of gold worth 3.3 billion Swiss francs ($3.6 billion) to Turkey in January, by far the most for any month in records stretching back to 2012.”

This is a short trading week – there may be little change in the price of gold. Today we saw prices swing between $1831.00 and $1842.00, so another “wait and see” trade with tight spreads. And yet the general bias appears to favor the bearish scenario, in the shorter term.

Across our trading desk I would describe the trading action as “sleepy”. The public is interested enough to buy price dips, especially if you have live and popular bullion choices. But we are seeing increased moderate selling. Nothing particularly large, these seasoned physical buyers/sellers are waiting for a clear FOMC interest rate change – not speculation.

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On the day gold closed down $7.40 at $1833.00 and silver closed up $0.18 at $21.87.

Zaner (Chicago) – “While April gold overnight managed a 3-day high and attempted to sustain a trade above $1850, it ultimately fell $14 from its overnight high. Some of the early weakness in gold is likely attributable to minimal strength in the dollar, risk off in global equity markets and slightly higher treasury yields. Unfortunately for the bull camp the market is confronted with a 7.6% decline in Swiss gold exports in January, with Chinese imports down 58% and Indian imports down by 33%! With the low at the end of last week $150 below the early February high the net spec and fund long positioning in gold has probably moderated significantly from the last reading in January of 206,016 contracts long. However, due to a hacking incident weekly COT report readings have been suspended and the trade is left to estimate market positioning. While the story has not gained traction global speculation that China is poised to supply Russia with weapons in its war against Ukraine if that is the case that could create flight to quality buying interest in gold and will likely result in further deterioration of US/Chinese relations. In a supportive internal supply development for gold leaving gold ETF holdings down Russia’s Polyus estimated its 2022 gold production declined by 11% on a net output of 2.4 million ounces. However, partially offsetting that supportive news is a forecast from the company indicating their 2nd half 2022 production increase by 38% versus the first half 2022. Last week gold ETF holdings declined by 207,259 ounces and gold holdings have declined for seven straight sessions leaving gold ETF holdings 1.2% lower year-to-date. Silver ETF holdings last week declined by 521,062 ounces, but in the last 2 days sessions holdings have increased by nearly 2 million ounces and holdings are currently 2.1% higher year-to-date. We suspect gold and silver will remain under pressure in the near term as the trade fears tomorrow’s release of the FOMC meeting minutes. However, according to the US Federal Reserve Chairman the Fed was not aware of the jobs data in their last meeting. We see solid resistance in April gold at $1856.40 and expect a retest of last week’s low down at $1827.70 in the coming sessions. With March silver initially posting a 4 day high overnight and reversing course the bear camp retains an edge and resistance is now pegged at $21.905.”

On Wednesday the New York domestic market sold off on the open ($1842.00) and trended lower ($1831.00) – creating a defensive trade and increasing bearish sentiment. Traders are again focused on the most recent tea leaves! Trying to “discern” what might happen in the short term. An old story for sure. But one which has not been resolved. Have interest rates peaked? Gold eventually moved off lows on the day and finished almost unchanged.

Our shiny friend yawned at the release of the latest FOMC minutes (Jan 31^st – Feb 1^st). Which is surprising because they sounded hawkish enough to create more selling. On the other hand, there was not much downside swoon over this latest insight. Which might suggest, not so obvious, underlying pricing support, at least for now.

Reuters – Gold flat as investors seek direction from U.S. Fed minutes – “Gold prices were little changed on Wednesday as investor held back from making large bets ahead of the release of minutes from the U.S. Federal Reserve’s latest policy meeting. The Fed raised rates by 25 basis points at that meeting and is expected to lift its benchmark overnight interest rate above 5% by May, with a peak seen at 5.35% in July. Recent strong U.S. economic readings have raised bets for more rate hikes from the Fed, pressuring gold prices which have fallen 4.7% so far this month. The Fed needs to get inflation onto a sustainable path this year or else risk a repeat of the 1970s, when interest rates had to be repeatedly ratcheted up, St. Louis Fed President James Bullard said. Gold is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding non-yielding bullion. However, considering central bank activity in the second half of last year, “if gold prices go below the $1,800 mark in the coming weeks, some central bank purchases could emerge (and are) likely to offset substantial weaknesses,” Bank of China International analyst Xiao Fu said. “Markets could be waiting for the FOMC minutes … and also the five-year note auction. Both are important for gold because it’s going to determine which way rates starts to move,” said Daniel Pavilonis, senior market strategist at RJO Futures.”

On the day gold closed down $1.00 at $1832.00, and silver closed down $0.21 at $21.66.

Zaner (Chicago) – “While a dominating risk off theme permeates the markets this morning the dollar index is tracking slightly higher and adding to the negative macro view toward physical commodities. Furthermore, fear of hawkish US Federal Reserve meeting minutes this afternoon combined with a 50-basis point rate hike from the Royal Bank of New Zealand overnight provides the bear camp in gold and silver with several bearish themes. Even though several Fed members have recently pushed for jumbo rate hikes in next month’s Fed meeting, today’s meeting minutes release might not be as hawkish as market expectations as the Fed had not seen the ultra-strong January jobs results. Unfortunately for the bull camp prevailing expectations will likely remain hawkish despite countervailing dialogue in today’s release. However, if the US continues to show mostly positive economic reports, the prospects of an even higher than expected terminal rate in the US will grow. Yet another bearish influence on gold this morning is an 8th straight outflow of gold ETF holdings. In fact, gold ETF holdings are now down 1.2% year-to-date. On the other hand, silver ETFs added 125,304 ounces yesterday and holdings are now 2.2% higher year-to-date. From a supply perspective gold should receive minimal support from a reduction in AngloGold gold production targets for this year as the company shifts its focus to reinforce a waste dam in Brazil. A positive from the demand side of the equation came from IMF news that the Kazakhstan central bank continued its pattern of building gold reserves. Furthermore, the Indian Central Bank added minimally to their holdings in December (according to the IMF). Clearly, gold is not able to benefit from flight to quality buying following a 697-point dive in the Dow yesterday with early global equity weakness today also not yielding flight to quality buying interest in gold. In the near-term, the $1,850 level in April gold is likely to become resistance with support falling below $1,825. We see resistance in March silver developing at $22.00 and prices retesting last week’s low at $21.15.”

On Thursday gold continued its downward drift as the Dollar Index moved back to last Friday’s highs (104.6). Gold is down $95.00 this past month and $75.00 this past year. And the fear that the Fed will use even higher interest rates to control inflation pressure is growing.

Is the public buying or selling this latest confusion? I’m a fan for using “premiums” as an indication of public interest in bullion most of the time. Our business is still a net seller to the public – they are buying weakness – a plus for gold and silver. Still, “premiums” are moving lower which means trading volume is decreasing, suggesting they remain at least wary.

At the same time, the premium over spot for select products (Monster Boxes and US Gold Eagles) remains high. Why? These two bullion products are so popular and widely recognized that premium becomes secondary, even if delivery is delayed!

Reuters (Seher Dareen) – Gold hits 2-month low as Fed rates seen higher for longer – “Gold prices slipped to their lowest in about two months on Thursday, after a drop in U.S. weekly jobless claims numbers favored the Federal Reserve’s stance that interest rates would have to go higher to control inflation. The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to a tight labor market and inflationary pressures. Meanwhile, the country’s gross domestic product increased at a revised 2.7% annualized rate in 2022’s fourth-quarter, revised down from 2.9% reported last month. While GDP numbers missed expectations by a bit, the lowered drop in jobless claims keeps the Fed in the driver’s seat such that they can keep raising rates, said Bob Haberkorn, senior market strategist at RJO Futures. Minutes from the Fed’s Jan. 31-Feb. 1 meeting on Wednesday showed policymakers agreed rates would need to move higher, but that the shift to smaller hikes would let them calibrate more closely with incoming data. “The only way to combat inflation is to raise rates and the only way it’s going to go away is when the consumer taps out, but the consumer hasn’t tapped out yet… they’re still buying,” Haberkron highlighted. Fed fund futures now price in three more hikes to 5.25-5.50% scaling back expectations for future rate cuts. High interest rates dampen gold’s appeal as an inflation hedge while raising the opportunity cost of holding the non-yielding asset.”

On the day gold closed down $14.00 at $1818.00 and silver closed down $0.36 at $21.30.

Zaner (Chicago) – “In retrospect, the overall market reaction to yesterday’s release of the FOMC meeting minutes was surprisingly muted but perhaps justified by the lack of fresh and important news from that release. However, the markets will face another inflation reading/test today in the form of US PCE with expectations calling for the readings to be unchanged from last month or down slightly. Unfortunately for the bull camp the dollar has posted a 4-day high early and could with minimal gains reach the highest level since January 6th this morning. Therefore, even if gold and silver fail to react significantly to this morning’s inflation news, rate fears and dollar action should continue to dominate gold and to a lesser degree silver. Unfortunately for the bull camp the gold market is not taking direction from classic supply side developments with Gold Fields LTD overnight projecting 2023 gold production of only 2.25 million ounces to 2.30 million ounces which would be lower production than 2.4 million ounces in 2022. The company indicated a delay in its project in Chile is the cause of the reduction in 2023 output. In another bearish overnight development gold ETF holdings fell for the 9th straight day with a decline of 61,732 ounces resulting in a year-to-date outflow of 1.3%. Furthermore, silver ETF holdings fell by 1.3 million ounces and are now up only 2% year-to-date. Not all news from the Fed yesterday was negative as the Fed’s view that the US economic outlook was becoming “more balanced” should help support gold silver and other physical commodity markets. It is possible that gold and silver will track in tight ranges this morning until the US Fed’s favorite inflation measure “PCE” is released. Nonetheless, we leave the path of least resistance pointing down in gold and silver unless the initial positive equity market action yesterday following the Fed release is rekindled.”

On Friday gold and silver remained defensive. Whether this is because the technical picture is deteriorating, or the Fed threat of higher interest rates is growing remains to be seen. It might well be that the next Fed interest rate hike does not create much of a stir because traders have already adjusted prices lower to the current hawkish speculation.

Reuters (Seher Dareen) – Gold loses ground as further rate hike bets boost U.S. dollar, yields – Gold prices dropped to their lowest in eight weeks on Friday, pushed down by a stronger dollar and bond yields as the market braced for more interest rate hikes by the U.S. Federal Reserve in the coming months. U.S. inflation accelerated while the consumer spending rebounded sharply by 1.8% in January, compared to Reuters forecast of a 1.3% rebound, further reinforcing expectations that the Fed will remain hawkish. Cleveland Federal Reserve President Loretta Mester reiterated on Friday that interest rates would need to be brought above 5% and held there to get inflation on a “sustainable downward path.”

On the day gold closed down $9.20 at $1808.80 and silver closed down $0.49 at $20.81.

Platinum closed down $37.60 at $902.00, and palladium closed down $51.30 at $1374.30.

Jim Wycoff (Kitco) – “Technically, the gold futures bears have the overall near-term technical advantage. Prices are in a fledgling downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at last week’s high of $1,881.60. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at Thursday’s high of $1.841.20 and then at week’s high of $1,856.40. First support is seen at $1,815.00 and then at $1,800.00. The silver bears have the overall near-term technical advantage. Prices are in a downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at $22.635. The next downside price objective for the bears is closing prices below support at $20.00. First resistance is seen at the overnight high of $21.395 and then at Thursday’s high of $21.67. Next support is seen at $21.00 then at $20.79.

Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry (vacation) or Eric. Most employees have been vaccinated – if this is a concern ask for more information. We continue to enforce ridged safety standards between people and product. Be careful, the contagious Omicron variants remain dangerous. At the same time trust that God will get us back to normal and our traditional business model. Thank you for your patience. Richard Schwary

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