Gold – The Fed Pause?

Gold – The Fed Pause?

Commentary for Friday, Nov 3, 2023 (www.golddealer.com) – Today gold closed up $5.90 at $1991.50, and silver closed up $0.45 at $23.20. Now that the Fed has “paused” its interest rate program, the question becomes what has the investor learned from this latest insight? Is this good or bad for the bullish scenario? Analysts can make a case for either outcome. If the Fed “paused” because they are worried about a weaker US labor market it would suggest the end of higher interest rates. A plus for the bullish scenario. If they “paused” with the hawkish intention of raising rates in early 2024 it would be another reason to consider a bearish pricing scenario for gold. The hopeful speculation preceding this latest Fed decision has fizzled because Wall Street and Main Street are no better informed. The optimist might suggest we are no worse off for the wear, and perhaps that works. Still, the longer this confusion continues the more dangerous the financial waters. Last Friday gold closed at $1988.60 / silver at $22.77 – on the week gold was higher by $2.90 and silver was higher by $0.43. The metals continue to tread water.

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On Monday the pricing spread on the day was $1990.00 through $2003.00 settling mildly in the green for the day. Typical of recent trading action and suggestive that while gold continues to fight for the higher end of its current price range it may lack bullish conviction. If interest rates continue higher, it may cap price gains and introduce downside risk.

Still, our economy is stronger than most expected, giving the Fed rate options in pursuing its primary objective – controlling inflation. But as academics make a strong case that present rates are slowing the economy the Fed is doing its job by turning cautious.

The Federal Reserve meets this week, Tuesday, and Wednesday so the question as to what they will do with interest rates in the short term will soon be answered. Still, this process is not as simple, requiring a kind of balancing act. The FOMC is in a good position to influence the outcome, one way or the other because Chief Powell controls the public rhetoric.

If the Fed does not raise interest rates, and at the same time the Chief restates his hawkish commentary, the government creates “wait and see” time. A valuable commodity to those who believe that inflation is moving lower. Which presupposes our present mess will “fix” itself. How the government deals with its massive debt problem will have to wait for another day.

Our trading volumes were steady and did not favor either the bullish or bearish scenario.

Ernest Hoffman (Kitco) – Wall Street analysts cautiously optimistic on gold, while retail investors remain firmly bullish – Gold held onto its recent gains this week, supported by the ongoing conflict in the Middle East, while high bond yields continue to deliver headwinds for the precious metal. The yellow metal also went on another run heading into the weekend, with spot gold once again trading above $2,000 per ounce as traders look to get into long positions in case the geopolitical situation deteriorates while markets are closed. The latest Kitco News Weekly Gold Survey sees retail investors still bullish on the precious metal for the week ending Nov. 3 despite the recent price runup, while a majority of market analysts are also bullish but with a significant minority expecting either pullback or consolidation next week. “I’m going to go neutral for the survey this week,” said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. “The reason is because I think that gold could actually have a big move; I’m just not sure which direction.” Cieszynski said he expects another hawkish hold at the Fed meeting next week. “I don’t think they’re in a position to start saying they’re done raising interest rates,” he said. “I think they’ll hold and leave the door open to another rate hike in December because they forecast one more. I think today’s inflation number was benign enough that they don’t need to go raising rates again, but at the same time, it wasn’t dropping off fast enough for them to say we’re done.” He added that a hawkish hold would likely mean that the run-up in treasury yields is just about done. “That actually would be bullish for gold, or if nothing else, not bearish,” he said. “It could perhaps stop gold from going down too much. On the other hand, it probably wouldn’t be enough to really push it up either because Treasury yields are still pretty high. “Cieszynski said that the other side of the equation is the uncertainty about what’s going to happen in the Middle East. “The question with that is how long before hostilities break out again,” he said. “If you don’t have increased hostilities, that’s actually bearish for gold. And on the other hand, if there are hostilities, is that bullish for gold? Because it’s already probably priced in, considering gold rallied a hundred bucks.” “The Fed side would be flat to up a little bit. The war side would be flat to the downside. And so that leaves me in the middle.” Michael Moor, creator of Moor Analytics, said the technical picture remains bullish, even if markets see a moderate pullback. “I warned on 10/6 of strength and we left a moderate bullish reversal below—we have traded $164.0 higher from the 18452 10/6 close,” he said. “The trade above 19409 (-.5 of a tic per/hour) projects this upward $22 minimum, $130 (+) maximum – we have attained $68.3 so far.  Decent trade below 19871-62 (+3 tics per/hour starting at 5:00am) will project this downward $15 minimum, $57 (+) maximum; but if we break below here decently and back above decently, resume bullishness and look for more of the macro projection higher.” This week, 11 Wall Street analysts participated in the Kitco News Gold Survey. Six experts, or 54%, expected to see higher gold prices next week, while three analysts, or 27%, predicted a price drop, and two others, or 18%, were neutral on gold for the coming week. Meanwhile, 602 votes were cast in the online polls. Of these, 395 retail investors, or 66%, looked for gold to rise next week. Another 126, or 21%, expected it would be lower, while 81 respondents, or 13%, were neutral about the near-term prospects for the precious metal.”

On the day gold closed up $7.60 at $1996.20, and silver closed up $0.51 at $23.28.

On Tuesday the price of gold continued higher for the second day reaching $2008.00 before reversing direction and settling in the red for the day. I’m a bit surprised that gold did not do better considering tensions in the Middle East and the likelihood that the Fed will not raise interest rates this week. Because this “unwinding process” is not complete uncertainty comes in and out of focus quickly – even for informed insiders. Will we have a “soft landing” or recession? How long will the “higher for longer” interest rate theory be popular? The war in Gaza could end for humanitarian reasons and reduce safe haven demand for the metals.

Pricing remains an open-ended question in the short to middle term. Considering the long term makes more sense in the physical market. Neither the Democrats nor Republicans will reduce spending so our debt problem will continue to grow. And inflation will continue in one form or another as the US Mint prints fiat paper money in staggering amounts.

Of course, all of this frustrates the fiscally conservative. It would not surprise me if the price of gold was two or three times its current price in a decade. And you might want to consider taking the “over” on this bet if something seriously goes wrong.

Reuters (Ashitha Shivaprasad) – Mideast conflict sets up safe-haven gold for best month since November – “Gold inched up on Tuesday and was set for its best month since November as the Israel-Hamas war sparked safe-haven flows, while focus shifted to this week’s U.S. central bank policy meeting. Spot gold was at its lowest in seven months at $1,809.50 on Oct. 6, a day before Hamas’ attack on Israel. It is now on track for an 8% rise in October as investors bolted for safety amid the ensuing crisis. “We still have a positive bias in gold with the continuation of safe-have demand given the Middle East war,” said David Meger, director of metals trading at High Ridge Futures. Market focus this week is also on the U.S. Treasury’s refunding announcement and the Federal Reserve’s monetary policy decision on Wednesday, followed by the U.S. monthly jobs report Friday. Markets are widely expecting the Fed to keep rates on hold at this meeting, according to the CME FedWatch tool. “A stronger jobs market could potentially positively impact yields and negatively impact gold, while a weaker jobs market raises potential for a less hawkish or dovish Fed and then the pendulum would swing the other direction,” Meger added. On the physical front, the World Gold Council (WGC) said central banks’ gold buying remained strong in third quarter of 2023, but it fell short of the third quarter 2022 record. “Fragile consumer electronics demand continued to undermine volumes of gold used in technology,” the WGC added.”

On the day gold closed down $11.00 at $1985.20, and silver closed down $0.44 at $22.84.

On Wednesday gold was defensive waiting for the latest insight into the still evolving interest rate puzzle. Gold yawned as the FOMC left interest rates unchanged because this was widely expected, and therefore already figured into the pricing model.

Whether Chief Powell’s latest revelation and his voiced reasoning is a big plus or big minus for gold between now and the first quarter of next year is still an open question. And the answer to this question depends on whether this “pause” signals the end of a hawkish Fed or reinforces the popular “higher for longer” scenario.

The truth is that traders still have not gained much insight into what Washington has in mind. And the reason behind this quandary? The Fed is still experimenting with its preferred economic outcome – the so-called “soft landing”. As the months drag on it has become apparent that investors will need the patience of a Saint before discovering an answer to this quandary.

Reuters (Ashitha Shivaprasad) – Gold dips as Fed’s Powell stays hawkish after holding rates – “Gold prices fell on Wednesday after the U.S. central bank announced its widely expected decision to leave interest rates unchanged and Chair Jerome Powell said the question of rate cuts is not on their radar right now. The Federal Reserve held interest rates steady but left the door open to a further increase in borrowing costs in a policy statement that acknowledged the U.S. economy’s surprising strength but also nodded to tighter financial conditions. “While the macro shadows (from ongoing dollar strength, growing expectations of higher-for-longer rates and inflationary pressures easing) persist after the Fed meeting, the geopolitical premium has more than offset them,” said Standard Chartered analyst Suki Cooper. Fed Chair Powell said the U.S. central bank is not thinking about lowering rates right now. This week, gold prices have slightly pulled back after surpassing the key $2,000 level on Friday. Bullion rose over 7% in October, helped by strong safe-haven demand due to growing unrest in the Middle East. After the Fed’s decision, the U.S. dollar held gains while benchmark 10-year U.S. Treasury yields fell to two-week lows. Traders added to bets that the central bank is done raising its policy rate and will start cutting rates by June of next year. Higher interest rates raise the opportunity cost of holding gold. “A combination of eventually lower rates, a waning U.S. dollar, and strong official sector buying should help gold longer term,” said Bart Melek, head of commodity strategies at TD Securities. Investors also looked to the October non-farm payrolls report due on Friday.”

On the day gold closed down $6.40 at $1978.80, and silver closed down $0.15 at $22.69.

On Thursday the price of gold touched $1990.00 in early trading, but this small rally was sold, and the market dipped to session lows ($1980.00) before settling mildly in the green. It is surprising that gold is not moving much higher – the Dollar Index has lost a full point since Wednesday. My bet is that gold ignored the Fed decision – the FOMC did not raise interest rates, but Powell did equivocate leaving the door open to speculation and uncertainty.

Reuters (Ashitha Shivaprasad) – Gold gains as US dollar, yields slip on hopes of peak Fed rates – “Gold prices firmed on Thursday as the U.S. dollar and Treasury yields retreated on raised bets that the Federal Reserve may be done raising interest rates, while investors awaited U.S. non-farm payrolls data for further cues. Helping bullion’s appeal, the dollar index slipped, and benchmark U.S. 10-year note yields fell to a near three-week low. Gold is stronger as there are signs of cracks in the U.S. labor market, which probably signals the Fed is backing off completely from rate hikes, said Bob Haberkorn, senior market strategist at RJO Futures. Data showed U.S. weekly jobless claims rose moderately as the labor market continues to show few signs of a significant slowdown. The Fed held rates steady on Wednesday as policymakers considered whether financial conditions may be sufficiently tight to control inflation. The market now sees an 85% chance of another Fed pause in December, according to the CME Group’s FedWatch Tool. Investors will also monitor the U.S. non-farm payrolls report due on Friday for further cues on the U.S. central bank’s policy path. Higher interest rates raise the opportunity cost of holding bullion. Gold rose over 7% in October and surpassed the key $2,000-per-ounce level last week on safe-haven demand amid growing unrest in the Middle East. “Gold already prices in the geo-political risks. if the war expands, then prices would benefit more,” Haberkorn added. Shares of Johannesburg-based precious metals producer Sibanye Stillwater fell more than 3% after the company said it was considering further changes at its U.S. palladium mines to adjust the operations to metal prices that have dropped faster than anticipated.”

On the day gold closed up $6.80 at $1985.60, and silver closed up $0.06 at $22.75.

On Friday the price of gold opened in typically choppy fashion trading between $1886.00 and $2004.00. On the day it finished mildly in the green, supported by a weaker dollar and a bullish technical picture. Still pricing into holiday season and through next year is dicey at best, unless the Fed throws in the interest rate towel, which is not likely.

Even at these elevated prices the physical market is surprisingly active, premiums for quality bullion products are steady, and while I don’t think there is much buzz in this trade the public is not just kicking the tires.

Reuters (Ashitha Shivaprasad) – Gold advances on Fed pause hopes after weak U.S. jobs data – “Gold prices gained on Friday and hovered around the key $2,000 mark as U.S. dollar and Treasury yields slipped after a weak U.S. job data cemented expectations that the Federal Reserve is done raising interest rates. U.S. job growth slowed more than expected in October, while wage inflation cooled, pointing to an easing in labor market conditions. Data showed employers added 150,000 jobs in October, below the 180,000 expected by economists. “If the labor market starts to deteriorate, the Fed will be unable to continue a hawkish path. The data cements the idea of a Fed pause, which is helping gold,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. Higher rates increase the opportunity cost of holding zero-yield bullion. Adding to gold’s shine, the dollar index (.DXY) fell 0.8% and benchmark 10-year U.S. Treasury yields fell to three-week lows after the data. Traders are now pricing in an 90% chance that the U.S. central bank will leave rates unchanged in December compared to 80% before the data, according to the CME FedWatch tool. Tai Wong, a New York-based independent metals trader, said. Price action on Friday will tell if gold needs to consolidate a bit or if its full steam ahead, in any case there is no good news for gold bears at the moment. On the physical front, gold dealers in India offered discounts for a fourth consecutive week as consumers shied away from making purchases due to higher domestic prices.”

On the day gold closed up $5.90 at $1991.50, and silver closed up $0.45 at $23.20.

Platinum closed up $14.10 at $936.60, and palladium closed up $17.70 at $1124.40.

Jim Wycoff (Kitco) – “Technically, the gold futures bulls have the near-term technical advantage. Prices are trending higher on the daily bar chart. Bulls’ next upside price objective is to produce a close in December futures above solid resistance at $2,050.00. 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 October high of $2,019.70 and then at the July high of $2,028.60. First support is seen at the overnight low of $1,989.30 and then at this week’s low of $1,978.20. The silver bulls have the slight overall near-term technical advantage. However, an uptrend on the daily bar chart has stalled out. Silver bulls’ next upside price objective is closing December futures prices above solid technical resistance at $24.05. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at $23.25 and then at $23.50. Next support is seen at last week’s low of $22.565 and then at $22.25.”

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