Gold – The Fed Turns Dovish

Commentary for Friday, March 22, 2024 (www.golddealer.com) – Today gold closed down $24.30 at $2158.10, and silver closed down $0.16 at $24.69. This is a great week to realize that the Fed’s monetary policy remains complex and full of contradictions. Early weekly gains in gold have turned into a profit taking round on Friday as gold dipped into the red. A counterintuitive move considering the proposed FOMC plan to reduce interest rates. The Dollar Index moved to weekly highs, ignoring Chief Powell’s dovish turn – another illogical problem. Still, it is difficult to imagine that the price of gold in the coming decade will not be substantially higher as world debt expands. In the meantime, keep your seat belts fastened, and look for more turbulence. Last Friday gold closed at $2157.30 / silver at $25.20 – on the week gold was up $0.80 and silver was down $0.51 – virtually unchanged on the week – another puzzle.

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On Monday the price of gold held the upper end of its current range and finished mildly in the green on the day as traders consider this week’s FOMC meeting. The confab begins on Tuesday and ends Wednesday with comments from Chief Powell after the domestic markets close. This could be an important meeting, if Jerome hints at shifts in the Fed’s rate policy. Traders do not expect anything substantial, which will likely keep the price of gold steady through Friday.

The Dollar Index is looking at weekly highs (103.50) which suggests that the FOMC may not be lowering interest rates in the near future. I believe this has become the dominant theory of late, subject to change, depending on the travails of the US economy.

But for now, Wall Street seems to be able to work out inequities within the business system even as interest rates remain elevated, and the business system works out new forms of financing.

You could make a reasonable case that zero interest rates through the pandemic years did create independent financial bubbles. But nothing that rocks the boat from a liquidity standpoint. If the Fed suspected trouble on this front it would already be increasing bank reserve requirements.

The key here is that the Fed keeps the system liquid, which they have done nicely despite the naysayers. It is worth noting however that the price of gold remains elevated because the “fear factor” is still a real part of gold’s price equation. Which speaks volumes as to why everyone should own physical bullion outside the normal banking system. The “just in case” scenario.

There is not much on the horizon, including the Chief’s comments this week which might drastically change this picture. But there are enough complex problems in place to anchor prices. For gold to move materially higher the Fed must lower interest rates. But the oddsmakers claim that the chances of a rate cut perhaps as early as the summer months have dropped to 56%.

On the day gold up $3.40 at $2160.70, and silver closed down $0.11 at $25.09.

On Tuesday the price of gold, silver, platinum, and palladium ticked mildly lower in the early domestic market as traders braced for the next insight into what the Fed may have in mind relative to interest rates. I think it is typical that traders question the basic bullish scenario before the release of any fresh information from the FOMC, because of these continued higher interest rates. That reasonable caution is why you are seeing the dip in all prices this morning. But a couple things to keep in mind. Gold and silver are still holding up nicely around recent highs, all things considered. That ability to recover after price dips has been consistent of late and is a positive sign of stability suggesting higher prices in the longer term.

As far as platinum and palladium are concerned, common sense suggests that there is little downside in this market because prices have been disseminated. And as PMG commentary continues negative, I would play the contrarian side of this market. Contrarian theory suggests that it’s a pretty safe bet that most sellers have already sold.

Now consider that relative to gold there is very little platinum or palladium bullion available. Both these metals are considerably rarer and cheaper than gold. We believe there may be considerable upside in both metals for the patient investor.

Reuters (Anjana Anil) – Gold loses footing as US dollar bumps higher; Fed in focus – “Gold prices retreated on Tuesday, hurt by a strengthening U.S. dollar, while investors geared up for the Federal Reserve’s interest rate stance from Chair Jerome Powell’s speech at the conclusion of the central bank’s policy meeting on Wednesday. Spot gold fell 0.4% to $2,151.69 per ounce as of 10:15 a.m. EDT (1415 GMT), hovering near its lowest levels in a week hit on Monday. U.S. gold futures eased 0.4% to $2,154.60. The dollar gained 0.5% and hit a more than two-week high, making gold more expensive for overseas buyers. Gold is seeing “some exhaustion to the upside as the positions moved swiftly over the past week or two and now it’s taking a bit of a breather as the Fed pricing comes off a bit,” said Ryan McKay, commodity strategist at TD Securities. “For now we’re not expecting a rally anytime soon. But at the same time, we’re not expecting a big sell off either because the physical markets remain strong and positioning is still fairly bullish.” Gold prices hit a record peak of $2,194.99 per ounce on March 8, but prices dipped nearly 1% last week after the release of hotter-than-expected February U.S. consumer prices and producer prices reduced hopes of early Fed rate cuts due to the threat of persistent inflation. Higher inflation prompts the Fed to keep interest rates elevated, weighing on non-yielding gold. Although the Fed is widely expected to hold rates steady at the end of its two-day monetary policy meeting on Wednesday, the market is awaiting comments from Powell on updated interest rate projections due on the same day. The Bank of Japan (BOJ) ended its eight years of negative interest rates and other remnants of its unorthodox policy. Spot silver fell 0.9% to $24.78 per ounce, platinum lost 2% to $894.90, palladium slipped 5% to $983.72.”

On the day gold closed down $4.40 at $2156.30, and silver closed down $0.13 at $24.96.

On Wednesday the price of gold was choppy between $2162.00 and $2148.00 in the early trade as the markets awaits fresh FOMC comments. A great deal is being made of this latest Powell commentary, but I don’t believe this will change the growing feeling that the Fed will not lower interest rates. That being the most popular hawkish theory before Powell upset the apple cart after the markets were closed today. But we have been in this position before and have learned that the bulls and bears have switched positions many times in the recent past.

Chief Powell did his best to turn this market on its head today when he suggested 3 quarter point cuts by the end of 2024. This may not seem like much, but it strongly suggests that the Fed has turned to the dovish side. Which will encourage higher prices down the road. The aftermarket in gold was higher by $50.00 today, because of his dovish comments.

CNBC (Jeff Cox) – “The Federal Reserve on Wednesday held interest rates steady as expected and signaled it still plans multiple cuts before the end of the year. Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%, where it has held since July 2023. Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020. The current federal funds rate level is the highest in more than 23 years. The rate sets what banks charge each other for overnight lending but feeds through to many forms of consumer debt. The outlook for three cuts came from the Fed’s “dot plot,” a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC. The chart provides no indication for the timing of the moves. The plot indicated three cuts in 2025 – one fewer than the last time the grid was updated in December. The committee sees three more reductions in 2026 and then two more in the future until the fed funds rate settles in around 2.6%, near what policymakers estimate to be the “neutral rate” that is neither stimulative nor restrictive. The grid is part of the Fed’s Summary of Economic Projections, which also provides estimates for gross domestic product, inflation and unemployment. The dot assortment skewed somewhat hawkish from December in terms of deviations from the median, but not enough to change this year’s projections. Officials sharply accelerated their projections for GDP growth this year and now see the economy running at a 2.1% annualized rate, up from the 1.4% estimate in December. The unemployment rate forecast moved slightly lower from the previous estimate to 4%, while the projection for core inflation as measured by personal consumption expenditures rose to 2.6%, up 0.2 percentage point from before but slightly below the most recent level of 2.8%. The unemployment rate for February was 3.9%. The outlook for GDP also rose incrementally for the next two years. Core PCE inflation is expected to get back to target by 2026, same as in December. The FOMC’s post-meeting statement was almost identical to the one delivered at its last meeting in January save for an upgrade on its job growth assessment to “strong” from the January characterization that gains had “moderated.” The decision to stand pat on rates was approved unanimously. Markets had been watching closely for clues about where the Fed would go from here with monetary policy. Earlier this year, traders in the fed funds futures market had strongly priced in a likelihood that the central bank would start cutting at this week’s meeting and continue doing so until it had totaled as many as seven decreases by the end of the year. However, recent developments have changed that outlook dramatically. Higher than expected inflation data to start 2024 triggered caution from top Fed officials, and the January FOMC meeting concluded with the central bank saying it needed more evidence that prices were decelerating before it would gain “greater confidence” on inflation and start cutting. Statements from Chair Jerome Powell and other policymakers since then added to the sentiment of a patient, data-driven approach, and markets have had to reprice. Powell and his cohorts have indicated that with the economy still growing at a healthy pace and unemployment below 4%, they can take a more measured approach when loosening monetary policy. The expectation heading into this week’s meeting is for the first cut to happen in June and two more to follow, bringing markets and Fed officials back into alignment. Beyond that, markets also were looking for some direction on the Fed’s balance sheet reduction program. In a process that began in June 2022, the central bank is allowing up to $60 billion a month in maturing proceeds from Treasurys plus up to $35 billion in mortgage-backed securities to roll off each month rather than be reinvested. The process is often referred to as “quantitative tightening” and has resulted in about a $1.4 trillion drawdown in the Fed’s holdings. However, there was no immediate information provided about changes in QT, though Powell has indicated several times that the matter was to be discussed at this meeting. More insight could be forthcoming from Powell’s post-meeting news conference and the release of meeting minutes in three weeks.”

FXEmpire (James Hyerczyk) – Market Braces for Impact as Fed Rate Projections Loom – “Gold prices remained relatively static as traders anticipated the upcoming U.S. Federal Reserve policy announcement and comments from Fed Chair Jerome Powell. The market is focused on the Federal Open Market Committee’s statement at 18:00 GMT and Powell’s press conference at 18:30 GMT. With rates likely to stay unchanged, attention is on the Fed’s economic and rate projections for the year. Factors Influencing Gold Prices – The possibility that the Fed might not indicate as many rate cuts as expected could impact gold prices. If Powell’s remarks are less dovish than hoped, gold could see a decline, falling to a range between $2089.77 and $2064.87. However, gold continues to find support due to a general increase in commodity prices. Recent U.S. consumer and producer price index reports showed higher-than-anticipated figures, suggesting less aggressive rate cuts. The CPI rose by 0.4% monthly and 3.2% annually, with core CPI also exceeding predictions. Energy and goods prices largely drove these increases, evidenced by a 2.3% rise in energy costs and a 1.2% surge in goods prices in the producer price index. Economic Indicators and Market Expectations – Retail sales growth and a slight decrease in jobless claims also factor into market predictions. Despite these developments, U.S. Treasury yields dipped as investors awaited the Fed’s interest rate decision and future monetary policy guidance. The dollar’s strength remained consistent, reaching a two-week high, which affects gold prices negatively as it becomes more expensive for holders of other currencies. The Fed’s stance and Powell’s statements are key focal points, with the market now pricing in a lower likelihood of rate cuts, down to 73 basis points from an earlier expectation of 150. Market Forecast – Short-term, gold market trends appear cautious. The Fed’s stance on rate cuts, influenced by recent economic data, suggests a bearish outlook for gold. If the Fed indicates fewer rate cuts, we could see a further dip in gold prices. However, the ongoing support from broader commodity trends provides a buffer, suggesting potential for rebound if global economic indicators shift favorably. Traders should watch for the Fed’s comments for cues on gold’s near-term direction. Technical Analysis – XAU/USD is in a strong uptrend, based on the intermediate trend indicator, the 50-day moving average at $2061.84 and the long-term trend, the 200-day moving average at $1980.845. However, it remains vulnerable to a near-term retracement of the rally from February 14 to March 8. This makes the retracement zone at $2089.77 to $2064.87 a major downside target. A trade through $2195.235 will signal a resumption of the uptrend.”

On the day gold closed up $1.60 at $2157.90, and silver closed down $0.03 at $24.93.

On Thursday gold moved to $2210.00 before traders sold this latest rally and gold reversed direction looking at $2175.00. This back and forth combination was the combination of crosswinds including yesterday’s strong aftermarket, technical follow through, a surprisingly strong dollar, and a short-covering rally. A kind of mixed bag, in that Powell’s dovish interest rate talk helped the bulls, but the stronger dollar capped this price move early in the session.

Still, the gold bulls are smiling because Powell recreated the notion that the Fed would lower interest rates before the end of the year. The selloff this morning is good for the market as it allows gold to settle and reassess these latest changes.

I would not get carried away here, the bullish news is good, but the proposed 3 quarter point cuts still leaves an interest rate with teeth. Which is the reason the Fed chose these smaller cuts. The interest rate, after these small cuts, is still relatively large and will continue to slow the economy. This provides the FOMC with the option of raising rates if inflation does not continue to cool. Chief Powell is a master at covering his bets because the inflation outcome remains uncertain.

Reuters (Sherin Elizbeth Varghese) – Gold hits fifth record high in March on Fed rate-cut view – “Gold prices on Thursday hit record peaks for the fifth time this month after the U.S. Federal Reserve anticipated three rate cuts in 2024 despite high inflation. Spot gold was up 0.8% at $2,202.39 per ounce at 1318 GMT after hitting an all-time high of $2,222.39 earlier in the session. U.S. gold futures rose 2% to $2,204.50. “The rally was started by yesterday’s Federal Reserve comments, basically confirming their intention to eventually start cutting U.S. interest rates,” Julius Baer analyst Carsten Menke said. “The mood in the gold futures market is very bullish. So your hedge funds or any other short-term traders or trend followers are positioned for higher prices, and I think this is the segment that is in the driving seat while the physical gold market is rather soft.” Despite high inflation readings, Fed chair Jerome Powell said the U.S. central bank is still likely to reduce interest rates by three-quarters of a percentage point by the end of 2024, but that it also depends on further economic data. Fed funds futures traders are pricing in a more than 70% probability the Fed will begin cutting rates in June, up from 60% before the rate decision, according to the CME Group’s FedWatch Tool. “The geopolitical instability and expectations of dollar devaluing in the run up to the end of the year is also being priced into the into the value of gold at the moment,” said Ricardo Evangelista, senior analyst at ActivTrades. The dollar slipped to a one-week low against its rivals, while U.S. 10-year Treasury yields also dipped. Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making dollar-priced bullion more appealing for other currency holders. Spot silver fell 1.3% to $25.28 per ounce, but hit its highest in over three months earlier in the session. Platinum rose 1.2% to $918.35 and palladium gained 0.2% to $1,023.02.”

On the day gold closed up $24.50 at $2182.40, and silver closed down $0.08 at $24.85.

On Friday gold moved nicely higher on the open ($2178.00) but quickly reversed direction, finally finishing solidly in the red. Which should not be surprising considering the growing strength of the dollar. This is a fine example of the growing potential for volatility. Insiders here will not take much for granted, the price of gold could pitch one way or the other. But I don’t think it has any chance of falling out of bed. It is still too early in this decoupling game.

Look for a “middle ground” as the world sorts out its geopolitical problems and gold bullion becomes even more important as a strategic financial planning tool. As far as immediate upside I remain sanguine. But suggest that pricing in the physical market remains a bit of an enigma relative to its all-time high. The 1980 peak price for gold adjusted for inflation would be $2700.00. Which means that even with all the recent fireworks our shiny friend is still $500.00 below the 1980 peak in relative terms.

FXEmpire (James Hyerczyk) – Gold Prices Forecast: Lower Amid Strong Dollar, but Weekly Gain in Sight – “Friday’s Price Action – Gold prices experienced a decline on Friday, influenced by a strengthening dollar. Despite this dip, gold remained on track for a weekly gain. This upward trend was primarily driven by the Federal Reserve’s consistent stance on interest rate cuts projected for 2024, enhancing gold’s allure as an investment. At 09:52 GMT, XAU/USD is trading $2166.605, down $14.755 or -0.68%. The Impact of a Strong Dollar – The dollar reached a three-week peak, marking its second consecutive week of gains. This surge in the dollar’s value rendered gold, priced in dollars, costlier for holders of other currencies. The anticipated rate cuts generally support gold prices, providing a stabilizing base for the precious metal. However, gold currently shows signs of being overbought, suggesting a potential near-term decline. The $2,146 level emerges as a crucial support point to watch for a potential change in trend. Thursday’s High and Fed Influence – On Thursday, gold prices soared to a record high, following indications from Fed policymakers of an expected rate reduction totaling three-quarters of a percentage point by the end of 2024, despite recent high inflation. Fed Chair Jerome Powell highlighted that these inflation figures do not alter the broader trend of gradually subsiding U.S. price pressures. The prospect of falling interest rates enhances gold’s attractiveness, as it bears no interest, thus lowering the opportunity cost of holding it. Futures traders are currently betting on a 74% likelihood of the Fed initiating rate cuts as early as June. Thursday Recap and Gold Outlook – Thursday saw a slight easing in gold prices, temporarily halting a significant rally boosted by Powell’s hints at upcoming rate cuts. The dollar’s rebound also played a role in correcting gold prices, as it became more expensive for international buyers. Despite these adjustments, the overall sentiment for gold remains bullish, supported by factors such as potential interest rate cuts and central bank buying. The futures market for gold is predominantly bullish, driven by short-term traders and trend followers, while the physical gold market remains relatively subdued. Market Forecast – Looking ahead, gold presents an appealing trade for 2024, especially as a hedge in equity portfolios. The combination of anticipated lower interest rates on alternative assets and strong interest from central banks and hedge funds positions gold for further price increases. Despite the current overbought conditions, the long-term outlook for gold is bullish, with expectations of higher prices driven by a confluence of supportive monetary policies and market sentiment. Technical Analysis – XAU/USD is edging lower for a second session after hitting a record high on Thursday. The current closing price reversal top chart pattern suggests the selling may be greater than the buying at current price levels. Friday’s weakness has confirmed the potentially bearish chart pattern. This could fuel the start of a 2 to 3 day correction. The short-term trend will turn down on a trade through $2146.15. If this creates enough downside momentum then look for a pullback into the retracement zone at $2103.61 to $2075.45.”

On the day gold closed down $24.30 at $2158.10, and silver closed down $0.16 at $24.69.

Platinum closed down $14.60 at $896.10, and palladium closed down $20.60 at $992.80.

Jim Wycoff (Kitco) – “Technically, the gold futures bulls still have the solid overall near-term technical advantage but appear to have run out of gas for the near term. A four-week-old uptrend is still in place on the daily bar chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at the record high of $2,225.30. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at this week’s low of $2,149.20. First resistance is seen at the overnight high of $2,188.00 and then at $2,200.00. First support is seen at the overnight low of the overnight low of $2,163.80 and then at $2,149.20. The silver bulls have the solid overall near-term technical advantage but have also run out of gas. Silver bulls’ next upside price objective is closing May futures prices above solid technical resistance at the December high of $26.575. The next downside price objective for the bears is closing prices below solid support at $23.50. First resistance is seen at $25.00 and then at $25.50. Next support is seen at the overnight low of $24.58 and then at $24.22.

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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