Price pressure on gold, silver as government bond yields, USDX soar

Gold and silver prices are solidly lower in early U.S. trading Friday. Gold prices scored another nearly 2.5-year low. Soaring government bond yields and a very strong U.S. dollar index are bearish elements that are punishing the precious metals markets at present. October gold was last down $24.80 at $1,646.50 and December silver was down $0.532 at $19.08.

Global stock markets were mostly lower overnight. U.S. stock indexes are pointed to solidly lower openings and three-month lows when the New York day session begins. Risk aversion remains keen late this week after Russian President Putin earlier this week said he will mobilize more troops to fight his war with Ukraine, and also implied he could use his nuclear weapons if Russia's integrity is threatened. Many pundits are saying Putin has been pushed into a corner and has become an even more dangerous man.

Don't be surprised if gold prices make a solid rebound by the end of today, heading into an uncertain weekend that sees global markets in turmoil and a Russian President who the world views as losing a war with a small country. Gold has a recent history of showing good strength when the going in the marketplace gets really rough.

U.S. and/or global recession worries have increased this week, following downbeat comments on U.S. economic prospects from Federal Reserve Chairman Jerome Powell on Wednesday and as major central banks this week tightened their monetary policies to tamp down surging inflation. In overnight news, the U.K. announced a major tax cut and deficit spending to try to jumpstart its economy. That news helped to spike global government bond yields. Meantime, the Euro zone manufacturing and services purchasing managers indexes dropped in September and are suggesting both sectors are contracting.

'Long, dark period ahead of us' as Putin escalates in Ukraine and the Fed hikes another 75 bps – Art Laffer

The key outside markets today see Nymex crude oil prices solidly lower, hitting a seven-month low and trading around $80.50 a barrel. The U.S. dollar index is solidly higher and pushed to another 20-year high in early U.S. trading. A Barron's headline this morning reads: "The dollar is crushing its rival currencies." It's important to point out that price trends in the currency markets tend to be stronger and longer-lasting than price trends in other markets. Thus, the surge in the greenback may continue to for quite some time. Meantime, the yield on the 10-year U.S. Treasury note is rising and presently fetching 3.771%and at an 11-year high. The 2-year Treasury note yield is 4.205%.

U.S. economic data due for release Friday includes the U.S. flash manufacturing and services purchasing managers indexes.

Technically, the October gold futures bears have the solid overall near-term technical advantage. Prices are in a downtrend on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at the overnight high of $1,674.50 and then at this week's high of $1,687.00. First support is seen at today's low of $1,638.80 and then at $1,625.00. Wyckoff's Market Rating: 1.0

September silver futures bears have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at the overnight high of $19.745 and then at $20.00. Next support is seen at $19.00 and then at $18.77. Wyckoff's Market Rating: 2.5.
 

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold/Silver – What the heck is going on?

I probably received that question 100 times on Friday from traders and investors speculating in a wide range of asset classes. Everything from agriculture, crypto, energies, foreign currencies, indices, precious metals, and softs sold off. Two primary drivers causing the sell-off are the Federal Reserve's stance on inflation, indicating that only a recession will bring it down, and the British government's decision to announce a mix of tax cuts and incentives, triggering a complete collapse of the British Pound. The Pound reached the lowest level since 1985, and the Dollar posted fresh 22-year highs. Remember, the British Pound is 11.9% inversely correlated to the U.S. Dollar, which may sound insignificant; however, it was the gas on the fire that these markets needed to cause an outright panic. To give you an inside look at the note we publish on the latest market news, check out the Morning Express. We provide actionable technicals, fundamentals, market bias, and proprietary levels for the most actively traded futures and commodity markets, including Gold and Silver. Register here: The Blue Line Express Two-Week Free Trial Sign up.

How to play these markets?

Given the current sell-off and that Gold and Silver are both in bearish trends, I have found that it is best to use a calculated risk Options strategy in deeply oversold markets that haven't solidified a technical bottom. An options bull call spread is a trading strategy aiming to capitalize on an increase in the price of a given market or asset during times of high volatility or for counter-trend trades. The option strategy consists of two call options that create a range that outlines a lower strike point and an upper strike point. The bullish call spread strategy helps to cap your max loss if the price of an asset drops. However, the strategy also limits the potential gains in case of a price increase. Bullish investors often use this when trading futures as a calculated risk debit spread.

February 2023 Gold Options Trade

We use the February 2023 Gold futures contract in this bull call spread example. We are buying 1 February Gold 1750 call at $45 as our long call. We then simultaneously sell 1 February Gold 1850 call at $22 as our short call. This action creates our premium, which is $23. We then multiply that by $100 to account for Gold's multiplier (Gold is a 100-ounce contract) to get $2,300, or our total premium paid (plus any commissions or clearing fees).

Knowing our premium paid, we can calculate our potential max profit simply by taking the difference in our strike prices ($1850 – $1750), which in this case is $100, then we multiply $100 by $100 because this is a futures contract. That gives us a total of $10,000 as our max gross profit, minus our $2,300 premium, leaving us with a max net profit of $7,700 (less any commissions or clearing fees).

December Silver Options Trade

If you prefer Silver, we are looking at a similar strategy that involves buying 1 December Silver $18.50 call at 75 cents as our long call. We then simultaneously sell 1 December Silver $19.00 call at 60 cents as our short call. This action creates our premium, which is 15. We then multiply that by $50 to account for Silver's multiplier to get $750, or our total premium paid (plus any commissions or clearing fees).

Knowing our premium paid, we can calculate our potential max profit simply by taking the difference in our strike prices ($19.00 – $18.50), which in this case is 50 cents, then we multiply 50 by $50 because this is a futures contract. That gives us a total of $2,500 as our max gross profit, minus our $750 premium, leaving us with a max net profit of $1,750 (less any commissions or clearing fees). If you have never traded futures or commodities, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 10 oz Gold futures contract. You can request yours here: Trade Metals, Transition your Experience Book.

By Phillip Streible

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Pound Plunges By The Most Since March 2020 Versus US Dollar

The pound plunged by the most since March 2020 and hit the lowest in 37 years against the dollar, as the UK government unveiled a fiscal stimulus package that threatens to fuel inflation and stoke the nation’s ballooning debt.

Sterling fell by as much as 3.7% to $1.0840 on Friday, triggering talk among investors about parity with the euro and the dollar and drawing comparisons with emerging markets as the country’s bonds also tumbled.

Investors are questioning how Chancellor of the Exchequer Kwasi Kwarteng will fund the most radical package of tax cuts for the UK since 1972, saying the move would fuel even-higher inflation and force the Bank of England into more aggressive tightening. The reduction in levies both on worker pay and companies will cost as much as £161 billion over the next five years.

“It’s hard to imagine a worse setup for the pound,” said James Athey, investment director at abrdn. “As ever in such EM-esque situations the worry is that once this cat is out of the bag even a return to orthodoxy might not quell the investor rush for the exit.”

That means an end to the pound’s rout may not be in sight. Bloomberg’s options pricing model now shows a one-in-four chance the pound will reach parity with the dollar in the next six months, up from 14% on Thursday. Risk reversals, a barometer of market positioning and sentiment, show that traders see the greatest downside risks for the sterling over the medium term in two years.

Ten-year gilt yields posted their biggest one-day jump on record in Bloomberg data going back to 1989, closing 33 basis points higher on the day at 3.83%.

Bluebay Asset Management LLP chief investment officer and senior portfolio manager Mark Dowding said he’s been short on the pound for “awhile now” and only added to that position Friday.

“We think the government plans will challenge finances and that this will continue to weigh on UK gilts and the pound,” he said, adding the pound can reach parity versus the US dollar and the euro.

The UK’s Debt Management Office increased its gilt sales plan for the fiscal year 2022-23 by £62.4 billion ($69.8 billion) to £193.9 billion to fund the spending. That compares to an estimated £60 billion increase expected by eight banks surveyed by Bloomberg.
 

Trouble Brewing

The last time the pound was this weak was in 1985. Back then, a strong dollar was again putting pressure on global currencies, prompting major economies to reach an agreement to stabilize the foreign exchange market with the Plaza Accord. While a strengthening dollar is again responsible for some of the pound’s decline, many of the currency’s problems today have also been self-inflicted.

Stephen Gallo, head of European FX strategy and Bank of Montreal, said that the pound’s problems “have been brewing for years.”

“In 2020 and 2021 the dollar was clobbered by risk on and Fed stimulus, as well as huge fiscal stimulus just about everywhere,” he said. “Now those factors have gone into reverse and they have been exacerbated by the war in Europe. But as far as G-10 currencies go, the GBP has not had strong currency fundamentals for a long time.”

For Citigroup Global Markets, shorting the pound against the US dollar “is the A trade” as the Federal Reserve pushes rates higher, fueling the dollar. Also the UK’s wide current account deficit calls for a weaker currency, according to the bank.

“The UK has jumped further down the fiscal rabbit hole in the same week the BoE announced active gilt sales. This is GBP bearish,” Citi strategists including Jamie Fahy wrote in a note on Friday.

Meanwhile, JP Morgan Chase & Co. currency analysts Meera Chandan and Patrick Locke lowered their cable target to $1.05 from $1.10 and are recommending shorts on the pound against the dollar and the Swiss franc.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” former US Treasury Secretary Lawrence Summers told Bloomberg Television on Friday. “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.”

©2022 Bloomberg L.P.

Time to buy Gold and Silver on the dips

Tim Moseley

Where are the stops? Thursday, September 22, gold and silver

Below are today's likely price locations of buy and sell stop orders for the active Comex gold and silver futures markets. The asterisks (**) denote the most critical stop order placement level of the day (or likely where the heaviest concentration of stop orders are placed on this day).

See below a detailed explanation of stop orders and why knowing, beforehand, where they are likely located can be beneficial to a trader.

Stop Orders Defined

Stop orders in trading markets can be used for three purposes: One: To minimize a loss on a long or short position (protective stop). Two: To protect a profit on an existing long or short position (protective stop). Three: To initiate a new long or short position. A buy stop order is placed above the market and a sell stop order is placed below the market. Once the stop price is touched, the order is treated like a "market order" and will be filled at the best possible price.

Most stop orders are located and placed based upon key technical support or resistance levels on the daily chart, which if breached, would significantly change the near-term technical posture of that market.

Having a good idea, beforehand, where the buy and sell stops are located can give an active trader a better idea regarding at what price level buying or selling pressure will become intensified in that market.

The major advantage of using protective stops is that, before a trade is initiated, you have a pretty good idea of where you will be getting out of the trade if it's a loser. If the trade becomes a winner and profits begin to accrue, you may want to employ "trailing stops," whereby protective stops are adjusted to help lock in a profit should the market turn against your position.

By Jim Wyckoff

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold sees post-FOMC relief rally, safe-haven demand on Russia worries

Gold prices are solidly higher in afternoon U.S. trading Wednesday, after hitting a nearly 2.5-year low earlier in the afternoon. The yellow metal is seeing a “relief rally” after the FOMC meeting statement with no major surprises, an as-expected interest rate increase and Fed Chair Powell’s press conference comments were not deemed more hawkish than the marketplace expected. Also, safe-haven demand is featured in gold and silver after Russia escalated its war efforts and made nuclear threats. The metals bulls were further encouraged late this afternoon as the U.S. dollar index backed well down from its daily high. October gold was last up $24.20 at $1,685.20 and December silver was up $0.737 at $19.92.

This afternoon’s Federal Reserve FOMC statement saw the U.S. central bank raise the key Fed funds rate by 0.75% for the third straight meeting, to a range of 3.0% to 3.25%, in the Fed’s effort to tamp down problematic price inflation. The statement said the Fed sees the Fed funds rate at 4.6% at the end of 2023 and then declining slightly the following two years. The Fed is “highly attentive” to inflation risks, said the statement. The Fed also slightly lowered its forecast for U.S. GDP growth.

The Bank of England also holds its monetary policy meeting Thursday and is also expected to raise interest rates.

Risk aversion remains elevated at mid-week following news that Russian President Putin will partially mobilize more Russian troops to fight in his war with Ukraine, including implying in a speech that he could use nuclear weapons if Russia’s integrity is threatened. One analyst said the longer the war drags on and with Russia making little if any further progress, the more threatened Putin will become, which could prompt the dictator to take more drastic measures to ensure his own survival.

Gold sees new safe haven allure as Putin threatens to use all instruments to defend its territory

Global stock markets were mixed overnight, with Asian shares mostly down and European shares mostly up. U.S. stock indexes are firmer.

The key outside markets today see Nymex crude oil prices slightly up and trading around $84.00 a barrel. The U.S. dollar index is higher but well of its daily high after pushing to another 20-year high early on today. The yield on the 10-year U.S. Treasury note is fetching 3.524%.

Technically, October gold futures bears have the overall near-term technical advantage. However, today’s big “outside day” up on the daily bar chart does suggest the bears are now exhausted and that a near-term market bottom may be in place. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at $1,700.00 and then at $1,715.00. First support is seen at today’s low of $1,651.50 and then at $1,635.00. Wyckoff's Market Rating: 2.0.

December silver futures bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at today’s high of $19.77 and then at $20.00. Next support is seen at $19.00 and then at last week’s low of $18.77. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed down 425 points at 346.00 cents today. Prices closed near the session low today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at this week’s high of 355.80 cents and then at 360.00 cents. First support is seen at last week’s low of the September low of 354.40 cents and then at 350.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver feeling the pressure from hawkish central banks

Gold and silver prices are modestly lower in midday U.S. trading Tuesday. Hawkish monetary policies from the U.S. Federal Reserve and other major central banks of the world have cast a pall over the stock and financial markets at present, but have boosted U.S. Treasury yields and the U.S. dollar index—both of which are competing assets with the safe-haven metals. October gold was last down $4.70 at $1,662.90 and December silver was down $0.148 at $19.205.

Risk aversion remains elevated among traders and investors early this week. Marketplace focus is on the Federal Reserve’s FOMC meeting that begins Tuesday morning and ends Wednesday afternoon with a statement and press conference from Fed Chairman Jerome Powell. The FOMC is expected to remain aggressively hawkish and raise the key U.S. Fed funds rate by 0.75% in the Fed’s effort to tamp down problematic price inflation. Sweden’s central bank today raised its key interest rate by a full 1.0%. The Bank of England also holds its monetary policy meeting Thursday and is also expected to raise interest rates.

Global stock markets were mixed overnight, with European shares mostly lower and Asian shares mostly higher. U.S. stock indexes are lower at midday.

Russia's new gold exchange could challenge LBMA and reveal gold's 'fair' price – Matthew Piepenburg

The key outside markets today see Nymex crude oil prices lower and trading around $82.00 a barrel. The U.S. dollar index is higher in midday U.S. trading. The yield on the 10-year U.S. Treasury note is fetching 3.575% and climbing.

Technically, October gold futures prices are hovering near last week’s nearly 2.5-year low. The gold futures bears have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at today’s high of $1,678.00 and then at $1,686.30. First support is seen at the September low of $1,651.90 and then at $1,635.00. Wyckoff's Market Rating: 1.0.

December silver futures bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at this week’s high of $19.69 and then at $20.00. Next support is seen at $19.00 and then at last week’s low of $18.77. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed down 70 points at 350.55 cents today. Prices closed nearer the session low today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at this week’s high of 355.80 cents and then at 360.00 cents. First support is seen at last week’s low of the September low of 354.40 cents and then at 350.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold remains above $1680 a key technical level as traders await the FOMC meeting

Gold remains relatively muted as market participants await the start of the Federal Open Market Committee meeting tomorrow. As of 5 PM EDT gold futures basis, the most active December contract is currently trading at $1685 with a net gain of $1.50 today. The December contract opened at $1685.40, traded to a low of $1667.60 and a high of $1688.80

This is in contrast to the other precious metals, with palladium futures gaining 5.55%, platinum futures gaining 2.28%, and silver gaining 1.03%. All of the precious metals had fractional gains based on dollar weakness. The dollar index is currently fixed at 109.34 after factoring in a decline of 0.15%.

Market participants are anticipating the Federal Reserve to announce the latest interest rate hike after this week’s FOMC meeting on Wednesday. Beginning in March of this year the Federal Reserve raised the “federal funds rate” for the first time since 2018 by 25 basis points. They continued to raise rates at the May, June, and July FOMC meetings. The net result was the Fed moved rates from near zero to its current level of 225 – 250 basis points. According to the CME’s FedWatch tool, there is an 82% probability that the Fed will raise rates by 75 basis points on Wednesday. This would be the third interest rate hike of 75 basis points this year.

The Federal Reserve has been laser-focused on bringing inflation down to an acceptable level of approximately 2%. However, inflation remains exceedingly hot, and persistent. The CPI index hit a 41-year high in June coming in at 9.5%. The most recent data revealed that inflation remains extremely elevated coming in at 8.3% in August.

The majority of the decline in inflation is directly attributable to lower energy costs, with the gasoline index falling 7.7% in July. However, inflation for other essentials continues to be elevated. Prices for food at home rose 13.5% for the year ending in August.

According to the BLS, “Over that period, prices for food at home increased 13.5 percent, the largest 12-month percentage increase since the period ending March 1979. Food prices away from home increased 8.0 percent for the year ended August 2022, the largest over-the-year percentage increase since an 8.4-percent increase in October 1981.”

12-month cpi table

The graph above shows the 12-month percentage change in four categories in the Consumer Price Index. It clearly illustrates that the Federal Reserve is far from reaching its inflation target of 2% and has had only a minimal effect in reducing inflation even though it raised rates for the last four consecutive FOMC meetings, and will almost certainly enact another large rate hike of at least 75 basis points.

Even with another rate hike, it seems unlikely that the Federal Reserve will bring inflation close to its target level. The consensus among economists and analysts is that the Federal Reserve will raise rates to between 3 ½% to 4% by the end of the year. However, it must be noted that historically the Fed has had to raise rates to equal the level of inflation to effectively reduce inflation. It also must be noted that even the most aggressive rate hikes in the past by the Federal Reserve were accomplished over multiple years.

For more information on our service, simply use this link

Wishing you as always, good trading,
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley