Gold price on 'cusp' of $2k rally, here's how not to miss it – Bloomberg Intelligence

After a disappointing May start, gold could be on a cusp of a major breakout above $2,000 an ounce, according to Bloomberg Intelligence.

After falling 6.5% in the last month, gold is now near a bottom, with the $1,800 an ounce serving as a floor for prices, Bloomberg Intelligence senior commodity strategist Mike McGlone told Kitco News.

Investors have been reevaluating their risk-on positions as the Federal Reserve looks to tighten by 50-basis-points in June and June as it fights inflation.

"Gold is near a bottom and on the cusp of a pretty significant breakout — when it gets above $2,000 an ounce and never looks back," McGlone said. "One day, we're going to wake up, and gold is going to pop above $2,000 an ounce, which is resistance that will be converted into support, and never look back."

The $2,000 an ounce level has been a critical psychological resistance point for gold, which the precious metal failed to sustainably breach this year despite coming close in March.

Gold's main obstacles in the second quarter have been rising U.S. yields and a strong U.S. dollar. This is especially visible when gold's USD performance is compared to yen or euro.

"The dollar strength is putting pressure on the price of gold in terms of the U.S dollar. In terms of the yen, gold is up 20%. In terms of the euro, gold is up 15%. In terms of the U.S. dollar, it's flat. So people holding gold in Europe and Japan are performing much better. It's been a good hedge against their currency declining. It's just a matter of time before but catches up in the U.S. dollar," McGlone explained. "But once you reduce that headwind, which I think we're on the cusp of, gold should take off, and that's just based on past performance."

One of the drivers to trigger the next rally will be markets shifting gears to price the end of the Federal Reserve's tightening cycle. And that is already starting to happen, McGlone pointed out.

"This week was the first good sign that I've seen in a while. I use the one-year-out fed funds future (FF13) for hike expectations. And they are just starting to take away some of that tightening. Why are they doing it? Because the stock market has reached an inflection point of weakness," he said. "I'm looking at bond yields potentially peaking at 3% in the 10-year and the fed funds peaking around 3.4% and dropping to 3%."

The Nasdaq is already down 23% on the year. And this is helping the U.S. stock market reach that inflection point, where Fed's rate hike expectations will be reduced.

"The market is heading that way. We're at that point where the stock market going down is enough to help take the Fed's tightening out of the market and alleviate inflation and shift us back over to a deflationary environment. That's been some of the best foundation for gold in the last few years when gold bottomed in 2015 and 2018," McGlone said.

Gold price is manipulated by the Fed, suspects mining tycoon Frank Giustra, but suppression can't last forever

According to McGlone, the big problem facing the Fed in the long term is not inflation but deflation. "A year from now, when you get April CPI [consumer price index], it'll be much lower, and even negative," he noted.

McGlone did note that it's an if statement. "The Fed wants the stock market down because they need to reduce the ability for people to buy stuff. And I think that's just started to happen."

Crude oil, for example, is very likely to drop to $50 rather than rise to $200. And if the U.S. stock market continues to decline, it's "virtually a guarantee" that inflation will be lower on a 12-month basis. "You want to measure inflation from a big-picture point of view — 120 months. And that's where we see bond yields decline," he said. "The base effect for inflation will go down."

In this scenario, gold will be a primary asset to go to. But when allocating to gold, it is best to pair it with Bitcoin, McGlone added.

"Looking at modern portfolios, gold is naked if not paired with Bitcoin in portfolios," he stated. "Bitcoin is becoming global digital collateral. It's a small portion in virtually all portfolios, and it's gaining momentum. I don't see what stops those trends. Bitcoin's limited supply is a recipe for higher prices unless demand or adoption declines. And I see them rising."
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Investors wait for tomorrow’s CPI inflation report for April

Traders and investors are waiting for the release tomorrow of the Consumer Price Index inflation report that will be released right before New York markets open. The CPI will probably be one of the most important economic reports to be released by the government this month. Not only will the CPI be an integral component that will shape and influence market sentiment of individual investors, but it will also help to guide the Federal Reserve’s monetary policy at next month’s FOMC meeting.

The Federal Reserve sent shock waves through the financial markets when Chairman Powell suggested that a couple more ½% interest rate hikes are a likely possibility at the June and July FOMC meetings. As expected, they raised the Fed funds rate by ½ a percent after this month’s FOMC meeting but the announcement by Chairman Powell of possibly three concurrent ½% interest rate hikes was perceived as hawkish and had a dramatic impact on markets.

With some exceptions, we have seen a substantial price correction occur in U.S. equities and in the precious metals. The cost of borrowing capital rising due to the Federal Reserve’s recent and anticipated rate hikes is intended to reduce demand by creating an economic contraction. This had a profound and negative impact on U.S. equities. Since the pandemic corporations in the United States have become addicted to free money and the extended correction is a reflection of the withdrawal pains by corporations as they adjust their forward guidance to reflect the change in the cost of borrowing capital.

Both gold and silver pricing have been in a defined corrective mode since the middle of April. Gold futures traded to a high of $2003 on April 18 and have been losing value for the last four consecutive weeks including this week which is still far from over. Gold futures basis the most active June 2022 contract opened at approximately $1884 and as of 5:06 PM, EDT is currently fixed at $1837.20 after factoring in today’s price decline of $21.40 or 1.15%. Gold has declined 2.49% in the last two trading days.

Typically, upticks in inflationary pressure create bullish undertones for gold prices as it is regarded as an excellent hedge against inflation. However, the current scenario which is a more aggressive Federal Reserve in regards to raising interest rates leads to rising yields in U.S. Treasuries and a strong dollar. Both dollar strength and rising yields have the opposite effect on gold prices creating strong bearish market sentiment as higher Treasury yields reduce investor's attraction to gold as it is a non-interest yielding asset and because gold is paired against the dollar, there is a 100% negative correlation between increased value in the dollar and gold pricing. The net result is that rising inflation took gold prices to $2078 during March (one edge of the sword) and then to its current pricing at $1835 (The other edge of the sword). The drop from $2078 to gold’s current price is a decline of 11.59%. Truly inflationary pressure is a double-edged sword for gold.

The latest forecast for tomorrow’s CPI report is that inflation will drop from 8.5% to 8.1%. The question becomes how will gold prices react if the actual numbers are above the current estimate? While high levels of inflation have historically been extremely bullish taking gold prices higher the anticipation of a more hawkish Federal Reserve will have the opposite effect.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Cash is the king as financial market melt-down continues taking gold lower

The selling pressure continued as U.S. equities continued in their dramatic decline. On March 28, the S&P 500 hit an intra-week high of 4635. What followed was five consecutive weeks of dramatically lower values. If today’s selling pressure indicates the week ahead, we could certainly witness U.S. equities declining over the last six consecutive weeks. In this short period, the S&P 500 has lost almost 14% in value (-13.89%). Today alone, the S&P 500 lost 3.20%. However, it was the NASDAQ composite that had the greatest percentage decline breaking below 12,000. After factoring in today’s decline of 521.41 points, the tech-heavy index closed at 11,623.25.

Gold prices also experienced a sharp price decline and as of 4:55 PM EDT, the most active June 2022 futures contract is down $29.20 or 1.55% and fixed at $1853.40. The only precious metal to gain value on the day was palladium. Palladium futures gained $50.30 a net gain of 2.49%, and are currently fixed at $2073.50.

The dramatic sell-off in financial markets and the precious metals are in response to both the recent action of the Federal Reserve as well as the Fed outlook for the next two FOMC meetings. The Federal Reserve raised the Fed funds rate by half a percent at this month’s FOMC meeting and indicated that it would likely continue the trend of ½% rate hikes at both the June and July FOMC meeting.

This led to the recent sharp uptick in yields in U.S. Treasuries, with the 10-year Treasury note yield trading to a high of 3.2% today before settling at 3.039%. Higher yields in U.S. debt have been highly supportive of the U.S. dollar taking its value higher when compared to other currencies, and that has pressured both gold and silver prices lower.

The sharp decline in U.S. equities and precious metals over the last month can be directly tied to the spiraling level of inflation. This week on May 11, the U.S. Bureau of Labor Statistics will release the CPI for April. Currently, the Consumer Price Index is at 8.5%, the highest value seen since January 1982. The spiraling level of inflation is at the root of the recent rate hikes by the Federal Reserve as they attempt to slow down economic expansion to bring inflationary pressures down.

Forecasts for the April CPI differ with some analysts projecting a leveling off for a peak in inflationary pressures and others projecting that inflation will continue to run hot. According to Forbes, “April’s CPI estimate will be announced Wednesday before the stock markets open. Expectations are for the all-items rate to drop from 8.5% to 8.1%. To hit 8.1%, the month-to-month inflation rate will have to fall from 2.3% in January, 2.6% in February, and 3.8% in March to no more than 1.25% to hit the expected number.”

However, inflation forecasts released in Bloomberg Markets today say that according to a New York Fed survey, “Longer-Term Inflation Expectations Rise.” In an article penned by Alexandre Tanzi, he reported that “U.S. consumers project inflation in three years to be higher compared with a month ago, a potentially worrying sign for the Federal Reserve as the central bank tries to keep longer-term expectations anchored.”

Whether inflation levels continue to rise to higher levels as they have throughout this year or begin to peak, the probability that exceedingly high levels of inflation will continue to be persistent and not transitory as the Federal Reserve had maintained until recently with Chairman Powell and other Fed members saying that longer-term inflation expectations remain well-anchored.

While the Federal Reserve’s action of sharp rate hikes will most certainly lead to an economic contraction, the Fed cannot control the supply chain issues or the war in Ukraine which have been primary forces that have caused inflation to spike higher.

Wishing you as always good trading,

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Here's why gold is 'the most confusing' commodity right now

The latest comments from the Federal Reserve triggered a massive selloff across all risk assets. But why is gold still below the $1,900 level? Here's a look at Kitco's top three stories of the week:

3. Gold and bitcoin jump as Fed's Powell takes 75bps hike off the table in June

2. Bitcoin price plummets, gold gives up gains and stocks plunge in post-Fed trading

1. Gold is 'the most confusing' of all commodities right now, here's why

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley