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Gold continues to decline as the Fed prepares to fight inflation

 

Gold continues to decline as the Fed prepares to fight inflation

The Federal Reserve’s next FOMC meeting is just under two weeks away, and market participants are gaining insight from Chairman Powell and other Federal Reserve voting members. Recent statements by Chairman Powell have indicated a major shift in his position regarding inflation. Up until his most recent statements, he maintained that inflation levels had peaked, were transitory, and would begin to decline. However, he has been forced to reevaluate those assumptions based on the reality that the CPI is currently at 8.5% for March, and the PCE index came in at 6.4% in February. PCE numbers for March will be released on April 29.

Statements by all members of the Federal Reserve have intrinsically contained subtle changes in words used to describe their forward guidance, this was not the case this week when Chairman Powell addressed the issue of inflation head-on.

For the first time, Powell was forced to acknowledge that, “it is appropriate to be moving a little more quickly … Our goal is to use our tools to get demand and supply back in synch…and do so without a slowdown that amounts to a recession …It is going to be very challenging.”

During the March FOMC meeting, the Federal Reserve began its process of interest rate normalization or “lift-off” by raising the Fed Funds rate from virtually zero (0% to ¼%) by ¼% taking interest rates to 25 – 50 basis points.

The most recent inflationary data indicates that Americans are experiencing the highest inflationary pressure since January 1982, which makes it almost certain that the Federal Reserve adopt a much more hawkish monetary policy in the remaining FOMC meetings this year.

St. Louis Federal Reserve President James Bullard did not mince words about changes to their forward guidance. In a virtual speech on Monday Bullard alluded to raising rates by 75 basis points (3/4%) saying that when it comes to a potential 75 basis point increase “I wouldn’t rule it out”. Bullard also said that multiple rate hikes of ½ a percent are almost a certainty as the Federal Reserve begins the task of taming inflation.

Certainly, the Federal Reserve is faced with the dilemma of moving inflation to its 2% target without creating an economic contraction that would lead to a recession. Although both Chairman Powell and James Bullard maintain that a “soft landing” is possible the probability of the Fed pulling off such a feat is extremely low.

These dynamic changes in the future outlook of the Fed’s monetary policy sent ripples through many sectors of the financial markets. Dollar strength and higher yields in U.S. Treasuries both benefited from the almost certain likelihood of a series of strong rate hikes. U.S. equities and the safe-haven assets such as gold both experienced solid price declines as a direct result of upcoming rate hikes. As of 5:42 PM, EDT gold futures are currently fixed at $1932.50 based on the most active June contract after factoring in today’s decline of $15.70 or 0.81%.

Gold has declined aggressively since April 18 when gold hit a high of $2003. Gold declined 3.54% this week. However, our current studies indicate the strong potential for technical support at $1927. The gold chart above indicates that support is based upon two Fibonacci retracement sets.

The long retracement set begins at $1777 which occurred in February and concludes at $2078 which occurred during the first week of March. The second data set begins at $2078 and concludes at $1885 which occurred at the end of March concluding a short corrective period. Combined the Fibonacci retracement sets both indicate $1927 as a key level. It is a 78% Fibonacci retracement of the longer data set and a 50% retracement of the shorter data set. The fact that both studies indicate that that price point is significant strengthens the probability that gold prices will find technical support at that level.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley

Gold silver pressured by rising bond yields technical selling

Gold, silver pressured by rising bond yields, technical selling

Gold and silver prices are lower in midday U.S. trading Thursday, pressured in part by rising U.S. Treasury yields and on selling from the shorter-term futures traders. The near-term chart postures for the two metals have deteriorated this week, to embolden the chart-based bears. June gold futures were last down $13.10 at $1,942.50 and May Comex silver was last down $0.721 at $24.535 an ounce.

The U.S. stock indexes are mixed at midday. The U.S. stock index bulls are having the better week, so far, as near-term price downtrends in the indexes have stalled out. However, risk appetite among traders and investors is by no means robust due to major geopolitical concerns.

The World Bank and IMF meetings continue in Washington, D.C. today. Major central bank chiefs, including Fed Chair Powell, are scheduled to speak on and IMF panel today. The central bankers are expected to sound hawkish tones on their monetary policies.

The Fed's 'Ponzi Scheme' is crushing the middle class, this may be the only way out – Natalie Brunell

Nymex crude oil futures prices are higher today and trading around $104.00 a barrel. The U.S. dollar index is firmer today. The yield on the 10-year U.S. Treasury note is presently fetching 2.95%.

Technically, June gold futures bulls still have the overall near-term technical advantage but have faded this week and need to show fresh power soon. Bulls' next upside price objective is to produce a close above solid resistance at $2,000.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,900.00. First resistance is seen at today’s high of $1,960.10 and then at $1,972.50. First support is seen at today’s low of $1,938.00 and then at $1,928.00. Wyckoff's Market Rating: 6.5.

May silver futures bulls have the overall near-term technical advantage but have faded this week and need to show fresh power soon. Silver bulls' next upside price objective is closing prices above solid technical resistance at $26.00 an ounce. The next downside price objective for the bears is closing prices below solid support at $24.00. First resistance is seen at $25.00 and then at today’s high of $25.31. Next support is seen at $24.20 and then at $24.00. Wyckoff's Market Rating: 6.0.

May N.Y. copper closed up 470 points at 469.95 cents today. Prices closed nearer the session high today. The copper bulls have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the April high of 486.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 450.00 cents. First resistance is seen at today’s high of 471.80 cents and then at 475.00 cents. First support is seen at this week’s low of 461.95 cents and then at 460.00 cents. Wyckoff's Market Rating: 6.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

 

 

Tim Moseley

Gold silver bulls fading and need a fresh spark

Gold, silver bulls fading and need a fresh spark

Gold and silver prices are modestly weaker in midday U.S. trading Wednesday, on some more downside corrective action after recent gains. Bulls are fading and need a fresh fundamental element to boost them and to keep alive the near-term price uptrends in the two precious metals markets. June gold futures were last down $4.20 at $1,955.00 and May Comex silver was last down $0.146 at $25.245 an ounce.

Global stocks markets were mixed overnight. The U.S. stock indexes are mixed at midday. The U.S. stock indexes have stabilized but are still in near-term price downtrends. Equities traders are presently focused on corporate earnings reports. Risk appetite is still not robust in the marketplace amid the Russia-Ukraine war and the Covid outbreak in China.

WW3 will not be a ground war, this is what it would look like instead – Brian Rose

Nymex crude oil futures prices are weaker today and trading around $101.00 a barrel. The U.S. dollar index is lower today after hitting a two-year high Tuesday. The closely watched yield on the 10-year Treasury note is presently fetching 2.88%.

Technically June gold futures bulls still have the overall near-term technical advantage but have faded this week and need to show fresh power soon. Bulls' next upside price objective is to produce a close above solid resistance at $2,000.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,915.00. First resistance is seen at $1,972.50 and then at Tuesday’s high of $1,985.10. First support is seen at today’s low of $1,941.00 and then at $1,928.00. Wyckoff's Market Rating: 6.5.

May silver futures bulls have the overall near-term technical advantage but have faded this week and need to show fresh power soon. Silver bulls' next upside price objective is closing prices above solid technical resistance at this week’s high of $26.495 an ounce. The next downside price objective for the bears is closing prices below solid support at $24.00. First resistance is seen at $25.50 and then at $25.75. Next support is seen at $25.00 and then at $24.50. Wyckoff's Market Rating: 6.5.

May N.Y. copper closed down 685 points at 464.95 cents today. Prices closed nearer the session low and hit a four-week low today. The copper bulls have the overall near-term technical advantage but are fading. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the April high of 486.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 450.00 cents. First resistance is seen at today’s high of 470.90 cents and then at 475.00 cents. First support is seen at today’s low of 461.95 cents and then at 460.00 cents. Wyckoff's Market Rating: 6.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold breaks the key level of 2000 in its first unsuccessful attempt

Gold breaks the key level of $2,000 in its first unsuccessful attempt

The combination of exceedingly high inflation and the geopolitical crisis in Ukraine were strong enough forces to run gold prices back above $2000.

The focus of my articles throughout last week dealt with how the Federal Reserve and global central banks were faced with a near impossible task to reduce rising inflation. Dramatic measures would need to be taken including raising rates to at least half of the current level of inflation. That means raising rates to 4% – 6%.

However, this alone would not lead to the endgame of inflationary normalization. To achieve that goal governments have to focus upon the primary forces that led to a 40 year high. Inflation levels began to climb long before Russia attacked Ukraine. They began as central banks globally allocated enormous amount of capital to rebuild devastated economies that occurred during the recession, and to accomplish a task without their actions leading to a recession. Secondly, the primary force taking prices higher besides global devalued currencies were and are the supply chain issues that up till now have yet to be solved.

The military invasion by Russia into Ukraine added jet fuel to the fire, magnifying supply concerns in particular the cost of energy and food. Russia is the third-largest exporter of oil to countries worldwide. And the production of grain specifically corn and wheat, have a large component exported from both Ukraine and Russia.

Ukraine for example is the fifth largest producer and exporter of corn in the world, and Russia is the third-largest wheat exporter globally. Collectively they represent a respectable percentage of these grains which are exported around the world. Unquestionably, these exports have ceased or greatly diminished since the onset of the war.

The recent rise in inflation has been fueled by food and energy costs. Gasoline prices alone increased by 18% last month. Even though the United States is the number one producer of oil, was greatly affected by the Russian oil boycott by the U.S. and the European Union.

These inflationary forces I believe will remain so persistent that it is inconceivable that the supply chain issues will be resolved this year and highly unlikely that they will unwind in 2023. This concern along with global currencies continuing to be devalued is a recipe for double-digit inflation.

Investors have turned to gold and U.S. debt instruments as the safest asset class to protect against the uncertainty that currently exists. As of 5:19 PM EDT gold futures basis, the most active June 2022 contract is currently fixed at $1982. However, it is today’s intraday high that had garnered the most attention when gold traded to a high of $2003 per ounce. At the same time, it was unsuccessful in holding that price, giving back approximately $21 of that gain. The net result was that gold gained $7.10 on the day and still looks exceedingly strong. In my opinion, it is not if but when gold will breach $2000 per ounce on a closing basis and then move to higher pricing.

Currently, our technical studies indicate that there is resistance at $2000 with stronger resistance at $2016. That being said, although our technical studies do not look at the timeline needed to achieve certain price points at some point which I believe will come before the end of the year we will challenge and take out the all-time high of $2088 per ounce.

As our subscribers and loyal readers at Kitco News know my forecasts of gold reaching between $2166 – $2300 per ounce have been published over the last four months. While four months ago these predictions might have been perceived as foolish and overly optimistic. But today’s break above $2000 certainly makes that upper-level forecast more achievable and realistic.

For, those who would like more information simply use this link.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

 

Tim Moseley

The goldsilver ratio moves back into familiar territory

The gold/silver ratio moves back into familiar territory

The gold/silver ratio has moved back into familiar territory. The price has moved back into a wedge-type formation on the daily chart below. The trendlines have acted as clear support and resistance levels with both being tested and respected around three times each. More recently the price has moved to the lower bound of the pattern and bounced back up. In terms of support levels, the yellow line at 75.90 is the one to watch but if that breaks 74.64 could be next.

The upside looks more interesting, 79.00 is the previous wave high but the main high on the chart is at the green line (82.13). There is a massive consolidation area at 77.85 and this is where the price seems to gravitate towards. If there is to be another move higher it looks like it could be a magnet for the price once more.

Lastly, the price has also bounced off the 200-day simple moving average (SMA). On this chart, there has not been too much significance on this moving average but historically it has been a good indicator of trend. There was a period between 2017 and 2019 where the 200 SMA worked a treat.

By Rajan Dhall

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

US dollar is gold’s main obstacle in breaching 2k analysts

U.S. dollar is gold's main obstacle in breaching $2k – analysts

Gold tested a critical level this week on its way to $2,000, but one of its main obstacles remains a strong U.S. dollar, according to analysts.

Despite a selloff during the week's last trading day, gold is still up 1.5%, with June Comex gold futures last trading at $1,974.6 after rising above $1,985 an ounce a day earlier.

After seeing renewed safe-haven appeal amid significant geopolitical tensions, the U.S. dollar is limiting gold's upside. The U.S. dollar index breached the key psychological level of 100 Thursday, last trading at 100.36.

"Gold is receiving strong haven demand. But we see the same thing with the U.S. dollar. That will be a potential headwind for gold. The USD is being viewed as the 'cleanest dirty shirt in the laundry.' Investors are looking for safety outside of some of the chaos and uncertainty that we see in the markets. The argument is similar to gold — it is viewed as a trusted place," Gainesville Coins precious metals expert Everett Millman told Kitco News.

Escaating tensions further was Russia threatening to deploy nuclear weapons and hypersonic missiles if Sweden and Finland joined NATO. The comments came from Dmitry Medvedev, deputy chairman of Russia's Security Council. "There can be no more talk of any nuclear-free status for the Baltic – the balance must be restored," said Medvedev, who is also former Russian president (2008-2012).

This comes just a day after U.S. President Joe Biden announced he is providing Ukraine with an additional $800 million worth of firepower, including heavy artillery.

Renewed pressure from the stronger U.S. dollar could keep gold stuck in a trading range until the index falls back below 100.

"The dollar had quite the run. There was the belief that the rally would pause at the 100 level. But we are seeing further bullish momentum. Short-term, the dollar could appreciate more. That's why I'm neutral on gold. Fundamentals and still intact for bullish momentum in gold, but a stronger dollar could limit [the metal's prospects for now]," OANDA senior market analyst Edward Moya told Kitco News.

Rising yields in the U.S. are also boosting the greenback and pressuring the precious metal, said TD Securities head of global strategy Bart Melek.

"The dollar rallied to some extent because we've seen yields across the curve move up as well. The 2s, 10s, and 30s are all moving up. This is an important factor in driving prices here. Real rates are moving up here as well," Melek said.

'Recession is coming next year': time to sell stocks, buy Bitcoin – Mashinsky

On its way to $2,000 an ounce, gold will have a harder time breaching the $1,975 an ounce level than the $2,000 one, said RJO Futures senior market strategist Frank Cholly.

"The dollar is probably the biggest factor right now. If the dollar dips back down towards 99-98 range, that will make it a lot easier for gold to break through $2,000, which will eventually happen," Cholly told Kitco News.

The $2,000 level could be within reach in the next month or so, but traders should be ready for volatility in either direction, Millman added. "In terms of factors that would drive it, it won't take much. The level of anxiety and fear in markets justifies that price level. By the same token, if there is a resolution to the conflict in Ukraine or inflation expectations come down, gold will drop to $1,900," he noted.

The gold market will also be paying very close attention to guidance from central banks around the world, especially to the Bank of England interest rate announcement and the upcoming Federal Reserve meeting in May.

Markets will continue to price in aggressive tightening cycles, kicked off by the Bank of Canada's oversized 50 basis point hike on Wednesday.

"Markets will be watching how other central banks respond to inflation. The ECB didn't do anything and leaning more dovish. At the same time, many other central banks will be pretty hawkish now," Millman said.

The Fed might be perceived as behind the curve on inflation as it focuses on the core inflation measure instead of the headline number, which could be a mistake, Melek pointed out. "We saw the largest increase in inflation in the U.S. since 1981, with inflation accelerating to 8.5% in March. But the core, which excludes food and energy, looked better. Will this convince some traders that the U.S. central bank may not need to be as aggressive?" he asked.

Data to watch

Wednesday: U.S. existing home sales

Thursday: Philadelphia Fed manufacturing index, jobless claims

Friday: Manufacturing PMI

 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold moves higher as inflation and Ukraine fears dwarf concerns over hawkish Fed

Gold moves higher as inflation and Ukraine fears dwarf concerns over hawkish Fed

Market participants continue to be extremely focused on the spiralling level of inflation and war in Ukraine more than their apprehensions about future actions by the Federal Reserve to aggressively raise interest rates this year. Yesterday's release of the CPI for March which came in at 8.5% underscores concerns about a ½ a percent hike in interest rates by the Federal Reserve next month.

Gold prices have been rising steadily over this last week which illustrates that investors are more alarmed by the current level of inflation and escalation of military action by Russia in Ukraine than by the future actions of the Federal Reserve.

As of 4:55 PM EDT gold futures basis, the most active June contract is fixed at $1981.70 after factoring in a gain of $5.60. Gold prices have been advancing since April 6 the last day that gold prices declined. Over the last five consecutive trading days gold prices have moved higher. Today gold futures traded to a high of $1985.80 and a low of $1966.30.

While some analysts and the Federal Reserve have been indicating that inflationary pressures should be peaking and will begin to decline other analysts, including myself see that as an incorrect assumption. A realistic look at what is driving inflation to higher levels cannot justify the belief that inflationary pressures are peaking. Inflation had been moving higher before the invasion of Ukraine; however, the war has added additional pressure that will most certainly continue to move inflation higher. Yesterday's report showed that one of the primary forces moving inflation higher last month was the cost of gasoline which increased by 18% month over month.

The spike in energy costs was largely due to the increasing price of crude oil which is back above $100 per barrel. Currently, light crude futures are trading at $104.32 up $3.71 today, and are largely attributed to the Ukrainian conflict resulting in many European countries as well as the United States boycotting imports of Russian oil. Russia is the third-largest producer of crude oil behind the production of the United States the number one producer, and Saudi Arabia the second largest producer.

Therefore, as long as Russia's military escalates its actions in Ukraine, we can expect to see tight inventories of crude oil worldwide. This is unlikely to change soon as Vladimir Putin said on Tuesday that peace talks between their two countries are at a dead-end, promising that Russia would achieve all of its "noble" aims in Ukraine.

Another force moving inflation higher was the cost of food. Russia is the third-largest producer of wheat, and Ukraine is the fifth largest producer of corn meaning that as long as the conflict in Ukraine continues collectively Russia and Ukraine's exports will cease or diminish and continue to reduce the amount exported to the European Union pressuring food prices globally to continue to rise.

Food and energy costs globally will continue to rise as long as the war in Ukraine continues. This clearly shows that inflationary pressures are a by-product of supply chain issues that cannot be addressed or reduced by the Federal Reserve raising interest rates.

To believe that inflation has peaked is an unrealistic assumption based on the fact that the largest rise in inflation in the United States and globally are directly attributable to rising energy and food costs. While many analysts and the Federal Reserve continue to state that inflationary levels will subside, as long as the war in Ukraine continues this assumption makes no logical sense. This is why market participants are focusing on levels of inflation rather than the future actions of the Federal Reserve.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley

Global inflation concerns result in aggressive action by central banks

Global inflation concerns result in aggressive action by central banks

Inflation is not limited to the United States. It is a global phenomenon prompting central banks worldwide to take action. Central banks worldwide are quickly moving to a more aggressive monetary policy in an attempt to stave off the spiraling international level of inflation. The president of the Federal Reserve Bank of New York, John Williams, spoke to Bloomberg Television saying that ½ a percent hike in interest rates is a 'very reasonable option' for May.

He also addressed the endgame and timeline to achieve interest rate normalization, saying, "We need to get to a more neutral or normal level of the fed funds rate, though whether that would be the end of the year or exactly when will depend on the data … The Fed should get "real" interest rates — nominal borrowing costs minus expected the inflation rate — back up to a more normal level by next year."

According to the CME's FedWatch tool, there is a 91.06% probability that the Federal Reserve will raise interest rates by at least ½% and implement that rate hike after next month's FOMC meeting. Changes in the Federal Reserve's monetary policy initiating steps to curtail the highest level of inflation the United States is seen in the last 40 years is not an isolated stance. According to Reuters, "Central banks are racing to get on top of surging inflation, with New Zealand and Canada delivering aggressive half-point rate hikes this week and the ECB on Thursday sticking with plans to dial back stimulus this year."

Central banks addressing spiraling inflation include New Zealand, Norway, Canada, Britain, the United States, Australia, Sweden, Switzerland, Japan, and the European Union. Truly this is a worldwide issue requiring action by countries throughout the globe. At the same time, central banks are also extremely cognizant that the war in Ukraine has created consequences that are rippling through economies across multiple continents.

Gold is sensitive to rising rates as a haven asset. However, interest rate hikes will lessen the demand for holding nonyielding bullion. As of 5:18 PM EDT gold futures basis, the most active June 2022 contract is down $7.60 and fixed at $1977.10. The futures contract traded to a low today of $1962.70 and a high of $1984. The gold chart included with this letter indicates that there is strong technical support for gold at approximately $1963 per ounce. This matches today's low of $1962.70 along with resistance at this price point that occurred at the beginning and end of March.

However, central banks across the board have acknowledged that the rise in inflation contains a large component of the fallout from the war in Ukraine. This war has had a major impact on global food and energy costs which will not diminish as long as the conflict in Ukraine continues. Even with central bank intervention, simply raising interest rates will not diminish the demand for essential products such as food and energy costs which collectively account for a substantial percentage of inflationary pressures that currently exist.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley

Inflation spirals to 85 no surprise according to the Federal Reserve Bank of Cleveland

Inflation spirals to 8.5%, no surprise according to the Federal Reserve Bank of Cleveland

Today the BLS (Bureau of Labor Statistics) released its CPI inflation report for March 2022. The report showed that inflation had risen to 8.5% when compared to the inflation level in March 2021. When compared to month-over-month levels, inflation rose 0.6% as February's level of inflation came in at 7.9%. However, this news was no surprise as it had been released by the Federal Reserve Bank of Cleveland on March 30.

As we said in our letter published on March 30, the Federal Reserve Bank of Cleveland released its estimates and forecasts for both the PCE and CPI index. Their forecast indicates an increase in the PCE of 0.62% year-over-year. They also have made a prediction on the CPI index for March, which will be released next month. Their forecast is based upon data from the Bureau of Labor Statistics, Bureau of Economic Analysis, Energy Information Administration, Financial Times, and Haver Analytics. Based on their analysis, they forecasted that the CPI index for March would come in at 8.41% year-over-year and that the March PCE would increase by 0.75% month over month.

Since the Federal Reserve has access to the same government bureaus that produce the report, they are privy to this information long before it is released to the public. It is for that reason that the Federal Reserve Bank of Cleveland was able to correctly forecast the CPI report for March before the month had concluded. Their forecast was off by only 0.09% from the actual number released today. They also forecasted that the level of inflation for the first quarter of 2022 would come in at 9.01% when compared to the first quarter of 2021.

Forecasts by the Federal Reserve braced the investment community for this extreme acceleration in inflationary pressures, and today's report verified that inflationary pressures continued to grow in March. This sent ripples through financial assets resulting in rising yields in U.S. treasuries and a strong uptick in safe havens such as gold and the dollar.

The 10-year Treasury note settled at 2.724%, according to information on TradeWeb. The Wall Street Journal reported that "The yield on the benchmark 10-year U.S. Treasury note settled at 2.724%, compared with 2.779% Monday, its highest close since early 2019. The yield is up from 1.496% at the end of 2021."

The U.S. dollar also strengthened with the dollar index breaking above 100 after factoring in today's gain of 0.39% which took the index to 100.315.

As of 4:50 PM EDT both gold and silver had substantial gains. The most active June 2022 gold futures contract is currently trading up $20.80 or 1.07% and fixed at $1969 per ounce. Silver futures gained 2.33% or $0.58 with the most active contract currently fixed at $25.57.

While there was certainly a warning by the forecast released by the Federal Reserve Bank of Cleveland at the end of March, it was not until verification by the BLS in today's report that market participants fully factored this uptick in inflationary pressures into market pricing. Although the Federal Reserve is planning an aggressive and hawkish monetary policy to curtail the spiraling level of inflationary pressures, it will be difficult at best to have any real impact. This is because inflationary pressures continue to be in goods and services in which demand cannot diminish as they are essential to day-to-day life. The primary goods and services hit with increased inflation in March were food, energy, automotive purchases, and rental prices.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley

What effect has Ukraine inflation and the Fed had on gold prices?

What effect has Ukraine, inflation, and the Fed had on gold prices?

Gold prices have been affected by three primary factors, inflation, the war in Ukraine, and lastly, statements and actions by the Federal Reserve. Overwhelmingly, market participants are focused on the effects of spiraling inflation levels and the war on Ukraine providing bullish market sentiment for the precious yellow metal. While statements and actions by the Federal Reserve have curtailed any sustained upside movement gold continues to gain value this year.

As of 4:15 PM EDT gold futures basis, the most active June contract is trading at $1957.80, after factoring in today's gain of $12.20 or +0.63%. Most noteworthy today is the high gold achieved in trading overseas, reaching an apex of $1974.60.

However, following the intraday high were statements by the president of the Chicago Federal Reserve Bank, Charles Evans said, that he would not oppose interest rates moving higher to more of a neutral stance between 2.25% and 2.5% by the end of the year. This could only be accomplished by the Federal Reserve raising interest rates by ½% at two of the remaining FOMC meetings this year.

Speaking to the Detroit economic club Charles Evans said, "Fifty is obviously worthy of consideration; perhaps it's highly likely even if you want to get to neutral by December." The net result of his statements today took gold from its intraday high roughly $18 above current pricing, to its current price just below $1960 per ounce.

The primary reason that gold continues to trade higher in light of a much more aggressive Federal Reserve is the current level of inflation as well as the war in Ukraine.

Tomorrow the government will release the Consumer Price Index (CPI) report, which will give the investment community the latest information on the current level of inflation in the United States. The current consensus by economic analysts is that the March report will show another uptick in inflation. Adding to the former pressure, which took inflation to its current 40-year high is the war in Ukraine which resulted in higher food and oil pricing. The CPI inflation index came in at 7.9% for February and it is anticipated that tomorrow's report will show that inflation has moved substantially past 8%.

The current military action by Russia as it attacks its neighbor in south Ukraine is expected to accelerate with no end in sight. Ukraine today said that it expects Russia to initiate a major offensive imminently with military action shifting its focus from the capital city of Kyiv to the Eastern portion of Ukraine, where pro-Russian separatists currently occupy the territory of Donbas. Karl Nehammer, the Austrian Chancellor, met with Vladimir Putin, the first EU leader to hold face-to-face talks with the Russian president concluding his viewpoint, "I generally have no optimistic impression that I can report to you from this conversation with President Putin… The offensive (in eastern Ukraine) is evidently being prepared on a massive scale."

Combined, the continued acceleration of inflationary pressures in the United States and the war in Ukraine are overwhelmingly balancing any negative pressure by statements and actions of the Federal Reserve. Collectively these three forces, Ukraine, inflation, and the Federal Reserve, have been the primary sources affecting gold pricing. However, it seems that the war in Ukraine and upticks in inflation are moving gold prices higher than the negative or bearish market sentiment created by the Federal Reserve as it continues its action to normalize interest rates in an attempt to stave off the drastically higher level of inflation.

For those who would like more information 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