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Gold consolidating gains above 1900 into Fed week

Gold consolidating gains above $1900 into Fed week

The gold price is up over $100 in the first month of 2023, its best start to the year since 2012. After a false breakout to the downside during the final quarter of 2022, gold has zoomed $332 an ounce from its November low at $1618. This now 20% rally over the past three months has technically placed the safe-haven metal in a bull market, suggesting further gains ahead.

Since a triple-bottom in its monthly chart was completed in November, gold has advanced for five straight weeks and in 10 of the past 12. The safe-haven metal has virtually been a one-way trade, with every U.S. dollar and Treasury yield dip becoming an opportunity to bid bullion higher. And with the S&P 500 remaining entrenched in a bear market that began at the start of 2022, the gold complex has quietly outperformed stocks since its early Q4 2022 low.

Strategas Research Partners' technical and macro research team, headed by Chris Verrone, points out that this is the first time in the past 50 years that the S&P has lagged the gold price coming off a market bottom. From the March 2020 lows, stocks outperformed gold, rising 36.3% to the latter's 13.2% over the next three months. And from the December 2018 low, the gap was 20.6% to 2.1% in favor of U.S. equities.

The closest spread was from the October 1990 lows, when stocks rose 6.2% to gold's 1.7% in the subsequent three months. Gold's outperformance, relative to stocks, suggests that the expectations of future Fed easing are less than bullish for equities, and that smart money rotation into the gold space has quietly begun.

Gold Futures are beginning to resemble an identical trend seen during the first quarter of 2020, just before prices skyrocketed to new all-time highs. In February 2020, Gold Futures reached a low of $1626 an ounce, roughly the same level bullion hit in November last year. Three months later, gold prices have come just $51 from a headline attention grabbing $2000 per ounce on Thursday, despite Chinese gold markets being closed for the “Golden Week” holiday.

Moreover, daily trading volumes in CME's micro contracts for gold, which it uses as a proxy for retail activity, are currently up 93% year on year. That is almost three times higher than in 2020. This continued bullish momentum suggests a healthy pullback in overbought Gold Futures may not begin in earnest until the key $2000 level has been tested.

With policymakers being set to move forward with raising borrowing costs by 25 bps during the FOMC meeting next Wednesday, bond markets have been pricing in the move for weeks and Fed officials have not pushed back. Fed Chair Jerome Powell and his colleagues were also signaling a ¼ point raise in advance to avoid surprises before this week's official "blackout" period.

This morning's Personal Consumer Expenditures (PCE) index report for December showed core inflation rose 4.4% on the year, in line with economist expectations. Core inflation has dropped compared to November's rise of 4.7%, while core PCE is the Federal Reserve's preferred inflation gauge.

Fed-funds futures are pricing in a final quarter-point hike in March and a peak of 4.75% to 5%, while the most recent set of Fed projections from December point to a median fed-funds peak of 5.1% by the end of 2023. Yet, the sharp fall in bond yields has brought the benchmark 10-year Treasury down from 4.25% last October to 3.49% on Thursday, suggesting interest-rates topping at 5% with cuts starting later this year.

Over the past few weeks, the gold price has been sniffing an end to rate hikes by gearing up for its third attempt at the all-time high resistance zone as it approaches $2000. The third attempt at a major resistance level is typically not successful. But following a likely pullback from $2000-$2100, gold should make a fourth and successful break to new all-time highs. Once gold broke out above the psychological $1000 level after its fourth try in mid-2009, the price had nearly doubled by late 2011.

The $2000 level may then attempt to become the new floor, as opposed to very strong 13-year overhead resistance. On the downside, if support at $1900 is broken, there is more support at $1875.

A monthly close in Gold Futures above $1950 on Monday would be extremely bullish in the near-term, while an eventual break above $2100 would be a very bullish signal for the gold market in 2023, with targets of $2500-$3000.

Meanwhile, weakness continues to be bought in select quality junior gold stocks, with capital markets improving recently. There have been several bought-deal financings announced in the junior space this week, along with private placement activity heating up since the start of the new year as well.

The GDXJ closed above formerly strong resistance at $37 to begin 2023, which is a level that has become important support. On the upside, a back-test of the key $2000 level in gold would likely fill an open weekly downside gap in GDXJ at $45, which has become resistance. This gap in the Junior Miner ETF was created back in April, ushering in a devastating capitulation phase in a sector that remains deeply undervalued in relation to metals prices.

After a significant 7-year bottom was reached late last year, the mining complex is experiencing an impulsive rally with multi-day to multi-week sideways price congestions. Since bottoming last September, both GDX and GDXJ have had two such pullback/consolidations, between 5 to 8%, and have been currently experiencing a third for the past three weeks.

Once a $2000 per ounce gold price that has been strong resistance for over a decade becomes a floor, a speculative frenzy in junior mining stocks may already be in progress. Before this relatively tiny sector comes back into favor, it is best to accumulate full positions in select quality juniors on weakness ahead of the coming herd of momentum trader's and institutional investors.

Many of the best in breed junior gold stocks have been popping higher one by one from 4 to 6-month basing patterns since late Q4. During the second half of 2022, the Junior Miner Junky (JMJ) newsletter carefully constructed a concentrated portfolio of exceptional junior resource stocks with 3x-10x upside potential to hold for long-term gains during the current up-leg in the mining space.

If you require assistance in accumulating quality precious metals related juniors, and would like to receive my research, newsletter, portfolio, watch list, and trade alerts, please click here for instant access.

By David Erfle

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold declines after a solid 4th quarter GDP report is released by the BEA

Gold declines after a solid 4th quarter GDP report is released by the BEA

As of 4:35 PM EST, the February contract of gold futures has fallen for the first time in six trading days. Currently, February gold is fixed at $1929.30, a decline of $13.30 or 0.68%. Gold traded to a high of $1949.80 overseas last night, which was before the release of the GDP report. Following the released GDP report gold traded to a low of $1918.40.

The key takeaway from today’s 4th quarter GDP report was that economic growth was strong at the end of 2022 and contributing factors were a strong jobs market and declining inflationary pressures.

According to the BEA (Bureau of Economic Analysis) GDP for Q4 2022 increased at an annual rate of 2.9% when adjusted for inflation. This is a decline from the 3rd quarter of 2022 whose GDP indicated growth of 3.2%. The report conveyed that consumer spending, which grew by 2.1% was the foundation of the strong growth in the United States.

The second half of last year greatly differed from the beginning of 2022 a time of economic contraction. The fact that the United States economy rebounded in the second half of the year reduced the speculation that the Federal Reserve’s rate hikes would lead to a recession. However, it must be noted that the average GDP of last year indicated growth at only 1%, an immense contrast compared to the 2021 annual GDP of 5.7%.

Today’s GDP report will strengthen the conviction of hawkish Fed officials to maintain their extremely aggressive monetary policy which includes more rate hikes and keeping those elevated rates for a longer time. This raises the probability that the Federal Reserve will continue to raise rates at the next two FOMC meetings. Market participants are expecting rate hikes of ¼% next week and at the FOMC meeting on March 22.

As long as the Federal Reserve raises rates no more than ¼% at the next two FOMC meetings this would continue the bullish market sentiment that has been prevalent in gold since the major rally began at the beginning of November 2022.

The caveat to the statement above is tomorrow’s PCE inflation index report. Currently forecast our predicting that tomorrow’s report for the core PCE will show a decline from 4.7% in November to 4.4% in December.

Many analysts including myself believe that inflation will continue to decline but become sticky at a certain level well above the Fed’s target of 2%. If this assumption unfolds it will create more challenges for the Federal Reserve to either raise its target of 2% or become more aggressive for a longer period.

I will be speaking at the VRIC 2023 on Monday, January 31st in Vancouver. Both Kitco News and I welcome you there if your available

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Economists experts and market participants await Friday’s Core PCE report

Economists, experts, and market participants await Friday’s Core PCE report

The financial markets are currently in the process of factoring in or getting in front of the upcoming release of the core PCE (Personal Consumption Expenditures) report. On Friday the Bureau of Economic Analysis (BEA) will release the most current information on inflation for December. Current estimates are anticipating a continued decline in core inflation from 4.7% in November to 4.4% (year-over-year) last month.

This is welcome news to Americans, but more importantly, is the last critical economic report that the Federal Reserve will have available as it convenes to decide the pace and size of upcoming interest rate hikes. Although Federal Reserve members have expressed mixed messages regarding their opinion on the pace of upcoming rate hikes as well as their upside target to take their benchmark “fed funds” rate to. It is currently widely accepted that the Fed will raise rates by ¼%, the first small rate hike since their first rate hike in March of last year.

The Federal Reserve had maintained rates between 0 and ¼% since 2018. That ended in March 2022 when the Federal Reserve raise rates by ¼%. What followed a series of extremely aggressive rate hikes of ½ a percent in May. Followed by four consecutive ¾% hikes in June, July, September, and November. Finally, in December they only raise rates by half a percent. Collectively the seven consecutive rate hikes took interest rates from near zero to between 4 ¼ and 4 ½%.

It is widely expected that the Federal Reserve will slow the pace of rate hikes with a ¼% rate hike during the January FOMC meeting. The CME’s FedWatch tool currently is forecasting that there is a 99.7% probability that the Fed will raise rates by only ¼% and a 0.3% probability that the Fed will raise rates by ½ %. The Federal Reserve is also on record according to their most recent economic projections released in December of last year that they expect to take their benchmark rate just above 5% and not reduce that level for the entire year and possibly into the first or second quarter 0f 2024.

According to Investing.com the US core PCE index was at 4.7% (year-over-year) in November and is expected to decline to 4.4% in December. This clearly illustrates that the Federal Reserve’s aggressive monetary policy has effectively decreased inflation during 2022. However, the Federal Reserve’s most recent economic which was released at the December FOMC meeting clearly stated that they do not intend to reduce interest rates during the entire calendar year of 2023.

The Federal Reserve was slow to act and made a stupendous blunder by not raising rates until March 2022. This is when headline inflation was at 8.5%. Considering that headline inflation was at 2.6% exactly one year earlier the decision to not raise rates was one of the worst calculations by any Federal Reserve in history. However, the aggressive rate hikes implemented by the Fed last year although extremely painful were correct and did reduce inflation dramatically.

The question now is whether or not the Federal Reserve will back away from its stance of maintaining interest rates at this elevated level throughout the year, or once again become data-dependent and reposition its policy based upon this new data that they have effectively put a dent in inflation.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Unprecedented Media Censorship Bills By Governments Leave Big Tech Nervous

Unprecedented Media Censorship Bills By Governments Leave Big Tech Nervous

The lack of trust in institutions continues to rise worldwide, prompting governments from various countries to up the ante on controlling the flow of information before their citizens lose complete confidence in them. Many governments have proposed regulations over the past two years that would lead to an unprecedented level of online censorship, and some countries have already passed their legislation. 

This article focuses on the online censorship bills in Canada, the United Kingdom, Europe, and the United States and what effects they may have on the internet, particularly legacy tech and its users. 

Canada – Online Streaming Act 

Canada’s online censorship bill titled Bill C11, also known as the Online Streaming Act, seems to be the most dystopian of all. Bill C11 was first proposed in November 2020 as Bill C10 but failed to pass due to its concerning contents.  Bill C10 was reintroduced in February 2022 as Bill C11 and was approved by the Canadian House of Commons, the first of a two-step process to becoming law. 

The first approval took many by surprise, including YouTube. YouTube’s concern over the bill compelled them to publish a blog post warning about the Online Streaming Act. As explained in the blog post, Bill C11 would effectively give the Canadian Radio-Television and Telecommunications Commission (CRTC: A government regulator) the power to decide exactly what content Canadians can see on YouTube and other social media platforms. 


Image source: Youtube

This bill states that these regulations will apply to user-generated content. Besides controlling the amount and type of advertising appearing on YouTubers' videos, the CRTC would have the power to dictate what content they make as per CANCON requirements. They would also be able to label any YouTuber as a so-called broadcaster, which means complying with the CRTC’s criteria or risk being blocked in the country. 

Moreover, some broadcasters will also be required to contribute to the Canada Media Fund, which funds mainstream media in Canada. It appears this requirement will only be applied to streaming services and social media platforms, but it could also apply to content creators of other sources. This is significant as most Canadian media is funded directly or indirectly by the Canadian government via the Canada Media Fund. Mandatory contributions by broadcasters would expand the Canada Media Fund, further increasing government control of the media. 

Clearly, the Canadian government is desperate to ensure that it continues to control the narrative in the country. This makes sense, considering that trust in the government has been declining for years and exacerbated since the pandemic began. To put things into perspective, 40% of Canadians trusted their government at the beginning of the pandemic. Today this figure stands at 20%, a 50% drop in three years. 

The Canadian Senate will vote on Bill C11 in February 2023; if passed, it will go to the Canadian Parliament for debate. Although YouTube presented its case to the senate, it failed to convince the Senate to omit user-generated content from the bill. YouTube expressed that the legislation could set a harmful global precedent for other countries to follow suit. This makes it harder for creators to access international audiences and would impact millions of businesses and the livelihoods of entrepreneurial creators globally. 
    


Image source: Legal 60

The United Kingdom – The Online Safety Bill 

In contrast to Canada’s brazen title of Online Streaming Act, the UK politicians chose a more harmless title for their online censorship bill, the Online Safety Bill. The bill was introduced in May 2021 and has been slowly working toward approval since then. Similar to Canada's online streaming act, the UK Online safety Bill initially came under fire for wanting to regulate “legal but harmful content.” 

This provision would have been a concern because it would give the UK government the power to censor whatever it deems harmful. In the case of the UK, the regulator overseeing this provision's enforcement is the Office of Communications (Ofcom), which is comparable to Canada's CRTC. Fortunately, the requirement to police legal but harmful content was removed from the Online Safety Bill in November.

Unfortunately, there are other dubious provisions in the bill, which include various requirements that direct Ofcom to protect “content of democratic importance, protect news, publisher content, and protect journalistic content.” Presumably, it means the mainstream media. Moreover, Ofcom still has the power to police illegal content being distributed online and will issue fines to tech companies that fail to police unlawful content. Fines will start at £18 million or 10% of a tech company's annual total revenue, whichever is higher. 

The fines would specifically apply when illegal content is shown to children meaning tech companies will be encouraged to do age verification to avoid inadvertently displaying harmful content to minors and then getting fined. This means social media companies will be forced to require KYC from all their users, which isn’t bad relating to scammers and bots. But the trust issues with legacy media and governments weigh heavily in this instance. 

Besides, many would argue that it’s up to the parents to take responsibility for what their children see online, not a ruling government body. Furthermore, when you consider the woke society in which some authorities are condoning the content and topics minors are encouraged to see and even participate in is very questionable, to say the least. Also, what’s being taught in schools, specifically relating to gender identity and sexual orientation. We live in a highly polarized society, so who will really benefit from this legislation? 

On another note, an ambiguous provision in section 131 of the bill states that Ofcom will have the power to restrict so-called ancillary services, including “services which enable funds to be transferred.” The mind boggles at what this could mean, but hopefully, decentralized cryptocurrency will circumvent this overreach of power.

Trust in the UK government has also plummeted, particularly during the pandemic. With the recent chaos and resignations of four prime ministers in 3 years, one survey shows only 10% trust the government, with 61% polling an emphatic ‘untrustworthy.’ The primary motive for the UK's online censorship efforts appears to stem from a desire for more oversight rather than censorship per se. A significant reduction in government trust has occurred in other countries; however, the motivations for censorship vary.

 


Image source: Digital Strategy Europa

European Union – The Digital Market Act/Digital Services Act

The European Union (EU) consists of several countries. In contrast to Canada and the UK, European authorities separated their online censorship efforts into the Digital Markets Act (DMA) and the Digital Services Act. (DSA) These are two of five bills known as the Digital Services Package, introduced in December 2020 and the second phase of the EU’s 2030 digital agenda. The EU's DMA and DSA were adopted in July and October 2022, respectively, with the new rules to be applied 6 -15 months after their entry into force. 

The EU’s Digital Governance Act (DGA) was passed in June 2022 and will fully apply in September 2023. They are also in the process of passing the Data Act (DA), and the takeaway here is the mandatory sharing of data with governments and corporations. The fifth Act is the EU’s Artificial Intelligence Regulation (AI Reg), which could enter into force in early 2023 in a transitional period, and late 2024 is the earliest time the regulation could become applicable. Note that all five bills are regulations, meaning they will override the national laws of EU countries.

The Digital Markets Act (DMA)

The Digital Markets Act has little to do with online censorship, and it could paradoxically make it possible to bypass many of the restrictions that the Digital Services Act seeks to introduce. That’s because the Digital Markets Act would impose massive fines on mega-tech or so-called gatekeepers who maintain their monopolies by giving preference to their products and services. The implications of this are profound and could do severe damage to big tech company profits. 

One example is that Apple has a monopoly on its apps for iPhone, meaning all apps must be downloaded from the Apple Store, and some apps can’t be uninstalled. Under the DMA, you can install apps from other stores and uninstall everything from your iPhone. The same would apply to other phones, computers, tablets, etc. 

Given that Apple and the like make a lot of money from mining your data with mandatory apps and making developers pay massive fees, the Digital Markets Act could deliver an enormous blow to their bottom line. Big tech companies are not happy and are expected to look for ways to diminish the impact of this Act through court proceedings. 

The motivation for the DMA is to increase Europe's competitiveness in the tech space. More importantly, the Digital Markets Act could be a precedent for all sorts of innovation in cryptocurrency in the EU because there would be an entirely new set of hardware available to crypto developers in the region. 

The downside of this bill is that it will also require all gatekeepers to provide detailed data about the individuals and institutions purchasing their products and using their services to the EU. This will be facilitated by the Data Governance Act and Data Act which mandate data sharing.

The Digital Services Act (DSA)

The DSA’s motivating force is to create its interpretation of a safer online environment for digital users and companies. In other words, it will establish a Ministry of Truth in every EU country, censoring certain information and pushing government propaganda. Each country will have the deceptive title “digital services coordinator,” which will function as a Ministry of Truth. Each digital services coordinator will appoint “trusted flaggers” to monitor and take down content. Trusted flaggers will be law enforcement, NGOs, and other unelected institutions.

Regarding the kind of content trusted flaggers would track and take down, the scope seems limited to Illegal content, as in the UK. However, the bill suggests disinformation could be on their radar as well. Now, this begs the question of who defines disinformation and the answer is probably the EU. Violators of the EU's upcoming regulations will face fines of up to 6% of their annual income per infraction, and repeat offenders will be banned. The Digital Services act also contains a provision that could impose KYC on social media platforms, in the name of child safety, like in the UK. 

The bill explicitly states that in a crisis, the European Board for Digital Services will instruct social media platforms to enhance content moderation, change their terms and conditions, work closely with trusted flaggers, and tweak the algorithm to “promote trusted information.” In other words, the next time there's a crisis, the government narrative will be promoted, and opposing ideas and positions will be down-ranked or deleted. 

Moreover, there's no limit on how long these emergency social media measures would last. As 'they' say, “never let a good crisis go to waste.” Not surprisingly, the World Economic Forum (WEF) is a big fan of the EU's Digital Services Act and claims it will be used as the standard for online censorship worldwide once other countries see its success. 

Also, not surprisingly, the WEF has criticized the UK for dropping its ‘legal but harmful speech’ regulation. This further supports the idea that the Digital Services Act will apply not just to explicitly illegal content. The WEF’s article suggests they will also include things like hate speech. It’s inherently a human trait to get emotional with certain occurrences, so if people are angry, why not address the cause rather than censor them; now there’s a thought! 

Trust in EU governments fell by almost 25% during the pandemic, and that's the average drop. Many EU countries saw even more significant declines in confidence. The Czech Republic leads the pack, with just 15% of Czechs now trusting their government. It’s evident the EU's totalitarian approach has failed so far.

Whereas the Digital Markets Act was created to make Europe's technology sector more competitive, the Digital Services Act was designed to control European citizens. The last thing the EU wants is for people to lose trust in it, but given the magnitude of these laws will only accelerate that process. 

 


Image Source: The Heritage Foundation

The United States – Kids Online Safety Act / Section 230

Similarly to the European Union, the United States has two significant documents related to online censorship. The first bill is titled the Kids Online Safety Act (KOSA), and the second is a Supreme Court case and pertains to the Section 230 bill. The Kids Online Safety Act was introduced in February last year and is still sitting in Congress but is expected to pass later this year because it has bipartisan support. 

However, outside Congress and from both sides of the political spectrum, dozens of civil society groups have criticized the bill. They warned the bill could actually pose further danger to kids by encouraging more data collection on minors in the form of a KYC protocol. It will ultimately force online service providers to collect KYC data to ensure they're not showing harmful content to children. 

The provision in the US bill does not explicitly require tech companies to do this, but the bill acknowledges it's the only real option. As in Canada and the UK, a US Government regulator will ultimately decide when kids have been made unsafe online, specifically by the Federal Trade Commission. (FTC) This has also been criticized because it should be the parent's responsibility to watch what their children consume instead of being used as an excuse to monitor and censor everyone else.

What’s more, it's not just the FTC that will be issuing fines. The Kids Online Safety Act will allow parents to sue tech companies if their children have been harmed online. It's assumed social media platforms will turn the censorship up to full throttle to ensure they don't get sued, even with KYC.

Section 230

The second bill relates to Section 230, in which the Supreme Court will hear two cases about central internet moderation in February 2023. For those unfamiliar, Section 230 is a US law passed in 1996, which allows social media platforms to moderate content to a limited extent without violating the First Amendment, which protects freedom of speech and the press in the United States. 

However, big tech has leaned on Section 230 of the Communications Decency Act to avoid being held responsible for some of the most controversial content on their platforms. The companies have invoked this federal law to dismiss potentially costly lawsuits in numerous cases. 

The Supreme Court case called Gonzalez v. Google alleges that Google supported terrorism with its algorithmic recommendations and contributed to the 2015 terror attacks in Paris, which killed an American student named Nohemi Gonzalez, among many others. It was picked up by the Supreme Court last October after being passed up by various courts of appeal. The same applied to another case called Twitter v. Taamneh, where a Jordanian was killed in a terror attack in Istanbul, and Twitter's algorithms allegedly contributed to the attack. 

So, what are the outcomes? If the Supreme Court sides with Gonzales, big tech will be hit with related lawsuits and have to engage in more online censorship to ensure no more cases occur. Notably, this is the outcome the Democrats are pushing for as US President Joe Biden filed a legal brief with the Supreme Court, asking them to increase the liability of social media companies under Section 230. The Department of Justice also filed a legal brief with the same request. 

On the other hand, six of the nine Supreme Court Justices were appointed by Republican presidents. Republicans have been calling for Section 230 to be thrown out altogether, arguing that there is too much censorship. Should the Supreme Court decide that Section 230 is unconstitutional, online censorship would instantly become illegal and also apply to algorithms. 

Google and Twitter have argued that stripping Section 230 protections for recommendation algorithms would have wide-ranging adverse effects on the internet. Some argue the internet won’t work very well without algorithms. This begs the question, would they be able to remedy the algorithm issues by allowing the user access, with the ability to shape it to their desires? It makes one wonder about the hidden agendas. 

Another outcome would be for the Supreme Court to rule in favor of Google and for Congress to amend Section 230. However, allowing Congress to change Section 230 would likely result in even more online censorship. Consider that trust in US institutions has been falling fast and recently hit record lows. Only 27% of Americans have confidence in 14 major American institutions on average, according to a poll conducted by Gallup, which found sharp declines in trust for the three branches of the federal government, the Supreme Court (25%), the presidency (23%) and Congress. (7%)

 


Image source: Ricochet.com

The Best Outcome

All is being revealed among centralized entities, governments, and the non-government organization cartels. They are literally turning on each other only to cripple themselves. The Divine end game has been actioned and is very positive for decentralized media platforms. Billionaires are flipping, and technology has made it possible to disseminate critical information that uncovers secrets and lies that have enslaved us, is now prolific. No centralized entity of a few can control the masses if we don’t let them. Free speech will find a way. 

And be mindful that in this world,

“The Ministry of Peace concerns itself with war, the Ministry of Truth with lies, the Ministry of Love with torture, and the Ministry of Plenty with starvation. These contradictions are not accidental, nor do they result from ordinary hypocrisy: they are deliberate exercises in doublethink. For it is only by reconciling contradictions that power can be retained indefinitely. In no other way could the ancient cycle be broken. If human equality is to be forever averted—if the High, as we have called them, are to keep their places permanently—then the prevailing mental condition must be controlled insanity. — Part II, Chapter IX 1984

 

 

Editor and Chief Markethive: Deb Williams. (Australia) I thrive on progress and champion freedom of speech. I embrace "Change" with a passion, and my purpose in life is to enlighten people to accept and move forward with enthusiasm. Find me at my Markethive Profile Page | My Twitter Account | and my LinkedIn Profile.

 

 

 

 

Tim Moseley

Questions arise about next FOMC meeting will their decisions remain data-dependent

Questions arise about next FOMC meeting; will their decisions remain data-dependent

Exactly one week from today the Federal Reserve will hold the first Federal Open Market Committee meeting for the calendar year 2023. But before Federal Reserve officials meet for the first time this year on Friday, January 27 the government will release its latest data on inflation vis-à-vis the core PCE for December. Currently, the forecast for this week’s core PCE report is that inflationary pressures will continue to subside from 4.7% YoY in November to 4.4% in December 2022.

Inflation has been steadily subsiding as a result of the extremely aggressive monetary policy of the Federal Reserve which has been raising the benchmark “Fed funds” rate beginning in March 2022. The Federal Reserve had maintained its benchmark rate between 0 and ¼% for an extended time even though inflation in 2021 was spiraling out of control quickly approaching a 40-year high. Beginning in March the Federal Reserve raise rates by ¼%, the first-rate hike since 2018.

This was followed by a series of aggressive rate hikes that would define the second half of 2022. The Federal Reserve as they raised rates at each consecutive FOMC meeting from March to December. In May they raised rates by ½% and followed that with a series of ¾% rate hikes in June, July, September, and November. Finally, the Federal Reserve decreased the pace of hikes starting on December 2 by only raising them by ½ %. The totality of the actions by the Federal Reserve last year took the benchmark rate from between 0 and ¼% to between 4 ¼% and 4.5%.

It is widely expected that the Federal Reserve will continue its pivot by slowing the pace of rate hikes with a ¼% rate hike during the January FOMC meeting. The CME’s FedWatch tool currently is forecasting that there is a 98.1% probability that the Fed will raise rates by only ¼% and a 1.9% probability that the Fed will raise rates by ½ %. The Federal Reserve is also on record according to their most recent economic projections released in December of last year that they expect to take their benchmark rate just above 5% and not reduce that level for the entire year and possibly into the first or second quarter 0f 2024.

This raises many questions, the most important being whether or not the Federal Reserve will maintain this aggressive monetary stance in light of recent data that indicates that inflation in the US and globally has peaked and is decreasing every month. Global inflation came in at a six-month low in December but the Federal Reserve maintains that it is unlikely to reverse its hawkish bias.

Their hardline stance that they will keep rates elevated at 5% with no rate reduction in 2023 brings to question whether or not the Federal Reserve is still data dependent, and if they are will they maintain their rigid policy of no rate deductions this year regardless of what the data shows?

While declining levels of inflation allude that the hawkish monetary policy of the Fed with aggressive rate hikes is certainly behind us. The fact that the Federal Reserve is on record stating that they will slow the pace of rate hikes the question becomes; is there any point at which positive data on lower levels of inflation will cause them to backpedal on their stance of no rate reductions in 2023?

This is possibly the most important question on the minds of economists, analysts, and most importantly market participants.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold futures remain steady as investors await the PCE report and FOMC meeting

Gold futures remain steady as investors await the PCE report and FOMC meeting

Gold futures traded marginally higher as market participants focus on next week’s FOMC meeting. As of 4:00 PM EST, the most active February contract of gold futures is up $3.80 and fixed at $1932. Silver futures traded under pressure with the most active March contract currently down $0.37 and fixed at $23.565. The dollar had little influence on precious metals pricing today with the dollar index in essence unchanged, up 0.01%, and fixed at 101.795.

Next week, the Federal Reserve will hold the first federal Open Market Committee meeting for the year where they will most likely implement the next interest rate hike. Last week, we received a series of mixed messages from different Federal Reserve officials. James Bullard, the president of the St. Louis Federal Reserve for example expressed the need for the Federal Reserve to rapidly move to their target rate of 5% or higher saying “why stall”.

Another advocate continuing to raise rates at an accelerated rate was Cleveland Fed President Loretta Mester. Last week she commented, "I just think we need to keep going, and we'll discuss at the meeting how much to do."

However, it is still highly anticipated that the Federal Reserve will continue with a slower pace of rate hikes as seen at the last FOMC meeting in December when the Fed raised rates by ¼%, the smallest interest rate hike since March of last year. Several officials of the Federal Reserve have alluded to slowing the pace of rate hikes including Gov. Christopher Waller, who said in a speech at the Council on foreign relations that he favors a ¼% rate hike at the next FOMC meeting.

This is in alignment with the CME’s FedWatch tool which is predicting a 99.1% probability that the outcome of next week’s FOMC meeting will be a rate hike of 25-BPS, and only a 0.9% probability that the Fed will enact a more aggressive stance raising rates by 50-BPS.

One of the most important reports that will occur before the FOMC meeting is the release of the US core PCE (Personal Consumption Expenditures Price Index) index on January 27. The last report came in at 4.7% for November and it is currently believed that this month’s report will show that inflation has subsided to 4.4% in December of last year.

Gary S. Wagner

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold price eyes 1950 but it might have to wait until the Fed meeting before moving on to 2000 – analysts

Gold price eyes $1,950 but it might have to wait until the Fed meeting before moving on to $2,000 – analysts

Gold's January rally took prices to nine-month highs Friday, with the precious metal up more than 5% since the start of the year. But industry experts are not ruling out some consolidation ahead of the Federal Reserve's February meeting.

Gold hit a nine-month high of $1,939 an ounce Friday on bullish technical momentum and safe-haven buying. At the time of writing, February Comex gold futures were at $1,925.20, flat on the day after some profit-taking.

 

Is gold overbought?

Analysts describe a rapid rally in gold and warn that conditions are starting to look overbought.

"It is going to be choppy. I am neutral on gold until the Fed's meeting on February 1. Major resistance is at $2,000. But I would be surprised if we move above $1,950. We are likely to consolidate here until the Fed meeting," OANDA senior market analyst Edward Moya told Kitco News.

The overall outlook on gold remains strongly bullish, with many analysts looking for the precious to eventually get to $2,000 an ounce later this year and potentially even later this quarter. It is only the short-term view that looks potentially overstretched.

"It's been a skyrocketing move higher. If selling pressure kicks in, $1,900 might not be a strong level of support," Moya noted.

Technically, gold is approaching overbought territory, noted RJO Futures senior market strategist Frank Cholly, adding that the trend higher remains strong.

"The gold market is moving higher at a ridiculous rate. It is seeing higher highs, higher lows, and higher closes. That is good. And the U.S. dollar has been trending lower. Any correction at these levels would be a buying opportunity," Cholly told Kitco News. "I expect gold to continue to trend higher. I am bullish until we see a pullback to $1,850."

The $2,000 target is still very much on the table for Cholly. "Even though we had a little trouble achieving a close at $1,950, I see a clear pathway to $2,000," he said.

Cholly explained that gold is a unique market in that higher prices make the asset more attractive. "In other markets, such as raw commodities that are supply and demand driven, you reach a point where high prices are the cure for high prices — meaning that people stop buying at a certain price target or producers increase production. For gold, the higher it goes, the more people want it. We can easily achieve $2,000 in the first half of this year, if not sooner," he added.
 

Fed expectations

The beginning of the year saw recession fears and movement in Treasuries, which was good for gold. "Year-to-date, gold is off to a good start," Moya said. "I still maintain my 2023 bullish outlook. We've seen it rally quite a bit, so there could be some weakness here."

All eyes will be on the Fed messaging come February 1, with markets pricing in a downshift to a 25-basis-point hike. This is a significant change of pace after the Fed went from hiking by 75 basis points in the fall to 50 basis points in December.

"The Fed has done enough messaging. But the labor market is a bit confusing. There has been enough weakness in the data already. They are likely to downshift to 25 basis points," said Moya. "For the Fed, a big risk is that inflation doesn't go all the way down."

The U.S. dollar moves are critical to watch in the next few weeks as markets anticipate a lower dollar as the Fed slows down rate hikes, added Cholly.
 

Data next week

There are several critical data releases next week, including the U.S. Q4 GDP and the Fed's favorite inflation measure — the core personal consumer expenditure.

Despite deteriorating manufacturing and service sector data, the fourth quarter GDP is expected to show the U.S. economy expanding 2.6% after reporting growth of 3.2% in Q3.

"Consumer spending should be an important driver given the strong performance in October, but aside from that, the growth will largely be focused on net trade and inventory building," said ING's chief international economist James Knightley. "This is not 'good' growth. Imports are falling because of the deteriorating domestic growth story, while inventories are increasing, partly because of improved supply chains but also because demand is not as strong as many businesses expected. The GDP growth figures over the next few quarters will be much weaker."

The core PCE price index is expected to slow to 4.4% on an annual basis in December from November's pace of 4.7%.

"[This] would confirm the easing trend in price pressures. There are no scheduled Federal Reserve speakers due to the proximity to the upcoming FOMC meeting and the self-imposed 'quiet period'. We expect a 25bp interest rate increase on February 1," Knightley added.

Wednesday: Bank of Canada rate decision

Thursday: U.S. GDP Q4, U.S. jobless claims, U.S. durable goods orders

Friday: U.S. PCE price index, U.S. pending home sales

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold prices holding steady gains above 1925 as US existing home sales drop 15 in December

Gold prices holding steady gains above $1,925 as U.S. existing home sales drop 1.5% in December

Gold prices, while down from their nine-month highs, are holding modest gains following another drop in U.S. existing home sales, according to the latest report from the National Association of Realtors (NAR).

Friday, the association said that existing home sales fell 1.5% to a sales rate of 4.02 million homes in December, the market's eleventh consecutive drop. Although home sales continued to decline into the year-end, the data was better than expected. Economists were looking for a sales rate of 3.95 million.

The gold market is seeing a muted reaction to the latest economic data as some traders take profits after prices hit a nine-month high at the start of the North American trading session. February gold futures last traded at $1.927.10 an ounce, up 0.17% on the day.

The NAR said that existing home sales totaled 5.03 million in 2022, a drop of 17.8% from 2021. Economists note that the Federal Reserve's aggressive monetary policy action, raising interest rates 425 basis points last year, kept many potential home buyers out of the market. At the same time, low supplies of homes for sale kept prices elevated through 2022.

"December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates," said NAR Chief Economist Lawrence Yun. "However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year."

The report said the median price for existing homes in December was $366,900, up 2.3% compared to last year. "This marks 130 consecutive months of year-over-year increases, the longest-running streak on record," the report said.

However, Yun noted that prices could start to reverse as the supply of homes for sale grows

"Home prices nationwide are still positive, though mildly," Yun added. "Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year."

Looking at housing inventories, the report said that as of the end of December, there were 970,000 units for sale, down 13.4% from November but up 10.2% for the year. The number of homes for sale represents a 2.9-month supply, the report added.

By Neils Christensen

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Solid gains for gold on bullish charts some safe-haven buying

Solid gains for gold on bullish charts, some safe-haven buying

Gold prices are solidly higher and near this week’s nine-month high in midday U.S. trading Thursday. The technical traders continue to flow to the long side of the gold market due to bullish charts. Some modest safe-haven demand may be surfacing due to worries about the U.S. government going into default on its debt. February gold was last up $13.40 at $1,920.50 and March silver was up $0.048 at $23.695.

The U.S. Treasury Department said it is poised to take defensive action to prevent a default that could do "irreparable harm" to the economy, reports said.

Global stock markets were mixed but mostly lower overnight. U.S. stock indexes are lower at midday. The U.S. stock index bulls were derailed Wednesday when U.S. retail sales data came in weaker than expected, which revived notions the U.S. economy could slip into recession in 2023. The U.S. government debt concerns are also limiting buying interest in stocks.

 The world could run out of gold by 2050 as demand grows to keep up with evolving society, says researcher

The key outside markets today see the U.S. dollar index slightly lower. Nymex crude oil futures prices are higher and trading around $81.00 a barrel. Meantime, the yield on the benchmark U.S. 10-year Treasury note is presently fetching around 3.38%percent. U.S. Treasury yields have dropped in the wake of a tamer U.S. producer price index report on Wednesday and the weaker U.S. retail sales report.

Technically, February gold futures prices hit a nine-month high Tuesday. Bulls have the solid overall near-term technical advantage. A 2.5-month-old uptrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,950.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,870.00. First resistance is seen at this week’s high of $1,931.80 and then at $1,950.00. First support is seen at $1,900.00 and then at $1,885.00. Wyckoff's Market Rating: 8.5

March silver futures bulls have the overall near-term technical advantage. However, they have faded recently as a four-month-old uptrend on the daily bar chart has turned into sideways trading. Silver bulls' next upside price objective is closing prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at $22.50. First resistance is seen at $24.00 and then at $24.50. Next support is seen at the January low of $23.26 and then at $23.00. Wyckoff's Market Rating: 6.5.

March N.Y. copper closed down 40 points at 423.05 cents today. Prices closed nearer the session high today. Prices Wednesday hit a 6.5-month high. The copper bulls have the solid overall near-term technical advantage. However, the bulls are short-term exhausted. A three-month-old uptrend is still in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 450.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 400.00 cents. First resistance is seen at today’s high of 426.85 cents and then at 430.00 cents. First support is seen at today’s low of 416.80 cents and then at this week’s low of 411.05 cents. Wyckoff's Market Rating: 7.5.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold trades lower as Fed’s Bullard advocates front-loading rate hikes

Gold trades lower as Fed’s Bullard advocates front-loading rate hikes

“Front-loading” is a process of distributing unevenly, with a greater proportion at the beginning of the process, and James Bullard thinks this should apply to rate hikes.

In an interview with the Wall Street Journal James Bullard, President of the St. Louis Federal Reserve said that the “Federal Reserve should not stall” on raising its rates. He said that he likes the idea of “front-loading” rate hikes saying that “the Federal Reserve should move as rapidly as it can to get its policy rate over 5% and then it can react to the data”, adding “Why not go to where we’re supposed to go. Why stall? James Bullard is not a voting member of the Fed’s interest rate committee this year.

His sentiment is also echoed by Loretta Mester, President of the Cleveland Federal Reserve who is advocating that the Fed needs to raise its interest rate a “little bit” higher than the Fed’s current target of 5% to 5 ¼%. In an interview with the Associated Press today she said, "I just think we need to keep going, and we'll discuss at the meeting how much to do”.

This goes against a central message presented by many officials of the Federal Reserve last year. The latest message delivered by Chairman Powell expressed that the Fed intended to slow the pace of interest-rate hikes in 2023. This message was reinforced today by Patrick Harker the president of the Philadelphia Federal Reserve. Reuters news reported that “he‘s ready for the U.S. central bank to move to a slower pace of interest rate rises amid some signs that hot inflation is cooling off”.

Currently, analysts and market participants are anticipating that the Fed will raise rates by ¼% at the next FOMC meeting. This is in alignment with the CME’s FedWatch Tool which is forecasting a 93.3% probability of a 25-bps rate hike, and a 6.7% probability of a 50-bps rate hike by the Fed at their next meeting.

The Federal Reserve raised its benchmark rate more aggressively last year than any other time since the 1980s. Beginning in March 2022 the Fed raised rates at every FOMC meeting with four consecutive jumbo 75-bps rate hikes. This took the Fed’s benchmark rate from 0-25 bps in February to 425-450 bps by the end of the year. The Federal Reserve is currently anticipating that they will raise rates until they reach their target of 5 ¼ to 5 ½% this year.

The mixed messages sent by Federal Reserve officials have raised concerns that the Federal Reserve will backpedal the idea of slowing down the pace of interest-rate hikes.

This has pressured gold prices to drop over the last two days. After hitting an intraday high yesterday of $1931 the price of February gold futures has softened considerably. As of 3:50 PM EST, the most active futures contract is currently fixed at $1905.60, after factoring in yesterday’s decline and an additional $4.10 today. If the price of gold futures breaks below $1900 it could decline to approximately $1880 which is the next technical level of support.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley