Extreme dollar strength and 1 month T-Bills yielding 5.59% move gold lower

Market participants are witnessing extreme dollar strength and exceedingly high yields in short-term Treasury Bills as continued uncertainty and angst surrounding negotiations to raise or suspend the debt ceiling are still at a stalemate. The US dollar has climbed higher for the last three consecutive weeks after trading to a low at the beginning of May at 101. The dollar gained 0.42% today with the dollar index currently fixed at 103.815. That is a net gain of almost 3% in May.

Although salmon consistently swim upstream, gold has been fighting the currents of dollar strength and high yields and has been unable to gain any traction as a haven asset because no legislation has been forthcoming from negotiations. After hitting a high of $2085, just shy of the record high about a month ago gold prices have declined dramatically trading to a low today of $1958.40. Gold futures have traded below $1960 per ounce on four of the last five trading days.

The Federal Reserve released the minutes from the last FOMC meeting held in May. The minutes revealed that numerous Federal Reserve officials believed the most prudent path would not contain rate hikes in the near future. That being said, Fed officials were not unified in that belief.

There were Federal Reserve officials that said that because the economy has evolved as anticipated "then further policy firming after this meeting may not be needed." The minutes also revealed that some officials of the Federal Reserve underscored the need that they should communicate that interest rate cuts were not likely this year although further hikes cannot be completely ruled out. The minutes showed that members were laser-focused on stress in the banking system and the failure of multiple banks in the United States incorporating that into their forecast and more importantly forward guidance.

Even a more dovish stance by Federal Reserve members was not able to be supportive of gold pricing as the precious metal tumbled its near recent lows. It seems the expectation of market participants is under the assumption that a resolution to the debt ceiling negotiations will be forthcoming. That assumption combined with extreme dollar strength and strong yields from short-term US debt instruments continues to keep gold pricing range bound and trading near the lows of $1960 per ounce.

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

The solution to the raising the U.S. debt ceiling is not going to be a cake walk

Short-term T-bills maturing between June 6th through 15th are currently yielding 5.997%, an indication of the angst regarding whether a debt ceiling resolution can be reached on time before threatening a government default of its financial obligations. The uncertainty regarding the negotiations has moved the one-year T-bill with an issue date of June 2022 maturing on June 15 to a yield of 6.141%.

This is because T-bills maturing between June 6 and 15th are seen as the riskiest investment with the real possibility of delayed payment, according to Lawrence Gillum of LPL Financial. According to MarketWatch, "At the moment, the T-bill market is in a state of dislocation — one in which yields ranged from as little as 2.924% on the government obligation maturing on May 30 to as high as 6.141% on the 1-year bill maturing in three weeks."

The financial backdrop created by the uncertainty of a resolution in passing legislation to either suspend or raise the debt limit by the first or second week of June has strengthened the dollar and pushed away the chance for any upside moves in gold.

Gold futures continue to trade near recent lows at around $1960 with resistance occurring just above $1980. Today the most active June 2023 Comex contract gained only $0.30 on the day and is currently fixed at $1977.50. However, it is the low that is most troublesome trading to an intraday low today of $1955.80 before recovering. That being said, the differential between the open and closing prices is just a couple of dollars.

Although gold futures were able to recover off of earlier lows the uncertainty of a debt ceiling resolution is not enough to prompt traders to bid the precious yellow metal higher. This is because the consensus among traders is while there is uncertainty ultimately the issue will be resolved either by a temporary stopgap bill that adds more time and raises the debt ceiling or an actual piece of legislation that both the Democratic and Republican constituents can agree upon.

The debt ceiling has been reached and raised more times than one can count and on the vast majority of occasions, legislators simply played kick the can down the road taking the dilemma to an 11th-hour showdown. However, in this case, it seems a little bit different in that rather than playing kick the can they are playing a high-stakes game of chicken in which both sides are waiting for the other side to blink first. While both the Republicans' and Democrats' desires have components of budgetary concerns that are realistic, the sad truth is that you can’t have your cake and eat it too.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Debt-ceiling talks between Biden and McCarthy to resume at 5:30 EDT

The latest round of debt-ceiling talks between the President and House Speaker will begin tonight at 5:30 PM EDT. While both sides have presented optimism on passing legislation that would temporarily suspend, or raise the debt limit ceiling, the Democrats and Republicans are still far apart.

Comments by the House Speaker today emphatically stated that "nothing is agreed to and there are still a lot of obstacles for a deal." This after a phone call between the president aboard Air Force One and McCarthy Sunday evening was "productive" according to McCarthy. President Biden held a news conference in Hiroshima where he criticized the legislation proposed by the house saying that he could not promise fellow world leaders that the United States would not default.

On Sunday President Biden said that he believes he has the authority to invoke the 14th amendment as a potential solution if the negotiations continue to result in a stalemate. However, the U.S. Treasury Secretary, Janet Yellen believes that the 14th Amendment is not a viable option as it cannot "be used appropriately in these circumstances, given the legal uncertainty surrounding it and given the tight deadline in which we find ourselves".

In an interview on Sunday with NBC Janet Yellen again had a strong warning about what was at stake if the two sides aren't able to reach a resolution and raise or suspend the debt ceiling.

"I indicated in my last letter to Congress that we expect to be unable to pay all of our bills in early June and possibly as soon as June 1. And I will continue to update Congress, but I certainly haven't changed my assessment. So I think that that's a hard deadline,"

According to a Moody's Analytics report, a default could lead to more than 7 million Americans out of work and the loss of $10 trillion in individual household wealth.

However, gold traded lower today temporarily disregarding the ongoing debt ceiling negotiations instead focused on statements made by Federal Reserve officials going against the grain of Powell's speech last week.

In an interview with CNBC, Minneapolis Fed President Neel Kashkar indicated that interest rates could go above 6% before the Federal Reserve reaches its 2% inflation target. This was an agreement with St. Louis Fed President James Bullard said that there might be a need to go higher on the policy rate.

As of 5:20 PM EDT, gold futures basis most active June contract is trading under pressure, down $7.90 and fixed at $1973.70. With the meeting between the president and the House Speaker to begin in about 10 minutes, we could see gold trade with extreme volatility this evening.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold price could 'easily' regain $2k next week as more debt ceiling troubles ahead – analysts

Even though gold is wrapping up the week down $30 — its worst performance since February — the Friday afternoon rebound keeps the bullish gold trend alive.

The gold market recovered after Federal Reserve Chair Jerome Powell said rates might not have to rise as much due to tighter credit conditions after the banking sector turmoil.

"The financial stability tools helped to calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation," Powell said at the Thomas Laubach Research Conference Friday. "So, as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain."

This was a sign that the Fed could pause in June. After Powell's comments, market expectations of a rate hike in June fell from nearly 50% to 20%, according to the CME FedWatch Tool.

The news calmed the gold sellers after market participants began to price in another 25-basis point hike next month and pared bets of a rate cut in the second half of the year.

At the May meeting, the Fed hiked for the tenth consecutive time, which brought the federal funds rate to a 5-5.25% range – the highest since mid-2007. In just over a year, the Fed raised rates by 5%. The next monetary policy meeting is scheduled on June 13-14.

On top of the shifting rate expectations, the debt ceiling progress was dealt a blow on Friday afternoon as talks to raise the federal government's $31.4 trillion debt cap paused.

"Wall Street thought we were going to see bill text over the weekend or early on Monday, with a potential vote in the middle of the week," said OANDA senior market analyst Edward Moya. "That seems less likely now and could raise the risk that we won't get an agreement before June 1st, the so-called X-date."

Keeping in mind the divisiveness of U.S. politics, the debt ceiling issue will get more heated again, Moya told Kitco News.

"You are going to start to see a bit more difficulty in negotiations. Gold will be in the wait-and-see mode to figure out which part of the economy will break," he said Friday. "The consumer is clearly weakening. A lot of the data still supports a recession."

Rate cut bets pared

One development that will continue to weigh on gold is pared-back rate cut expectations, Gainesville Coins precious metals expert Everett Millman told Kitco News.

"Almost everyone in the marketplace was convinced that the Fed was about to cut rates in the second half of this year. But because inflation didn't come down as much, the economy is holding up, and the unemployment rate is low, big traders are unwinding those rate cut bets," he said Friday.

And with gold testing record highs just over two weeks ago, traders are also taking some profits off the table, accelerating the move lower, Millman added.

Overall, it's been a disastrous week for gold, but it's ending on a positive note, Moya noted. "People are having second thoughts on whether we are headed towards a recession that is killing safe-haven demand," he told Kitco News. "This has been an interesting period where we really had so many risks on the table — banking crisis, debt ceiling, massive layoff announcements."

 

What's next for gold price

Millman's base-case scenario is that gold rebounds from here — something that it has done time and time again this past year.

"If you look at the pattern, gold does keep putting in higher lows and higher highs. Although I wouldn't rule out a drop to $1,900, my base scenario is to see gold rebound as it has each of the last several selloffs," Millman said.

After Powell's comments, there is a good chance that the Fed will pause in June, which gives the U.S. central bank optionality going forward, Millman noted.

"Keep in mind that it takes 12-18 months for rate hikes to really start showing up in economic data. The Fed has been hiking aggressively in a pretty short span of time, and we won't see results until the second half of this year. A pause in June would be reasonable," he said.

Gold's immediate resistance would be $1,980 and then $2,000 an ounce. A solid support level is at $1,960-50, Millman pointed out. If that fails, then $1,900 could come into play.

Moya also sees support at $1,950 and resistance at $2,000 an ounce. "If debt ceiling talks continue to struggle, prices could easily stabilize above the $2,000 level next week."

At the time of writing, June Comex gold futures were trading at $1,983.80, up 1.22% on the day.

 

Next week's data

Markets are closely monitoring the FOMC May meeting minutes next week, the U.S. GDP update, and the Fed's favored PCE inflation indicator.

"Inflation … looks set to remain elevated, which could keep the market on edge about a possible June interest rate hike," said ING chief international economist James Knightley. "Nonetheless, the activity backdrop continues to soften, with real consumer spending set to come in flat on the month in April. Recession risks remain high given the rapid tightening in lending conditions in the wake of recent bank failures, and we still see the potential for lower interest rates before the end of the year."

Tuesday: U.S. new home sales

Wednesday: FOMC May meeting minutes

Thursday: U.S. GDP Q1, U.S. jobless claim

Friday: U.S. PCE price index, U.S. durable goods order

By

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold rallies to daily high on short covering, Powell remarks

Gold prices have pushed to double-digit gains in late-morning trading Friday. Short covering by the shorter-term futures traders, after the recent solid price losses, is featured. Also, the yellow metal rallied as Federal Reserve Chairman Jerome Powell said in a panel discussion that developments in the banking sector may mean interest rates may not need to rise as much to meet the Fed’s policy goals. However, other comments Powell made at the panel discussion were not dovish, as he said the FOMC is strongly committed to returning to the 2% annual U.S. inflation goal. A sell off in the U.S. dollar index today is also aiding the precious metals market bulls. June gold last up $16.90 at $1,976.70.

Live 24 hours gold chart [Kitco Inc.]

By

Jim Wyckoff

For Kitco News

www.kitco.com

Time to Buy Gold and Silver

Tim Moseley

Strong decline in gold as economic data moves the Feds policy more hawkish

A virtual pivot of market sentiment in gold as the precious yellow metal has a deep price decline this week. On Tuesday, May 16 gold futures basis the most active June contract opened at approximately $2020 per ounce. Today gold futures traded to a low of $1954.40. The nearly $70 drop resulting from selling pressure on Tuesday and today is significant in that it has created strong chart damage revealing a shift from bullish to bearish sentiment. Yesterday gold futures traded and closed below the 50-day simple moving average. A strong technical indicator reveals that the short-term bullish momentum in gold has waned and could signal more downside pressure in the price of gold.

This recent pivot results from comments by Federal Reserve officials indicating a more hawkish monetary policy than previously believed or anticipated. Yesterday Austen Goolsbee President of the Federal Reserve Bank of Chicago said it was, “far too premature to be talking about rate cuts”. Other Fed officials came out in favor of a more hawkish monetary policy such as Loretta Mester, President of the Cleveland federal bank who said, “rates were not yet at a point where it could hold steady.”

Recent economic data reveals a robust economy in the United States that is continuing to recover from the pandemic recession. Proof of that began last week when the new U.S Jobless claims came in well under expectations along with the Philadelphia Fed Manufacturing index in the US which fell from -23.2 points in March to 031.3 points in April. This is the lowest number since May 2020. It also marks eight consecutive negative readings coming in well below expectations that predicted -19.2.

Statements by Federal Reserve officials combined with recent solid economic data have dramatically influenced the probability of what the Federal Reserve will announce at the next FOMC meeting which will begin on June 24. Currently, the benchmark rate of the Federal Reserve is between 5 and 5 ¼%. The probability that the Federal Reserve will pause rate hikes next month has dramatically decreased from 89.3% one week ago, and 58.6% today. The probability that the Federal Reserve may even raise rates by ¼% has risen from 10.7% last week to 41.4% today.

These factors were highly supportive of the dollar with the dollar gaining just shy of 3% since May 4. On May 4 the dollar index traded to a low of 100.50 and is currently fixed at 103.42 after trading to an intraday high today of 103.65. Because gold is paired against the dollar there is a negative correlation which means that dollar strength by definition will take gold prices lower. As of 5:37 PM EDT Gold futures basis the most active June contract is currently fixed at $1960.30 After factoring in today’s decline of $24.60 Or 1.23%%.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

Tim Moseley

Gold slumps as Fed confirms its resolute stance on lowering inflation

In the span of just under two weeks, from Thursday, May 4 to Wednesday, May 17 we have seen gold drop substantially and concurrently the dollar gained substantially.

Gold traded to a high of $2085 on March 4 and today traded to a low of $1978 resulting in a drop of $107 in just under two weeks. This is a net decline of 5.26% per ounce. When we look at the dollar index it traded to a low of 100.53 on Thursday, March 4 and today traded to a high of 102.96. This means that the U.S. dollar when compared to a basket of eight other international currencies gained roughly 2.42% for the same period.

Comparing the percentage decline of gold to the percentage advance of the dollar index it is clear that dollar strength has been a major component to the fall in gold pricing. However, the decline in gold is not isolated to just dollar strength, additional selling pressure by market participants was also a major contributor.

It seems that the root cause of dollar strength as well as the substantial percentage decline in gold can be directly attributed to recent comments coming from Federal Reserve officials. In essence, Fed comments have reinforced the resolve and commitment to keep interest rates elevated and this is illustrated in the December 2022 “dot plot” showing that they would keep their benchmark interest rate (Fed fund rate) elevated throughout 2023. More importantly, they have expressed that a rate cut this year remains highly unlikely.

The Federal Reserve continues to use its primary tool to reduce inflation which is to raise interest rates which cause an economic contraction. An economic contraction works to lower the price of goods and services. Simply put the Federal Reserve works with the principle of supply and demand economics. Higher prices for goods and services will reduce demand.

Recent comments by the Federal Reserve have confirmed their commitment. According to MarketWatch, Underscoring the Fed’s resolve to curb inflation, Chicago Fed President Austan Goolsbee had said on Tuesday it was “far too premature to be talking about rate cuts,” while Cleveland Fed President Loretta Mester said “rates were not yet at a point where it could hold steady.”

As of 5:55 PM EDT Gold futures basis the most active June contract is currently fixed at $1985.70 after factoring in today’s decline of $7.30 Or 0.37%. The U.S. dollar is currently trading at 102.73.

Gary S. Wagner

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold, silver prices down on demand worries, bearish outside markets

Gold and silver prices are solidly lower near midday Tuesday. Weaker economic data coming out of China has prompted increased concerns about consumer and commercial demand for precious metals. Meantime, bearish outside market forces on this day are working against the metals markets—firmer U.S. dollar index, weaker crude oil and rising U.S. Treasury yields. June gold hit a two-week low today and was last down $20.20 at $2,002.40. July silver hit a six-week low today and was last down $0.441 at $23.845.

Risk appetite is not robust today but that is not helping out the safe-haven metals bulls at this point. U.S. stocks are mostly weaker after Home Depot reported a downbeat outlook for the retail consumer. U.S. House Speaker Kevin McCarthy said debt-ceiling negotiations have seen no progress. Congressional leaders and President Biden were set to meet at the White House today. The U.S. government could run out of money as soon as June 1. Said Ed Moya of OANDA: "Wall Street is bracing for something bad to happen, but no one has an idea on what will be that catalyst. It could be a debt-ceiling impasse, persistent banking fears, or a much weaker consumer as sticky inflation becomes more noticeable."

Meantime, U.S. retail sales rose 0.4%, an improvement from the 1.0 drop seen in the prior month, but less than the 0.8% consensus estimate.

China, the world's second-largest economy, got a generally downbeat data dump Tuesday. Industrial production rose 5.6%, year-on-year, in April–short of market expectations for a 10.1% growth rate. Industrial production rose 3.9%, year-on-year in March. Fixed asset investment was also lower than expected at 4.7%, year-on-year, compared to expectations of up 5.2%. Chinese electricity output fell in March by 8.2%, year-on-year. Aluminum output weakened in March and steel output has been declining. Gas output for March also declined as did coal mine production.

  Gold price at risk of dropping to $1,900 as rally runs out of steam, markets pricing in Fed rate cuts too early, says ABN AMRO

Meantime, Comex copper futures prices are trending lower and just hit a 5.5-month low. The red industrial metal has been called "Dr. Copper" for decades. It's an important building component in global construction and thus can help forecast world demand in that major industry. Copper's present price downtrend and multi-month low are indicating an anemic global economy at present. That's also bearish element for gold and silver, from a demand perspective.

The key outside markets today see the U.S. dollar index firmer and near the daily high. Nymex crude oil prices are slightly lower and trading around $71.00 a barrel. Meantime, the benchmark 10-year U.S. Treasury note yield is presently fetching around 3.5%.

Technically, June gold futures prices hit a two-week low today. Bulls still have the firm overall near-term technical advantage. Prices are still in a 2.5-month-old uptrend on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at the record high of $2,085.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,980.90. First resistance is seen at today's high of $2,022.70 and then at this week's high of $2,027.50. First support is seen at $2,000.00 and then at $1,980.90. Wyckoff's Market Rating: 7.0

July silver futures prices hit a six-week low today. The silver bulls and bears are on a level overall near-term technical playing field but the bulls are fading. Silver bulls' next upside price objective is closing prices above solid technical resistance at the April and May high of $26.435. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at this week's high of $24.395 and then at $24.735. Next support is seen at $23.50 and then at $23.25. Wyckoff's Market Rating: 5.0.

July N.Y. copper closed down 780 points at 367.30 cents today. Prices closed nearer the session low and hit a 5.5-month low today. The copper bears have the overall near-term technical advantage. Prices are in a four-week-old downtrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 400.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 350.00 cents. First resistance is seen at today's high of 375.45 cents and then at this week's high of 377.90 cents. First support is seen at today's low of 365.70 cents and then at 360.00 cents. Wyckoff's Market Rating: 3.0.

By

Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Debt ceiling negotiations will resume on Tuesday which supports gold prices

A second debt limit meeting between President Joe Biden and Senate majority leader McCarthy and other top congressional leaders will be held tomorrow, Tuesday, May 16. The divide between both sides was too wide for any progress to result from their first meeting. Staff on both sides negotiated through back channels to find common ground and potential compromises over the weekend.

The probability that tomorrow’s talks will yield any progress is remote, and the number of days remaining before June 1st is dwindling. Add to that the president's schedule this month, traveling to Japan from May 19 – 21, and Australia 22 – 24.

President Biden said, “I remain optimistic because I am a congenital optimist, and I think we’ll be able to do it.” on Sunday. However, McCarthy still is steadfast in that he wants to attach spending reductions to a debt ceiling increase. While President Biden still insists that he will not negotiate over the debt limit, calling on Congress to pass a clean increase before addressing budget reductions.

According to the Financial Post today, “In her second letter to Congress in two weeks, Treasury Secretary Janet Yellen confirmed that the agency will be unlikely to meet all U.S. government payment obligations by early June, triggering the first-ever U.S. default. The debt ceiling could become binding by June 1, she said.”

A US debt default would greatly hinder the ability of the Federal Reserve to set short-term interest rates. Reuters today reported that “A default on U.S. Treasury debt would be a leap into the unknown for the Federal Reserve's ability to conduct monetary policy to achieve its job and inflation goals. That's because U.S. government bonds are the key to how the central bank sets its short-term interest rate target. Anything that gums up the Treasuries market could scramble those mechanics.”

The debt ceiling crisis and potential default continue to be highly supportive of gold prices keeping gold above $2000 an ounce. As of 5:14 PM EDT, gold futures basis the most active June contract are currently fixed at $2020.40 after factoring in today’s fractional gains of $1.60. The U.S. dollar index is fixed at 102.27, after factoring in a decline today of 0.23%.

Gary S. Wagner

Time to Buy Gold and Silver

Tim Moseley

More than a quarter of Americans now view gold as the best long-term investment

Gold is holding above $2,000 an ounce, but it's not making any new significant gains. And silver is down more than 6% in the last five days.

Weaker economic data has reignited recession fears, keeping gold and silver on the sidelines because of lower demand expectations.

 

Here's a look at Kitco's top three stories of the week:

3. Palantir sells all of its gold-bar holdings worth $50 million

2. Confidence in Fed Chair falls to lowest on record as Jerome Powell attempts to balance inflation fight with banking crisis uncertainty – Gallup poll

Americans' approval of gold as best long-term investment doubles from last year, says Gallup survey

1. Gold price should be at $2,200 right now, U.S. dollar is overvalued by 20%, says BCA Research

By

Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley