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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.

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Wishing you as always good trading,

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips


Tim Moseley

Silver prices are stuck but future shines bright as industrial demand grows – Bank of America

Silver prices are stuck, but future shines bright as industrial demand grows – Bank of America

Silver prices are stuck in a wide range finding little momentum from subdued investor interest; however, commodity analysts at Bank of America expect the precious metals industrial demand to keep the market well supported.

In a report published Friday, the analysts said that demand from the solar power sector and growing importance in the auto sector will be two critical factors driving silver prices for the next three years.

The bank sees silver prices ending the year at around $32.50 an ounce as the market sees falling supply and growing industrial demand. The long-term bullish outlook comes as silver prices consolidate between $24 and $25 an ounce. May silver futures last traded at $25.81 an ounce, up 0.30% on the day.

"Demand headwinds have been gradually tailing off, and silver usage in solar panels is set to increase further as more photovoltaic (PV) is installed," the analysts said in the report. "Importantly, out to 2025, new PV installations in GW will likely outpace any savings from learning effects that might reduce silver loadings in panels. We assume 19t of silver per GW of capacity installed at the moment."

Looking beyond the solar sector, Bank of America expects electric vehicles to be an essential source of industrial demand for silver. They said that each electric car uses about 38 grams of silver, up 72% compared to conventional internal combustion engines.

"Overlaying these figures with expected EV production volumes, we believe silver usage could rise to 3,522t by 2025, from around 2,000t in the past decade," the analysts said.

Palladium price up 8%; lifts precious metals as London bans Russia PGM refineries

Along with growing demand, the report also noted that the silver market is seeing falling mine production.

"Silver production should remain subdued and is unlikely to return to the levels seen a decade ago. Of course, lack of output growth has been influenced by the low silver quotations in the past decade, which pushed miners to cut capex," the analysts said.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips



Tim Moseley

Gold price to focus on new decades-high inflation numbers next week – analysts

Gold price to focus on new decades-high inflation numbers next week – analysts

The gold market will pay close attention to the U.S. inflation numbers in what will be a very data-heavy week. Analysts are looking for prices pressures to reach new four-decade highs of well above 8% in March.

The big macro news still being digested by the gold market is the FOMC March minutes revealing the Fed's plan to reduce its balance sheet by $95 billion a month, which will likely be kicked off in May.

The Fed also discussed 50-basis-point rate hikes at upcoming meetings, which the market is already pricing in for May. "Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified," the minutes said.

This is why the March inflation data, which is scheduled to be released on Tuesday, will be one of the key releases to monitor. Market consensus calls expect to see annual inflation at 8.4% — the new four-decade high.

"The March consumer price inflation release … is expected to jump again due to the surge in gasoline prices. The national average was $3.50/gallon in February versus $4.19/gallon in March. Food prices have been rising sharply too while supply chain strains, rising commodity prices, and higher labor cost inputs in an environment where companies have decent pricing power mean broad-based contributions," said ING chief international economist James Knightley.

High inflation data will keep pressure on the Fed to hike by 50 basis points in May. However, the gold market remains unconvinced the Fed can maintain its aggressive tightening throughout 2022. This is why the precious metal held up so well, with June Comex gold futures last trading at $1,945.90, up more than 1% on the week.

"The market is now focused on whether the Fed's accelerated tightening path will eventually force the central bank to choose between continuing to fight inflation aggressively or slowing down because of growth concerns. That is providing long-term optimism for gold investors," OANDA senior market analyst Edward Moya told Kitco News.

Growth risks will only rise from here, Moya said, pointing to a slate of economic data releases coming up in April.

"As this war in Ukraine drags on, it will continue to feed into this inflationary focus the markets have. There are a lot of reasons to flee into safe havens right now. And even though it is typically bad for gold when Treasury yields go up so high, the precious metal is hanging in there quite well," Moya said. "We should anticipate there could be further shocks to a wide range of commodities."

Deutsche Bank's recession call: U.S. economy to take 'major hit' as Fed tightens

In light of this environment, it is also hard to make a bull case for U.S. equities, he added. "The take on Wall Street is that we are going to move sideways for quite some time. Gold is likely to remain steady if not become more constructive and eventually grow as risks intensify."

Some gold investors will continue to have a wait-and-see approach in terms of the Fed, said TD Securities head of global strategy Bart Melek.

"The Fed is ready to tighten conditions up here. That is largely priced in. What does it mean for gold? It implies that we are going to be guarded here. Will the Fed really tighten monetary policy? Will it contract? So the market is neutral — it thinks rates will go up but won't necessarily be overly restrictive," Melek told Kitco News.

There is a good chance the Fed will introduce some of the bigger rate hikes this spring and at the beginning of the summer to try and convince the market they are not behind the curve.

"Gold is performing well even though we are talking about a tightening cycle. It is up 7% year-to-date. Some gold people may be thinking that after the initial action, the Fed may not be as committed. Could very well be that inflation doesn't come off as quickly as Fed is protecting," Melek noted.

According to Melek, gold's support and resistance levels for next week are $1,920 and $1,967 an ounce. Moya is watching the $1,970 an ounce as the high and $1,900 as the low for next week.

Next week's data

Tuesday: U.S. CPI

Wednesday: U.S. PPI, BoC rate announcement

Thursday: ECB rate announcement, U.S. retail sales, jobless claims

Friday: N.Y. Empire State manufacturing index

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips



Tim Moseley

Gold rises as investors brace for Tuesday’s CPI inflation report

Gold rises as investors brace for Tuesday’s CPI inflation report

As of 4:44 PM EDT gold futures basis, the most active June 2022 contract is trading up $11.70, a gain of 0.60% at $1949.50. There were some alarming forecasts for the upcoming release of the latest inflationary data vis-à-vis the CPI (Consumer Price Index) on Tuesday, March 12. Just last week estimates were released by the Federal Reserve Bank of Cleveland which revealed a detailed estimate of the upcoming CPI report indicating that the level of inflation in March could run as high as 8.41%. Furthermore, estimates for the first quarter of 2022 predict inflationary pressures quarter over quarter could swell as high as 9.1%.

The chart above is a 240-minute candlestick chart of gold futures. We have included are trendlines highlighting a series of lower highs, as well as a series of higher lows. This has created a compression triangle and breakout above the current resistance level. This indicates that gold has concluded its consolidation period and moved back into a solid rally mode. This puts our next target for potential resistance at $1967.60. Above that price point, there is resistance at $2000 and major resistance at $2016.

While the Federal Reserve maintains that inflationary levels are peaking and should begin to decline throughout the rest of the year, this assumption is not written in stone as many variables could continue the rise of inflationary pressures throughout the year. One of the primary unknowns is the current crisis in Ukraine which resulted in global inflationary pressures due to supply chain issues regarding their agricultural exports to countries in the European Union, as well as the continuing boycott of Russian goods, oil of course but also much more, in response to Russia’s invasion of Ukraine. This has had a dramatic impact on the cost of crude oil worldwide. It also led to the release of over 200 million barrels from the strategic oil reserves of the United States and the European Union.

Russia’s escalated military action following its invasion of Ukraine continues to create geopolitical uncertainty and could prolong the rise of inflationary pressures which began as countries around the world allocated massive amounts of capital to stave off the recession which was a result of the global pandemic.

There is now concern that future actions of the Federal Reserve in its attempt to lessen the rise of inflation will lead to an end to the economic recovery, resulting in a return to a recession in the United States.

James Knightley, chief international economist at ING, said, “With the Fed seemingly feeling the need to ‘catch up’ to regain control of inflation and inflation expectations, a rapid-fire pace of aggressive interest rate increases heightens the chances of a policy miss-step that could be enough to topple the economy into a recession.”

Bloomberg News recently reported that economists polled have raised their U.S. inflation forecast again and downgraded their expectations for economic growth through most of 2023. This forecast is based upon the potential risks that result from the Federal Reserve’s attempt to reduce the current level of inflation.

Many uncertainties will continue to increase inflationary pressures globally. The confidence that the Federal Reserve can effectively execute a soft landing is waning among many economists. The assumption that the Federal Reserve will not have the ability to pull it off without causing damage leads to one of two things. The return of global economic recession, or the continuation of rising inflation. Either of these outcomes will have an enormous impact on economies worldwide and will continue to be highly supportive of safe-haven assets such as gold, moving them to higher prices.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips


Tim Moseley

Gold moves higher as investors refocus on inflation and Ukraine

Gold moves higher as investors refocus on inflation and Ukraine

Unquestionably market sentiment oscillates amongst the investment community focusing upon inflationary pressures and Ukraine or on the Federal Reserve’s tightening of their monetary policy. Inflationary pressures and the war in Ukraine create bullish market sentiment for the safe-haven asset class, specifically gold. In contrast, reactions to the Federal Reserve’s monetary policy, which includes a series of rate hikes and runoff of their balance sheet assets, lead to bearish market sentiment in gold.

It seems that from day to day, market participants will move back and forth between these factors. As for today, market participants are once again putting their primary focus on the inflation continuing to move higher and the war in Ukraine. In regards to the war, it seems highly unlikely that a peaceful resolution will be forthcoming any time soon. Rather concerns have emerged over the excessive military action and targeting of civilians in Ukraine. The war in Ukraine has also affected levels of global inflation, taking them higher. Currently, Ukraine and Russia collectively export a large percentage of wheat and other agricultural products to countries in the European Union, and the war has pressured agricultural products such as wheat higher.

As of 4:10 PM EDT, gold futures basis most active June 2022 contract is up to $11.50 or 0.60% and is currently fixed at $1934.80. Gold traded to a high today of $1941.70 and a low of $1923.30. Concurrently the dollar has been extremely strong this weekend, providing moderate headwinds for gold prices. The entire precious metals complex on the futures markets has shown gains on the day.

Silver futures are up almost a full percent (+0.97%) or $0.23 and are currently fixed at $25.695. Palladium futures are trading 2.62% higher on the day at $2242 per ounce. However, it must be noted that there has been exceedingly high volatility and downside selling pressure over the last five weeks. During the week of March 7, palladium traded to a record high just above $3400 an ounce and, compared to current pricing, has given up roughly 30% in value. Russia is one of the primary producers of platinum and palladium and provides roughly 30% of the palladium used in the automotive industry’s production of catalytic converters.

Additional sanctions by the United States and the European Union further isolate Russia. Still, it also increases the probability of dramatic military action as a response or rationale for escalating their military campaign.

Lastly, market participants continue to focus on the minutes from the March FOMC meeting, which were released yesterday, and statements made by Federal Reserve members, which indicate a much more hawkish tone and pace at which they will tighten their monetary policy to decelerate the pace at which inflation is rising.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips


Tim Moseley

Gold choppy but lower as FOMC minutes show no hawkish surprises

Gold choppy but lower as FOMC minutes show no hawkish surprises

Gold prices initially erased mild losses and traded firmer in the wake of the just-released FOMC minutes. However, prices have since sold off moderately. Many deemed the FOMC minutes as containing no hawkish surprises, which allowed the precious metals markets to briefly drift higher. Rising bond yields this week are a bearish element for the metals markets. June gold futures were last down $5.00 at $1,922.60 and May Comex silver was last down $0.104 at $24.43 an ounce.

The FOMC minutes showed members see a total monthly drawdown of $95 billion of U.S. securities (quantitative tightening). Many members favor a 50 basis point interest rate hike at the next FOMC meeting and possibly the same in the following few meetings thereafter. The members also believe the Russia-Ukraine war has caused inflationary pressures to significantly heat up.

On the front burner of the marketplace is rising inflation. On Tuesday, usually dovish Fed governor Lael Brainard said the Russia-Ukraine war has further stoked inflation and that inflation must be tamped down aggressively. She also suggested the Fed will begin selling off its big balance sheet of bonds (quantitative tightening). U.S. Treasury yields spiked up on her remarks. The benchmark U.S. 10-year Treasury note presently yields 2.611%. The 2-year/10-year Treasury note spread quickly snapped out of its inversion after Brainard’s hawkish tone on U.S. monetary policy.

Gold prices continue to consolidate above $1,900 as bond yields hit three-year high

Global stocks markets were mixed to weaker overnight. The U.S. stock indexes are lower today. The Russia-Ukraine war is still on the front burner of the marketplace as more economic sanctions are levied against Russia for its war atrocities against Ukrainian citizens. That is keeping energy prices elevated as European countries consider banning Russian energy imports.

Nymex crude oil prices are sharply lower and trading around $96.75 a barrel. Meantime, the U.S. dollar index is modestly higher today.

Technically, April gold futures bulls have the overall near-term technical advantage amid recent sideways and choppy trading. Bulls' next upside price objective is to produce a close above solid resistance at $1,967.20. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the March low of $1,888.30. First resistance is seen at today’s high of $1,937.60 and then at $1,950.00. First support is seen at today’s low of $1,916.20 and then at $1,900.00. Wyckoff's Market Rating: 6.0

May silver futures bulls have the slight overall near-term technical advantage. However, prices are in a four-week-old downtrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $26.16 an ounce. The next downside price objective for the bears is closing prices below solid support at $23.50. First resistance is seen at today’s high of $24.68 and then at $25.00. Next support is seen at today’s low of $24.20 and then at the March low of $24.045. Wyckoff's Market Rating: 5.5.

May N.Y. copper closed down 705 points at 472.45 cents today. Prices closed nearer the session low 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 500.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the March low of 446.85 cents. First resistance is seen at today’s high of 478.85 cents and then at this week’s high of 486.00 cents. First support is seen at 466.90 cents and then at last week’s low of 464.20 cents. Wyckoff's Market Rating: 6.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips


Tim Moseley