Gold firms as investors digest China, inflation, and global economic contraction

Gold futures opened at $1899.60, traded to a low of $1896.30, and then recovered back above $1900 per ounce. As of 4:18 PM EDT gold futures basis, the most active June 2022 contract is currently trading up $9.30 and fixed at $1905.30. Gold’s reversal from its price decline over the last seven trading days is being supported by multiple factors and events.

Most evident is renewed concern by investors regarding China’s worsening Covid-19 infection rates, which has resulted in lockdowns in major Chinese cities which now include areas of Beijing. Over 500,000 cases of Covid-19 have been reported in Shanghai as hazmat-wearing patrols continue to enforce lockdowns throughout the city.

Shanghai is a major port city, and its shutdown has led to the absence of goods being shipped abroad, disrupting the supply chain to the United States of electronics and semiconductors vital to the automotive and electronics industry.

Real concerns about a global economic contraction resulting from China’s lockdowns shook equity markets worldwide. Shipping disruption was a root cause that led to Chinese equity markets selling off dramatically, which had a tremendous impact on U.S. equities today as all major indices experienced deep declines. The Dow lost 809 points or 2.38%, the S&P 500 declined by 2.81%, and the tech-heavy NASDAQ composite dropped dramatically, losing 3.95% or 514 points.

The uptick of Covid-19 infections in China and subsequent lockdowns have raised concerns that inflation will continue to rise and has not peaked as the Federal Reserve has maintained it would. When added to current geopolitical uncertainty regarding the war in Ukraine, these issues are at the core of today’s bullish market sentiment in gold as a safe-haven asset and hedge against both inflation fears and the emergence of risk-off market sentiment. Tapering the bullish market sentiment for gold is dollar strength, along with the potential for the Federal Reserve to initiate a series of rapid rate hikes of ½ a percent at each of the next two FOMC meetings.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver plummet as raw commodity sector pounded on Covid fears

Gold and silver prices are sharply down and hit two-month lows in midday U.S. trading Monday. Gold dropped below the psychologically important $1,900 level. The entire raw commodity sector was hit hard today by concerns regarding demand as Covid cases in China, the world’s second-largest economy, are spreading rapidly. Serious near-term technical damage was inflicted in gold and silver today, which has emboldened the chart-based bears. June gold futures were last down $38.20 at $1,896.10 and May Comex silver was last down $0.579 at $23.69 an ounce.

Global stock markets were mostly lower overnight, led by the biggest drop in Chinese shares in two years. U.S. stock indexes are pointed solidly lower at midday. There are growing worries about the economic toll of China’s strict zero Covid policy, as lockdowns spread to Beijing. The Chinese yuan dropped to its lowest level against the U.S. dollar since late 2020. The Covid flareup that shut down much of Shanghai appeared to worsen over the weekend. China ordered mandatory tests in a district of Beijing and shut down some areas of the capital of more than 20 million people. This situation is expected to further disrupt already strained global supply chains and likely drive already problematic inflation still higher.

The Russia-Ukraine war that shows no signs of de-escalating continues to sap trader and investor risk appetite. Metals traders on this day decided to focus more on the bearish implications of less demand for gold and silver coming out of China, and less of the bullish implications of keener risk aversion in the marketplace.

Here's what latest gold price pattern tells investors about the metal's next move

The key outside markets see Nymex crude oil futures prices sharply lower today and trading around $96.50 a barrel. The U.S. dollar index is solidly higher and hit a two-year high early today. The yield on the 10-year U.S. Treasury note is presently fetching around 2.776%.

Technically, June gold futures prices hit a two-month low today and a price downtrend has been started. Bulls have lost their overall near-term technical advantage. 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 $1,850.00. First resistance is seen at $1,915.00 and then at $1,925.00. First support is seen at today’s low of $1,891.80 and then at $1,883.00. Wyckoff's Market Rating: 5.0

May silver futures prices hit a nine-week low today and a price downtrend is in place now. The silver bears have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $25.00 an ounce. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at $24.00 and then at today’s high of $24.24. Next support is seen at today’s low of $23.42 and then at $23.00. Wyckoff's Market Rating: 4.0.

May N.Y. copper closed down 1,620 points at 441.90 cents today. Prices closed near the session low today and hit a 2.5-month low. The copper bears have gained the overall near-term technical advantage. A price downtrend is now in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 470.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the January low of 428.80 cents. First resistance is seen at 450.00 cents and then at 455.00 cents. First support is seen at today’s low of 440.65 cents and then at 435.00 cents. Wyckoff's Market Rating: 4.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

After touching $2k, why did gold price tumble $70?

After touching the $2,000 level at the beginning of the week, gold tumbled more than $70 as the U.S. dollar climbed alongside the U.S. Treasury yields. Here's a look at Kitco's top three stories of the week:

3. Gold price continues to consolidate as Fed's Powell reiterates hawkish stance

2. Is gold the next big play? Gold price heading to $2,100 – Wells Fargo

1. 'Turning point' for the U.S. dollar is near, says billionaire 'Bond King' Jeff Gundlach

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Here's what latest gold price pattern tells investors about the metal's next move

After touching $2,000 an ounce at the beginning of the week, gold tumbled more than $70 as the U.S. dollar climbed alongside the U.S. Treasury yields.

With the latest trading pattern, analysts see some undeniably bullish signals.

"Gold has been reaching new highs and consolidating. Right now, it is liquidating because of the higher dollar. But how can you be short gold in this market? Any dips in gold and silver are buying opportunities," Walsh Trading co-director Sean Lusk told Kitco News.

At the time of writing, June Comex gold futures were trading $1,937.90, down $64 from the highs seen early Monday.

This pattern in gold has been pretty dominant over the past few months, said Gainesville Coins precious metals expert Everett Millman.

"Every time gold hits the upper resistance level, it tends to sell off. Similar dynamics happen when it falls to its support levels. Given that part, I'm turning bullish on gold, and I expect a bounce-back," Millman said.

A very encouraging sign this time around is gold being able to hold above $1,900 an ounce at the same time as the U.S. dollar and bond yields advance. "As bond yields rise, gold is supposed to be less attractive. The fact that gold is holding its ground is a good sign," Millman said.

The recent selloff in equities is also expected to boost gold as more investors diversify, noted Lusk. "People are starting to see the light in regards to what the aggressive hikes will do to the economy," he said. "And that's on top of the inflationary overtone in the market here."

Federal Reserve Chair Jerome Powell telegraphing two or more half-point rate hikes in the next few months put additional pressure on gold at the end of the week.

But again, the encouraging news is that the Fed's hawkish rhetoric might give the central bank some room to be less aggressive when it comes to actually raising rates and reducing its balance sheet, said TD Securities head of global strategy Bart Melek.

"The latest core inflation numbers were a bit below expectations, which brings us to believe that the Fed might not be as aggressive as people anticipate. Markets are pricing in 50 bps in May. That's a given. And maybe have another 50bps rate hike after that and then see if inflation will start turning lower," Melek told Kitco News.

Even if the Fed proceeds with six more rate hikes based on the dot plot, it is still pretty low relative to where inflation is, added Melek. This is why the market is starting to wonder how serious Fed is about getting restrictive.
 

Gold's levels for next week

Next week's support is around $1,923-24 an ounce for gold, and resistance is at $1,980 an ounce, Melek pointed out.

The $1,950 an ounce level will be an important one to hold next week, said Lusk, adding that he sees $2,000 an ounce on a sustainable basis as a very likely outcome in the second half of the summer.
 

Data to watch

Next week, one of the key releases will be the U.S. first-quarter GDP data, scheduled for Thursday. Market consensus calls estimate Q1 GDP to come in at 1% after posting 6.9% growth in Q4 of 2021.

But slower growth is unlikely to discourage the Fed from raising rates by 50 basis points in May, said ING chief international economist James Knightley.

"The next Federal Reserve meeting is on 4 May and market expectations are firmly centred on a 50bp interest rate increase," Knightley said. "The coming data shouldn't impact this outlook meaningfully. 1Q GDP data is expected to show the economy expanded at a 1-1.5% annualised rate, which would mark quite a deceleration from 4Q 2021, reflecting the Omicron wave of the pandemic that impacted people movement quite considerably."

Markets will also be interested in examining the data in more detail to glance at what's been happening with the core PCE, Fed's preferred inflation measure, added Melek. "Inflation is too high, which is why the Fed will get tighter no matter what. The only way to fight inflation when it is no longer transitory is to erode economic activity (aggregate demand)," he said.

Tuesday: U.S. durable goods orders, CB consumer confidence, new home sales

Wednesday: U.S. pending home sales

Thursday: U.S. GDP Q1, jobless claims

Friday: U.S. PCE price index

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold continues to decline as the Fed prepares to fight inflation

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

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

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

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

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

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

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

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

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

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

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver pressured by rising bond yields, technical selling

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

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

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

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

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

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

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

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver bulls fading and need a fresh spark

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

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

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

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

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

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

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

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

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

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

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

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

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

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

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

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

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

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

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

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley