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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Data to watch

Wednesday: U.S. existing home sales

Thursday: Philadelphia Fed manufacturing index, jobless claims

Friday: Manufacturing PMI

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

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

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

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

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

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

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

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

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

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

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

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Global inflation concerns result in aggressive action by central banks

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

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

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

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

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

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

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

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

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

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

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

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

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

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

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

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

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

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

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

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

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

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

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

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

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

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

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

Wishing you as always good trading,

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

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 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

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