A strong jobs report supports continued monetary tightening by the Federal Reserve

A Bloomberg survey of economists indicated that the medium estimate for jobs added in May would show that approximately 318,000 new jobs were added. Additionally, the survey also predicted that the unemployment rate would fall to 3.5%. A Wall Street Journal survey of economists forecasted that employers would add 328,000 jobs in May. The survey also anticipated that the unemployment rate would fall to 3.5%. Both surveys underestimated both the number of jobs added in May 2022 and the unemployment rate.

The U.S. Bureau of Labor Statistics released the latest jobs report which said, “Total nonfarm payroll employment rose by 390,000 in May, and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, in professional and business services, and in transportation and warehousing. Employment in retail trade declined.”

Today’s jobs report infers that economic recovery continues to move forward despite recent actions by the Federal Reserve which is continuing its monetary and quantitative tightening. Beginning in March 2022 the Federal Reserve raised its Fed funds rate for the first time since they were lowered in 2018 to between zero and 25 basis points by ¼% (25 basis points). This was followed by a 50-basis points rate hike at the May FOMC meeting. It is also highly anticipated that the Federal Reserve will continue this trend by raising rates an additional 50 basis points at both the June and July FOMC meetings.

The CME’s FedWatch Tool is currently forecasting that there is a 94.2% probability that the Federal Reserve will move forward with another half a percent rate hike in June and an 87.2% probability that the Fed will raise rates another half a percent during the July FOMC meeting. The net result if these forecasts come to fruition is that the Federal Reserve will have raised its internal Fed funds rate from near zero to 2% in four months.

The reports that carry the greatest weight for the forward guidance of the Federal Reserve are the inflation report (PCE core inflation index) and the monthly jobs report. The Fed will most likely continue to implement both rate hikes and quantitative tightening (a reduction of their balance sheet) as long as inflationary pressures continue at the current elevated levels and the monthly job report does not indicate a strong reduction in new jobs added which would indicate that no major economic contraction occurred increasing the likelihood of a soft landing.

Today’s jobs report resulted in a strong price decline in gold as well as a nominal increase in the value of the dollar. As of 5:15 PM EDT gold futures basis, the most active August 2022 contract is currently fixed at $1853.90 after factoring in today’s decline of almost a full percent (-0.94%) or $17.50. Dollar strength was responsible for roughly 1/3 of today’s decline in gold prices. The dollar gained 0.35% taking the dollar index to 102.185.

The decline today in both gold and silver as well as the gains in dollar value was the direct result of today’s U.S. nonfarm payroll report coming in above expectations. The better-than-expected report paves the way for the Federal Reserve to continue its current forward guidance which includes additional interest rate hikes and continued attempts to reduce its balance sheet which has swelled to nearly $9 trillion to be initiated over the next two FOMC meetings, the next FOMC meeting will begin on the 14th of this month, followed by the July meeting which will begin on the 26th.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold pricing -The dollar gives value and the dollar takes it away

Unquestionably dollar strength or weakness plays an extremely critical role in day-to-day price changes of gold. Intrinsically dollar strength or weakness has an exact correlation to price changes in gold. That is because in North America gold prices are paired against the U.S. dollar. Market sentiment that defines whether traders and investors are bidding gold prices higher or lower is always only partially responsible for gold’s net price change.

Yesterday, market participants were aggressive buyers taking the price of spot gold roughly $24 higher. However, dollar strength played a critical role resulting in a net gain in gold of only $9.10.

Today, we are seeing the exact opposite reflection with dollar weakness resulting in over half of the gains. As of 4 PM EDT spot gold is fixed at $1870 after factoring in a net gain of $23.50. According to the Kitco Gold Index (KGX), dollar weakness accounts for $14 of today’s move, and market participants bidding gold prices higher accounts for the remaining gain of $9.50.

Gold futures basis the most active August 2022 contract is currently fixed at $1873.50 after factoring in today’s gain of $24.90 or 1.35%. Concurrently the dollar index is fixed at 101.785 after factoring in today’s decline of 0.744 points or 0.73%. As in spot gold, today’s gains in gold futures reflect the same ratio with both market participants actively buying and dollar weakness contributing to the overall gains.

This brings us to our current technical analysis of the dollar. The dollar tends to have multi-year cycles of strength and weakness.

The chart above is a two-week candlestick chart of the dollar index. At the beginning of 2017, the dollar completed a dynamic rally beginning in 2014 when the dollar index was trading at approximately 79. Over three years, the dollar hit an apex just above 103 which was followed by a strong price decline from 2017 until January 2018. This correction took the dollar index from 103 down to 88.23. The relative value of the dollar declined by approximately 16%. Following the correction that concluded in 2018, there was a multiyear rally with the dollar gaining value up until the first quarter of 2020 when the dollar reached an apex of 103 once again. Just as in the top that occurred in 2017 what followed in 2020 was a price correction that lasted approximately a year and ½ resulting in a decline in dollar value of approximately 15%. In other words, historically speaking the dollar tends to have extended periods of strength and extended periods of weakness. The latest top that was achieved in the dollar index in w

hich for the third time since 2017 the dollar index hit a top or apex between 103 and 105. As of today, the dollar index has declined from 105 to 101.76.

This brings us to our observation today which is that the U.S. dollar historically will have extended rallies and extended declines which can last a year or more. While past performance does not guarantee that we will witness the same occurrence once again, it does suggest that we could see a decline in dollar value over this next year or longer. If the dollar continues to have defined longer-term trends, then we may see the dollar index decline in this instance. If that assumption proves to be correct it will have a profound impact on gold creating bullish market sentiment for the precious yellow metal.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold declines almost 1%, flirting with the 200-day Tuesday May 31, 2022 18:06

Today's price decline results in the second consecutive month of lower prices. On a technical basis, the fact that gold tested and briefly dipped below its 200-day moving average brings up a realistic probability that the long-term market sentiment for gold is neutral to bearish.

As of 4:30 PM, ET. August gold is trading near its low today of $1837.60, and the 200-day moving average is currently fixed at $1846.90. Gold prices hit a low two weeks ago of $1792.80 before recovering and trading back above the 200-day moving average last week. Today gold opened at $1856.50 and traded to a high of $1867.90 before moving lower and breaking below the widely accepted long-term market sentiment study (200-day moving average) on an intra-day basis.

President Biden meets with Chairman Powell and U.S. Secretary of the Treasury Yellen

Today President Biden met with Jerome Powell and Janet Yellen. This is their first meeting since Chairman Powell was confirmed for a second term by the Senate earlier this month. Before the meeting, President Biden made a brief remark stating that this meeting was to "discuss my top priority, and that is addressing inflation."

The obvious agenda was to discuss the extremely high level of inflation. With inflation still at levels not seen for over 40 years.

"My meeting with the Chairman today and Secretary Yellen is to discuss my top priority, and that is addressing inflation in order to transition from historic recovery to a steady growth that works for American families. And my plan is address inflation starts with simple proposition; Respect the Fed, Respect the Fed's independence, which I have done and will continue to do."

White House National Economic Council Director Brian Deese called it, "very constructive ,,, We have run this first leg of the race at a very rapid clip that has put us in the strong position relative to our peers, but this is a marathon and we have to move and shift to stable resilient growth. We can actually take on inflation without having to sacrifice…all of those (labor market) gains."

It has been actions by the Federal Reserve's monetary policy that has resulted in higher yields in U.S. Treasuries and dollar strength. Those factors have pressured gold lower over the last two months. While higher levels of inflation typically result in bullish market sentiment for gold, higher interest rates and dollar strength have the opposite effect. Therefore, market participants have witnessed the pendulum shifting from bullish market sentiment in gold as inflation rose, and bearish market sentiment as interest rates and the dollar moved higher.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold prices stuck in no-mans land holding support at $1,850 on quiet U.S. holiday

Gold prices have dropped from their overnight highs but continue to hold support above $1,850 an ounce; Commodity analysts note that the market generally lacks conviction in any direction as U.S. markets are closed for the Memorial Day long weekend.

Spot gold prices are trading in neutral territory Monday morning, last trading around $1,856 an ounce.

Analysts note that the precious metal is trading in the middle of its broader long-term range. Although gold prices continue to benefit from a weaker U.S. dollar, rising risk sentiment, helping to boost equity markets, is taking some shine off the yellow metal's safe-haven allure.

However, some analysts have said that the jump in the S&P 500 last week was a classic bear market. Analysts have said that rising fears of an impending recession will continue to weigh on equity markets.

"There could still be more pain to come," said Craig Erlam, Senior European Market Analyst at OANDA. "But at these levels, it's only natural that the vultures are circling. There isn't a huge amount to be excited about on inflation, interest rates and the economy but that doesn't mean there isn't value out there."

Friday, commodity analysts at Bank of America warned that oil prices, being driven by Russia's invasion of Ukraine, could push the global economy into a 1980s-style recession.

"For next year, we believe oil demand could approach pre-Covid levels but only if Russian liquids production holds near 10mn b/d and OPEC+ supplies increase. With our $120/bbl Brent target now insight, we believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150/bbl," said Francisco Blanch, Global Research head of global commodities and derivatives research at Bank of America Securities.

Market analysts have said that these fears will continue to support gold prices.

"Recent data has shown that the world's largest economy is cooling rapidly, raising fears of a hard landing in the near term. This situation has led traders to price in a less aggressive tightening cycle over the forecast horizon, pulling down Treasury rates of late," said Diego Colman, Market Analyst, in a note published Saturday.

"In terms of technical analysis, gold is stuck between support at $1,840 and resistance at $1,870. A decisive move outside of these levels is required for near-term guidance, but if prices break out on the topside, buyers could become emboldened to launch an attack on $1,895," he added. "If XAU/USD resolves to the downside and breaches the $1,840 area, where the 200-day simple moving average is currently located, selling pressure could accelerate, paving the way for a drop towards $1,785."

However, not all analysts are convinced that gold prices are ready to move higher or that the U.S. dollar has peaked.

In a recent note to clients, Bart Melek, head of commodity strategy at TD Securities, said that he still prefers to sell rallies in the gold market.

"Given that [gold's] positioning is still tilted to the long end of exposure, any signs that inflation will remain stubbornly high, or data pointing to a steadfast economy due to higher wages and the spending of savings, as seen today, Fed Funds estimates could easily move back to the highs seen at the start of Mayor even higher," he said. "…Repositioning could easily force gold to trend down to $1,840/oz and then to just below $1,800/oz. It should be noted that specs have plenty of room to take on new short exposure and reduce long positions."
 

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

If gold is not the best inflation hedge, then what is? Nancy Davis

Gold and oil are not ideal investments for those seeking inflation hedging, according to Nancy Davis, Founder and Managing Partner of Quadratic Capital Management. Davis spoke with David Lin, Anchor and Producer at Kitco News.

Stock and Bond Market

Davis commented on the recent stock market selloffs. She attributed the fall in prices to companies facing higher costs.

“This is a little bit of a wakeup call,” she said. “…Investing is risky and, you know, especially when you’re buying corporate securities, whether it’s their stocks or their bonds, if that corporation has higher costs, maybe in the form of labor costs, more supply side disruptions in the form of, you know, all the things that are happening around the world from a geopolitical and COVID perspective, coupled with consumer confidence in this country is at lows from 2008.”

Davis also said that markets have “priced in” the Federal Reserve’s projected interest rate hikes. Fed Chairman Jerome Powell recently raised interest rates.

“Now I think it’s really important for investors to realize that the rate hikes from the Fed have already been priced in,” she remarked. “The Fed has only hiked 75 basis points so far, but the interest rate markets have moved with the Fed’s forward guidance. So… we have about six months left in the year in 2022, and the rates market has priced in 175 basis points. So, if the Fed does not hike 175 basis points, they’re actually going to be easing rates.”
 

Inflation and CPI

Davis said that the Fed has not lost credibility with investors.

“I know the Fed has gotten a lot of critics saying they’re not credible and all those things,” she mentioned. “I am not one of those. I think the Fed is doing the best job they can with the tools they have available… I think using the balance sheet more as a tool to fight inflation is prudent… [It] seems like they’re going to be using that in addition to hiking policy rates.”

Davis also said that the Consumer Price Index is not the only way to calculate inflation.

“The big problem I see with CPI alone is that a third of the index, approximately 33 percent, is what they call ‘shelter,’ and it’s actually owner-occupied rent,” she said. “… Year over year, rent increases are up about 1.5 percent, whereas home ownership prices are up closer to 20 [percent].”

Do Gold and Commodities Hedge Against Inflation?

Davis’s company, Quadratic Capital, has a fixed-income IVOL ETF that protects against inflation. According to Davis, “85 percent of the portfolio” is composed of Treasury Inflation-Protected Securities (TIPS).

“But then we try to fix the problems that exists with TIPS alone… [We] actually try to profit when long-dated yields move higher, which would likely happen in a stagflationary or inflationary environment… And the other really attractive thing in my opinion for investors is we own options. And whenever you own options… you’re long volatility on the underlying asset class… So we actually own fixed-income volatility, which is a nice potential diversifier.”

She added that real assets, such as energy and gold, are not the best inflation hedges.

“I personally think, you know, energy and gold and all these real assets may not be the best inflation asset because… they don’t pay any coupons so there’s no monthly distribution at all,” said Davis. “They do have carry costs… Gold is not an inflation hedge, in my opinion, it’s a currency trade. It has no yield, it has no carry.”

For more information on inflation hedging, watch the video above.

By Kitco News

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold prices still holding $1,850 as PCE core inflation rises 4.9%, in line with expectations

The gold market continues to hold around the critical psychological level of $1,850 but according to some analysts, could struggle in the near-term as inflation pressures could have peaked.

On a monthly basis, the core Personal Consumption Expenditures Index, the Federal Reserve’s preferred inflation measure, increased 0.3% last month, the U.S. Department of Commerce said on Friday. The inflation data was in line with expectations.

On an annual basis, core PCE rose to 4.9% down from the 5.2% rise seen in March. This is the second month annual inflation measures have dropped after hitting 5.3% in February. The drop in annual inflation was also in line with expectations.

The gold market is taking the latest inflation data in stride. June gold futures last traded at $1,850.40 an ounce, up 0.19% on the day.

Some analysts have noted that gold could struggle to attract new bullish capital as the Federal Reserve continues to aggressively raise interest rates while inflation pressure fall. This would drive real interest rate higher, which would be negative for gold, a nonyielding asset.

Looking at headline inflation, the report said that the PCE Index rose 0.2% last month, down compared to March’s rise of 0.9%. For the year headline inflation rose 6.3%, down from the previous increase of 6.6%.

Along with easing inflation pressures, the report also showed consumers continuing to hold up well, despite the economic uncertainty.

The report said that personal spending rose 0.9% last month, up from March’s 1.1% increase. The data beat expectations as consensus forecasts called for a 0.7% rise.

However, the data also shows that consumers are tapping into their savings as income increased 0.4%, down from March’s increase of 0.5. Economists were expecting to see a 0.5% increase.

According to economists, the savings rate fell to 4.4%, the lowest level since 2008.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver near steady amid conflicting daily inputs

Gold and silver prices are not trading too far from unchanged in midday action Thursday. Bearish for the metals is a stabilization of the U.S. stock indexes this week, after hitting 12-month lows last week. Rising bond yields at midday are also a negative for the metals. However, sharply higher crude oil prices and a weaker U.S. dollar index are working in favor of the metals market bulls on this day. June gold futures were last down $1.50 at $1,844.80.July Comex silver futures were last up $0.065 at $21.93 an ounce.

The metals showed no significant or lasting reaction to a weaker-than-expected revision to U.S. first-quarter GPD today, which came in down 1.5%, year-on-year.

Gold price still on pace to push above $2,000 as stagflation, recession risks rise – In Gold We Trust

The key outside markets today see Nymex crude oil futures prices sharply higher and trading around $114.50 a barrel. Meantime, the U.S. dollar index is weaker in early trading and is well down from the May 20-year high. The yield on the 10-year U.S. Treasury note is fetching 2.781%.

Technically, June gold futures see a 2.5-month-old price downtrend in place on the daily bar chart. Bears have the firm overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the May low of $1,785.00. First resistance is seen at today’s high of $1,852.80 and then at this week’s high of $1,869.10. First support is seen at today’s low of $1,836.30 and then at $1,830.00. Wyckoff's Market Rating: 3.0

July silver futures also see a 2.5-month-old price downtrend in place on the daily bar chart. The silver bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $23.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the May low of $20.42. First resistance is seen at this week’s high of $22.215 and then at $22.50. Next support is seen at this week’s low of $21.645 and then at $21.50. Wyckoff's Market Rating: 2.5.

July N.Y. copper closed up 35 points at 425.80 cents today. Prices closed nearer the session high today. The copper bears have the firm overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 445.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the May low of 403.70 cents. First resistance is seen at 430.00 cents and then at this week’s high of 435.50 cents. First support is seen at today’s low of 420.35 cents and then at 415.00 cents. Wyckoff's Market Rating: 2.5.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver sell off amid rebound in USDX, uptick in bond yields

Gold and silver prices are lower in midday U.S. trading Wednesday, with gold suffering solid losses. Corrective pullbacks from recent good price gains are featured at mid-week. A rebound in the U.S. dollar index and rising U.S. Treasury yields are negatives for the precious metals on this day. June gold futures were last down $22.30 at $1,843.10. July Comex silver futures were last down $0.228 at $21.84 an ounce.

Traders were awaiting the U.S. data point of the week: this afternoon’s release of the minutes from the last meeting of the Federal Reserve’s Open Market Committee (FOMC). The marketplace will be looking for further guidance on the timing and pace of the Fed’s monetary policy tightening cycle, and on inflation prospects. Trading could become more active in the immediate aftermath of the 2:00 p.m. EDT release of the FOMC minutes.

Global stock markets were mixed overnight. U.S. stock indexes are pointed toward narrowly mixed openings when the New York day session begins.

The coming recession will be mild; the U.S. economy could boom if Republicans win elections – Mark Skousen

The key outside markets today see Nymex crude oil futures prices slightly higher and trading around $110.00 a barrel. Meantime, the U.S. dollar index is higher on a corrective bounce from recent strong selling pressure. The yield on the 10-year U.S. Treasury note is fetching 2.75%.

Technically, June gold futures saw a corrective pullback after recent good gains. A 2.5-month-old price downtrend is in place on the daily bar chart. Bears have the firm overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the May low of $1,785.00. First resistance is seen at $1,850.00 and then at this week’s high of $1,869.10. First support is seen at today’s low of $1,838.70 and then at $1,830.00. Wyckoff's Market Rating: 3.0

July silver futures see a 2.5-month-old price downtrend in place on the daily bar chart. The silver bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $23.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the May low of $20.42. First resistance is seen at $22.00 and then at this week’s high of $22.215. Next support is seen at this week’s low of $21.645 and then at $21.50. Wyckoff's Market Rating: 2.5.

July N.Y. copper closed down 600 points at 424.60 cents today. Prices closed nearer the session low today. The copper bears have the firm overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 445.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the May low of 403.70 cents. First resistance is seen at 430.00 cents and then at this week’s high of 435.50 cents. First support is seen at today’s low of 422.30 cents and then at 420.00 cents. Wyckoff's Market Rating: 2.5.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold, silver rally as stock markets, bond yields drop

JGold and silver prices are solidly up in midday U.S. trading Tuesday, boosted by another sell off in the U.S. stock indexes, falling U.S. Treasury yields and by the recent sharp losses in the U.S. dollar index that hit another four-week low today. Risk aversion is keener in the general marketplace early this week, and that’s inviting safe-haven demand for the precious metals. June gold futures were last up $19.10 at $1,866.90. July Comex silver futures were last up $0.392 at $22.12 an ounce.

Global stock markets were mostly lower overnight. U.S. stock indexes are lower at midday and are in or near bear market territory, defined as 20% or more below their recent highs. Geopolitical and inflation worries are keeping equities market bulls squeamish. Fears of U.S. economic recession are rising after some downbeat U.S. economic data released today.

Hedge funds continue to sell gold but sentiment is shifting

Later today, Fed Chairman Jerome Powell will deliver remarks at an economic summit in Las Vegas.

The other key outside market today sees Nymex crude oil futures prices weaker and trading around $109.50 a barrel. Meantime, the yield on the 10-year U.S. Treasury note is fetching 2.749%.

Technically, June gold futures prices hit a two-week high again today. A 2.5-month-old price downtrend is still in place on the daily bar chart. However, more price gains this week could negate the downtrend. Bears have the overall near-term technical advantage. However, bulls have momentum on their side. Bulls' next upside price objective is to produce a close above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the May low of $1,785.00. First resistance is seen at $1,875.00 and then at $1,883.00. First support is seen at $1,850.00 and then at this week’s low of $1,843.30. Wyckoff's Market Rating: 4.0.

July silver futures see a price downtrend still in place on the daily bar chart. However, more price gains this week could negate the downtrend. The silver bears have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $23.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the May low of $20.42. First resistance is seen at today’s high of $22.215 and then at $22.50. Next support is seen at today’s low of $21.645 and then at $21.50. Wyckoff's Market Rating: 3.0.

July N.Y. copper closed down 345 points at 431.05 cents today. Prices closed nearer the session high today. The copper bears have the overall near-term technical advantage. However, more gains this week could negate a price downtrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 450.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the May low of 403.70 cents. First resistance is seen at this week’s high of 435.50 cents and then at 440.00 cents. First support is seen at today’s low of 425.65 cents and then at 422.50 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley