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Pound Plunges By The Most Since March 2020 Versus US Dollar

Pound Plunges By The Most Since March 2020 Versus US Dollar

The pound plunged by the most since March 2020 and hit the lowest in 37 years against the dollar, as the UK government unveiled a fiscal stimulus package that threatens to fuel inflation and stoke the nation’s ballooning debt.

Sterling fell by as much as 3.7% to $1.0840 on Friday, triggering talk among investors about parity with the euro and the dollar and drawing comparisons with emerging markets as the country’s bonds also tumbled.

Investors are questioning how Chancellor of the Exchequer Kwasi Kwarteng will fund the most radical package of tax cuts for the UK since 1972, saying the move would fuel even-higher inflation and force the Bank of England into more aggressive tightening. The reduction in levies both on worker pay and companies will cost as much as £161 billion over the next five years.

“It’s hard to imagine a worse setup for the pound,” said James Athey, investment director at abrdn. “As ever in such EM-esque situations the worry is that once this cat is out of the bag even a return to orthodoxy might not quell the investor rush for the exit.”

That means an end to the pound’s rout may not be in sight. Bloomberg’s options pricing model now shows a one-in-four chance the pound will reach parity with the dollar in the next six months, up from 14% on Thursday. Risk reversals, a barometer of market positioning and sentiment, show that traders see the greatest downside risks for the sterling over the medium term in two years.

Ten-year gilt yields posted their biggest one-day jump on record in Bloomberg data going back to 1989, closing 33 basis points higher on the day at 3.83%.

Bluebay Asset Management LLP chief investment officer and senior portfolio manager Mark Dowding said he’s been short on the pound for “awhile now” and only added to that position Friday.

“We think the government plans will challenge finances and that this will continue to weigh on UK gilts and the pound,” he said, adding the pound can reach parity versus the US dollar and the euro.

The UK’s Debt Management Office increased its gilt sales plan for the fiscal year 2022-23 by £62.4 billion ($69.8 billion) to £193.9 billion to fund the spending. That compares to an estimated £60 billion increase expected by eight banks surveyed by Bloomberg.
 

Trouble Brewing

The last time the pound was this weak was in 1985. Back then, a strong dollar was again putting pressure on global currencies, prompting major economies to reach an agreement to stabilize the foreign exchange market with the Plaza Accord. While a strengthening dollar is again responsible for some of the pound’s decline, many of the currency’s problems today have also been self-inflicted.

Stephen Gallo, head of European FX strategy and Bank of Montreal, said that the pound’s problems “have been brewing for years.”

“In 2020 and 2021 the dollar was clobbered by risk on and Fed stimulus, as well as huge fiscal stimulus just about everywhere,” he said. “Now those factors have gone into reverse and they have been exacerbated by the war in Europe. But as far as G-10 currencies go, the GBP has not had strong currency fundamentals for a long time.”

For Citigroup Global Markets, shorting the pound against the US dollar “is the A trade” as the Federal Reserve pushes rates higher, fueling the dollar. Also the UK’s wide current account deficit calls for a weaker currency, according to the bank.

“The UK has jumped further down the fiscal rabbit hole in the same week the BoE announced active gilt sales. This is GBP bearish,” Citi strategists including Jamie Fahy wrote in a note on Friday.

Meanwhile, JP Morgan Chase & Co. currency analysts Meera Chandan and Patrick Locke lowered their cable target to $1.05 from $1.10 and are recommending shorts on the pound against the dollar and the Swiss franc.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” former US Treasury Secretary Lawrence Summers told Bloomberg Television on Friday. “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.”

©2022 Bloomberg L.P.

Time to buy Gold and Silver on the dips

Tim Moseley

Where are the stops? Thursday September 22 gold and silver

Where are the stops? Thursday, September 22, gold and silver

Below are today's likely price locations of buy and sell stop orders for the active Comex gold and silver futures markets. The asterisks (**) denote the most critical stop order placement level of the day (or likely where the heaviest concentration of stop orders are placed on this day).

See below a detailed explanation of stop orders and why knowing, beforehand, where they are likely located can be beneficial to a trader.

Stop Orders Defined

Stop orders in trading markets can be used for three purposes: One: To minimize a loss on a long or short position (protective stop). Two: To protect a profit on an existing long or short position (protective stop). Three: To initiate a new long or short position. A buy stop order is placed above the market and a sell stop order is placed below the market. Once the stop price is touched, the order is treated like a "market order" and will be filled at the best possible price.

Most stop orders are located and placed based upon key technical support or resistance levels on the daily chart, which if breached, would significantly change the near-term technical posture of that market.

Having a good idea, beforehand, where the buy and sell stops are located can give an active trader a better idea regarding at what price level buying or selling pressure will become intensified in that market.

The major advantage of using protective stops is that, before a trade is initiated, you have a pretty good idea of where you will be getting out of the trade if it's a loser. If the trade becomes a winner and profits begin to accrue, you may want to employ "trailing stops," whereby protective stops are adjusted to help lock in a profit should the market turn against your position.

By Jim Wyckoff

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley

Gold sees post-FOMC relief rally safe-haven demand on Russia worries

Gold sees post-FOMC relief rally, safe-haven demand on Russia worries

Gold prices are solidly higher in afternoon U.S. trading Wednesday, after hitting a nearly 2.5-year low earlier in the afternoon. The yellow metal is seeing a “relief rally” after the FOMC meeting statement with no major surprises, an as-expected interest rate increase and Fed Chair Powell’s press conference comments were not deemed more hawkish than the marketplace expected. Also, safe-haven demand is featured in gold and silver after Russia escalated its war efforts and made nuclear threats. The metals bulls were further encouraged late this afternoon as the U.S. dollar index backed well down from its daily high. October gold was last up $24.20 at $1,685.20 and December silver was up $0.737 at $19.92.

This afternoon’s Federal Reserve FOMC statement saw the U.S. central bank raise the key Fed funds rate by 0.75% for the third straight meeting, to a range of 3.0% to 3.25%, in the Fed’s effort to tamp down problematic price inflation. The statement said the Fed sees the Fed funds rate at 4.6% at the end of 2023 and then declining slightly the following two years. The Fed is “highly attentive” to inflation risks, said the statement. The Fed also slightly lowered its forecast for U.S. GDP growth.

The Bank of England also holds its monetary policy meeting Thursday and is also expected to raise interest rates.

Risk aversion remains elevated at mid-week following news that Russian President Putin will partially mobilize more Russian troops to fight in his war with Ukraine, including implying in a speech that he could use nuclear weapons if Russia’s integrity is threatened. One analyst said the longer the war drags on and with Russia making little if any further progress, the more threatened Putin will become, which could prompt the dictator to take more drastic measures to ensure his own survival.

Gold sees new safe haven allure as Putin threatens to use all instruments to defend its territory

Global stock markets were mixed overnight, with Asian shares mostly down and European shares mostly up. U.S. stock indexes are firmer.

The key outside markets today see Nymex crude oil prices slightly up and trading around $84.00 a barrel. The U.S. dollar index is higher but well of its daily high after pushing to another 20-year high early on today. The yield on the 10-year U.S. Treasury note is fetching 3.524%.

Technically, October gold futures bears have the overall near-term technical advantage. However, today’s big “outside day” up on the daily bar chart does suggest the bears are now exhausted and that a near-term market bottom may be in place. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at $1,700.00 and then at $1,715.00. First support is seen at today’s low of $1,651.50 and then at $1,635.00. Wyckoff's Market Rating: 2.0.

December silver futures bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at today’s high of $19.77 and then at $20.00. Next support is seen at $19.00 and then at last week’s low of $18.77. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed down 425 points at 346.00 cents today. Prices closed near the session low today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at this week’s high of 355.80 cents and then at 360.00 cents. First support is seen at last week’s low of the September low of 354.40 cents and then at 350.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold silver feeling the pressure from hawkish central banks

Gold, silver feeling the pressure from hawkish central banks

Gold and silver prices are modestly lower in midday U.S. trading Tuesday. Hawkish monetary policies from the U.S. Federal Reserve and other major central banks of the world have cast a pall over the stock and financial markets at present, but have boosted U.S. Treasury yields and the U.S. dollar index—both of which are competing assets with the safe-haven metals. October gold was last down $4.70 at $1,662.90 and December silver was down $0.148 at $19.205.

Risk aversion remains elevated among traders and investors early this week. Marketplace focus is on the Federal Reserve’s FOMC meeting that begins Tuesday morning and ends Wednesday afternoon with a statement and press conference from Fed Chairman Jerome Powell. The FOMC is expected to remain aggressively hawkish and raise the key U.S. Fed funds rate by 0.75% in the Fed’s effort to tamp down problematic price inflation. Sweden’s central bank today raised its key interest rate by a full 1.0%. The Bank of England also holds its monetary policy meeting Thursday and is also expected to raise interest rates.

Global stock markets were mixed overnight, with European shares mostly lower and Asian shares mostly higher. U.S. stock indexes are lower at midday.

Russia's new gold exchange could challenge LBMA and reveal gold's 'fair' price – Matthew Piepenburg

The key outside markets today see Nymex crude oil prices lower and trading around $82.00 a barrel. The U.S. dollar index is higher in midday U.S. trading. The yield on the 10-year U.S. Treasury note is fetching 3.575% and climbing.

Technically, October gold futures prices are hovering near last week’s nearly 2.5-year low. The gold futures bears have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at today’s high of $1,678.00 and then at $1,686.30. First support is seen at the September low of $1,651.90 and then at $1,635.00. Wyckoff's Market Rating: 1.0.

December silver futures bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at this week’s high of $19.69 and then at $20.00. Next support is seen at $19.00 and then at last week’s low of $18.77. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed down 70 points at 350.55 cents today. Prices closed nearer the session low today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at this week’s high of 355.80 cents and then at 360.00 cents. First support is seen at last week’s low of the September low of 354.40 cents and then at 350.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold remains above 1680 a key technical level as traders await the FOMC meeting

Gold remains above $1680 a key technical level as traders await the FOMC meeting

Gold remains relatively muted as market participants await the start of the Federal Open Market Committee meeting tomorrow. As of 5 PM EDT gold futures basis, the most active December contract is currently trading at $1685 with a net gain of $1.50 today. The December contract opened at $1685.40, traded to a low of $1667.60 and a high of $1688.80

This is in contrast to the other precious metals, with palladium futures gaining 5.55%, platinum futures gaining 2.28%, and silver gaining 1.03%. All of the precious metals had fractional gains based on dollar weakness. The dollar index is currently fixed at 109.34 after factoring in a decline of 0.15%.

Market participants are anticipating the Federal Reserve to announce the latest interest rate hike after this week’s FOMC meeting on Wednesday. Beginning in March of this year the Federal Reserve raised the “federal funds rate” for the first time since 2018 by 25 basis points. They continued to raise rates at the May, June, and July FOMC meetings. The net result was the Fed moved rates from near zero to its current level of 225 – 250 basis points. According to the CME’s FedWatch tool, there is an 82% probability that the Fed will raise rates by 75 basis points on Wednesday. This would be the third interest rate hike of 75 basis points this year.

The Federal Reserve has been laser-focused on bringing inflation down to an acceptable level of approximately 2%. However, inflation remains exceedingly hot, and persistent. The CPI index hit a 41-year high in June coming in at 9.5%. The most recent data revealed that inflation remains extremely elevated coming in at 8.3% in August.

The majority of the decline in inflation is directly attributable to lower energy costs, with the gasoline index falling 7.7% in July. However, inflation for other essentials continues to be elevated. Prices for food at home rose 13.5% for the year ending in August.

According to the BLS, “Over that period, prices for food at home increased 13.5 percent, the largest 12-month percentage increase since the period ending March 1979. Food prices away from home increased 8.0 percent for the year ended August 2022, the largest over-the-year percentage increase since an 8.4-percent increase in October 1981.”

12-month cpi table

The graph above shows the 12-month percentage change in four categories in the Consumer Price Index. It clearly illustrates that the Federal Reserve is far from reaching its inflation target of 2% and has had only a minimal effect in reducing inflation even though it raised rates for the last four consecutive FOMC meetings, and will almost certainly enact another large rate hike of at least 75 basis points.

Even with another rate hike, it seems unlikely that the Federal Reserve will bring inflation close to its target level. The consensus among economists and analysts is that the Federal Reserve will raise rates to between 3 ½% to 4% by the end of the year. However, it must be noted that historically the Fed has had to raise rates to equal the level of inflation to effectively reduce inflation. It also must be noted that even the most aggressive rate hikes in the past by the Federal Reserve were accomplished over multiple years.

For more information on our service, 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

The ‘biggest crash in history’ is here – should you protect yourself with gold silver and livestock? – Robert Kiyosaki

The 'biggest crash in history' is here – should you protect yourself with gold, silver, and livestock? – Robert Kiyosaki

The S&P 500 has lost 18 percent of its value over the year, and it is only going to get worse, according to Robert Kiyosaki, best-selling author of the Rich Dad, Poor Dad series. Kiyosaki suggested that investors protect their portfolios with "hard assets" like gold, silver, and livestock, as the "biggest crash in history" unfolds.

Kiyosaki spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.

"Anything that can be printed, like a stock certificate, a bond, or a dollar, I don't want it," he stated. "I'm a hardcore gold, silver, oil, and food buff… I'm a hardcore hard assets person."

He suggested that these assets are "insurance" rather than an investment.

"My answer is always to buy more gold and silver," said Kiyosaki. "It's not an investment… I buy gold and silver for one reason, because if push comes to shove, I can spend it anywhere in the world."

Kiyosaki's latest book is The Capitalist Manifesto.
 

Food Shortages

In June, Kiyosaki tweeted that canned tuna is the "best investment," as food shortages become more likely. Analysts have suggested that Europe could struggle with food supplies this winter, and Copa-Cogeca, the EU's farmer union, warned of food shortages due to higher energy costs.

Kiyosaki has previously stated that such shortages could reach the United States. He told Makori that he invests in livestock as a hedge against this possibility.

"I invest in Wagyu cattle," said Kiyosaki. "People talk about farmland and all that stuff, but I think cattle are great. You can always eat the thing."
 

Creeping Marxism

Kiyosaki said that Biden's decision to shut down the Keystone XL oil pipeline, under the guise of environmentalism, was a part of a ploy to weaken the middle class, and to bring about Marxism in America.

"Biden is a communist," he said. "When he took the Keystone XL pipeline off, he destroyed the middle class, because civilization runs on fuel and food… He is doing exactly what Marx said to do."

Kiyosaki explained that "socialists come under the guise of being environmentalists," increasing government control over the economy in order to bring about socialism. He also said that Marxists had infiltrated the U.S. education system.

"In 1930, the [Marxists] took over the Columbia University teachers' college," he explained. "Our country is being taught communism via the academic school teachers."

However, Kiyosaki maintained that he would still fight for the freedoms enshrined in the U.S. Constitution.

"I still fight for our freedom," he said. "You want to be a communist? It's your freedom. You want to be a Buddhist? I fight for that. You want to be Christian? I fight for that. I fight for freedom."

To find out Kiyosaki's price target for gold, watch the video above

By Cornelius Christian

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold prices holding support above 1675 as UofM inflation expectations fall to one-year low

Gold prices holding support above $1,675 as UofM inflation expectations fall to one-year low

The gold market is holding critical support at around $1,675 an ounce as consumer sentiment continues to improve and inflation expectations remain anchored.

Friday, the University of Michigan said a preliminary estimate of its consumer sentiment survey edged up to 59.5 from August's reading of 58.2. The data was relatively in line with expectations.

The gold market, seeing some modest relief in initial reaction to the latest sentiment data. December gold futures pushed into neutral territory, trading near session highs at $1,678.10 an ounce.

Although sentiment is relatively stable, the report noted there is still a high level of uncertainty among consumers.

"After the marked improvement in sentiment in August, consumers showed signs of uncertainty over the trajectory of the economy," said Joanne Hsu, director of consumer surveys at the UofM.

A positive for the gold market, the survey highlighted falling inflation expectations. The report said that consumers see inflation rising 4.6% by next year, down from the previous projection of 4.8%.

The report said that this is the lowest inflation forecast in a year.

Five-year inflation expectations dropped to 2.9%, down from August's reading of 3.1%.

"However, it is unclear if these improvements will persist, as consumers continued to exhibit substantial uncertainty over the future trajectory of prices," said Hsu.

Economists have noted that if inflation expectations remain anchored, the Federal Reserve could slow the pace of its aggressive monetary policy stance. However, many economists have noted that it will take more than just one or two sentiment surveys to slow the current trend.

"The dip there will offer some comfort to the Fed as it looks to combat rising prices. That emphasizes the credibiliity of the Fed (along with falling gas prices) and gives them some breathing room," said Adam Button, chief currency strategist at Forexlive.com

Markets all but expect the Federal Reserve to raise the Fed Funds rate by 75 basis points next week. The CME FedWatch Tool puts the chance of a full 1% move at only 16%.

However, markets still see a much higher terminal rate near 5%, which some analysts said could keep a lid on gold prices.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold price pounded to 2-plus-year low by economic worries bearish charts

Gold price pounded to 2-plus-year low by economic worries, bearish charts

Gold prices are sharply down and hit a nearly 2.5-year low in midday U.S. trading Thursday. Silver prices are also solidly lower. The precious metals are being hit by global economic worries that threaten to dent commercial and consumer demand for raw commodities, including the metals. October gold was last down $36.00 at $1,662.20 and December silver was down $0.324 at $19.245.

The marketplace was a bit calmer overnight and early this morning, but it appears recent hawkish monetary policy comments from central bank officials and noted market analysts have combined with hot inflation readings to quickly sap what little risk appetite had been seen earlier today. And remember, the stock and financial markets are at the time of year (September and October) where the going can get very tough. Gold and silver bulls remain frustrated that the risk aversion in the marketplace is not translating into more safe-haven demand for the two metals.

Traders are focusing on next week’s FOMC meeting, which is expected to see the Fed raise the key U.S. Fed funds rate by 0.75% in its effort to tamp down problematic price inflation. Precious metals traders are reckoning the tighter monetary policies of most of the major central banks of the world will further slow global economic growth that would in turn reduce consumer and commercial demand for metals.

Inflation triggered worst market sell-off since 2020, analyst predicts even more pain – John Feneck

Global stock markets were mostly slightly higher overnight. U.S. stock indexes are lower at midday.

The key outside markets today see Nymex crude oil prices solidly lower and trading around $85.50 a barrel. The U.S. dollar index is near steady in early U.S. trading. The yield on the 10-year U.S. Treasury note is fetching around 3.44%.

Technically, October gold futures prices hit a nearly 2.5-year low today. The gold futures bears have the solid overall near-term technical advantage and gained more power today. Bulls’ next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at $1,675.00 and then at $1,686.30. First support is seen at $1,650.00 and then at $1,635.00. Wyckoff's Market Rating: 1.5.

December silver futures bears have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at today’s high of $19.625 and then at $20.00. Next support is seen at $19.00 and then at this week’s low of $18.775. Wyckoff's Market Rating: 2.5.

December N.Y. copper closed down 380 points at 348.20 cents today. Prices closed nearer the session low today. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at 355.00 cents and then at this week’s high of 369.25 cents. First support is seen at the September low of 336.10 cents and then at 330.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold gains silver surges as USDX slumps

Gold gains, silver surges as USDX slumps

Gold is moderately higher and silver sharply up in midday U.S. trading Monday. The precious metals are supported by a depreciating U.S. dollar on the foreign exchange market. The U.S. dollar index is sharply lower today and hit a two-week low after last week posting a 20-year high. A dip in U.S. Treasury yields to start the trading week is also a positive for the precious metals markets. October gold was last up $14.00 at $1,733.00 and December silver was up $1.088 at $19.865.

 

U.S. stock indexes higher so far today. Stock and financial markets are almost half-way through the month of September with no major marketplace anxiety. The major U.S. stock indexes have seen short-term price downtrends stall out. History shows September and October can be rocky months for the stock and financial markets.

 

Traders and investors are awaiting the latest U.S. inflation report on Tuesday. The August consumer price index is seen coming in up 8.0%, year-on-year, compared to the July report showing an 8.5% rise. There are some signs in the economy that inflation in the U.S. is cooling off a bit.

 

Weak inflation will be key to a sustainable gold rally above $1,750

 

 

 

 

 

 

 

The other key outside market today sees Nymex crude oil prices higher and trading around $87.75 a barrel. The yield on the 10-year U.S. Treasury note is fetching 3.298%.

 

Technically,ctober gold futures bears still have the firm overall near-term technical advantage. However, a four-week-old downtrend on the daily bar chart is now in jeopardy. There is also the potential for a big and bullish double-bottom reversal pattern forming on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,769.30. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at $1,740.00 and then at $1,750.00. First support is seen at today’s low of $1,712.70 and then at $1,700.00. Wyckoff's Market Rating: 2.5.

 

December silver futures prices hit a three-week high today. The silver bears have the overall near-term technical advantage. However, the bulls have momentum on their side to suggest a market bottom is in place. Silver bulls' next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.50. First resistance is seen at $20.00 and then at $20.50. Next support is seen at $19.50 and then at $19.00. Wyckoff's Market Rating: 3.5.

 

December N.Y. copper closed up 235 points at 359.10 cents today. Prices closed nearer the session high today on short covering. The copper bears have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the August high of 378.35 cents. The next downside price objective for the bears is closing prices below solid technical support at the July low of 315.55 cents. First resistance is seen at last week’s high of 362.85 cents and then at 365.00 cents. First support is seen at today’s low of 353.20 cents and then at 350.00 cents. Wyckoff's Market Rating: 3.5.

 

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Weak inflation will be key to a sustainable gold rally above 1750

Weak inflation will be key to a sustainable gold rally above $1,750

Some optimism is creeping back into the gold market as prices end the week in neutral territory, bouncing off support at $1,700 an ounce.

However, analysts are warning investors that economic data next week needs to be significantly weaker than expected if that optimism blossoms in a new breakout on the upside.

The main focus for gold investors next week will be two inflation data points: the U.S. Consumer Price Index on Tuesday and the preliminary inflation expectations from the University of Michigan. Also on tap next week is August U.S. retail sales, which will be an essential gauge to determine how consumers are holding up as the Federal Reserve aggressively raises interest rates.

"Significantly weaker economic data next week will continue to pressure the U.S. dollar, which is positive for gold," said Sean Lusk, co-director of commercial hedging with Walsh Trading.

Ed Moya, senior U.S. market analyst at OANDA, said that weak inflation could give gold a boost next week as it could help investors and markets start to define how high the Federal Reserve will take interest rates.

"If inflation drops, then there is a chance we might not see interest rates go much above 4.00%," he said. "If that happens, then maybe the U.S. dollar has peaked, providing some relief for gold."

However, Moya also said that a slight miss in the data might not be enough to shift fairly solid expectations for the Federal Reserve's next monetary policy decision later this month. Markets see a 90% chance that the Federal Reserve will raise interest rates by 75 basis points.

 

Analysts have said that if those expectations don't come down, gold's new-found optimism could vanish fairly quickly.

"If the Fed raises interest rates by only 50 basis points, this could give gold some momentum," said Christopher Vecchio, senior market analyst at DailyFX.com.

Lusk said that gold has the potential to push to $1,760 an ounce next week; however, he added that "bull markets need to be fed."

"Gold rallies are being sold and that won't change until we have a better understanding of where interest rates are going," he said.

Bullish sentiment points to a limited short squeeze for gold prices, not a new breakout

Inflation expectations

According to consensus estimates, economists see headline CPI falling 0.1% in August as gasoline and energy prices dropped last month. At the same time, core inflation, which excludes energy and food prices, is expected to rise 0.2%.

"If we're right and core CPI increases by a more muted 0.2% m/m, then a late switch to a 50bp hike would still be possible," said Paul Ashworth, chief U.S. economist at Capital Economics, said in a note Friday.

However, not everyone is convinced that disappointing inflation data will move the needle on interest rate hikes.

Daniel Ghali, senior commodity strategist at TD Securities, said that this past week at the Cato Institute's Annual Monetary Policy Conference, Fed Chair Jerome Powell highlighted the Federal Reserve's dual mandate of price stability and maximum employment.

"Tightness in the labor market is probably going to keep interest rates elevated for a longer period of time," he said. "Wage growth is at a level we haven't seen since the 1980 and this could lead to a deanchoring of inflation expectations and that is what the Fed fears."
 

Ghali said that although gold prices could go up next week, he expects its current downtrend to remain in place.

"A weak CPI data could create a short squeeze, but we don't see that as sustainable," he said.

He added that while the precious metal may have priced in the Fed's aggressive rate hike, it hasn't priced in the duration of higher interest rates.

"While gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy. In this context, money managers continue to sell their length, while ETF holdings of gold remain in a sustained downtrend," he said.

Next week's data

Tuesday: U.S. CPI

Wednesday: U.S. PPI

Thursday: Retail Sales, Empire State Survey, Philadelphia Federal Reserve Survey, unemployment claims

Friday: University of Michigan Consumer Sentiment

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley