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Gold, silver lower on bearish daily outside markets teaser image
Gold and silver prices are lower, with gold solidly down, in midday U.S. trading Monday. There is a lack of major, fresh fundamental news to drive the metals markets to start the trading week, so gold and silver traders were focused on the outside markets, which are in a mostly bearish daily posture. U.S. Treasury yields have up-ticked and the competing asset class of equities sees the U.S. stock indexes at or near record highs. August gold was last down $24.80 at $2,324.00. July silver was last down $0.257 at $29.215.
Technical selling is also featured in the gold and silver markets today, as the near-term chart postures for both precious metals has deteriorated the past few weeks.
Despite the U.S. federal “Juneteenth” holiday on Wednesday, when U.S. markets are closed, it’s still a busy week for U.S. data, highlighted by the retail sales report out on Tuesday.
The key outside markets today see the U.S. dollar index slightly lower. Nymex crude oil prices are firmer and trading around $79.25 a barrel. The benchmark 10-year U.S. Treasury note yield is presently 4.289%.
Technically, August gold bulls and bears are on a level overall near-term technical playing field amid recent choppy trading. Bulls’ next upside price objective is to produce a close above solid resistance at the June high of $2,406.70. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the June low of $2,304.20. First resistance is seen at $2,350.00 and then at last week’s high of $2,358.80. First support is seen at Friday’s low of $2,316.70 and then at the June low of $2,304.20. Wyckoff's Market Rating: 5.0.
July silver futures bulls have the overall near-term technical advantage. However, prices are trending down on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $31.00. The next downside price objective for the bears is closing prices below solid support at $28.00. First resistance is seen at today’s high of $29.65 and then at $30.00. Next support is seen at $29.00 and then at this week’s low of $28.73. Wyckoff's Market Rating: 6.0.
Kitco Media
Jim Wyckoff
Tim Moseley
Imagine a world where your social standing is dictated by a government-controlled formula that constantly monitors and judges your every move and utterance, imposing instant penalties for any perceived misstep. This Orwellian scenario is precisely what's conjured up by the term "Social Credit System." For years, mainstream media in the West has painted a dire picture of China's social credit system, warning of a dystopian future where citizens live in fear of being penalized for their words and actions.
The Social Credit System is a very real policy in China, yet many may not clearly understand its nature and functioning. This article aims to distinguish between reality and misconceptions surrounding the system, clarify its true essence, and assess the level of concern it warrants.
This article presents a thorough and impartial overview, drawing on the expertise of graduates from Germany's esteemed Mercator Institute for China Studies (MERICS). Additionally, it incorporates valuable insights from Vincent Brussee's 2023 publication, "Social Credit: The Warring States of China's Emerging Data Empire," ensuring a well-rounded perspective.
As geopolitical tensions escalate, it's essential to approach the following information with a healthy dose of skepticism. The Chinese government is exerting increased control over the narrative, while Western media outlets often display a strong bias against China. It's crucial to scrutinize all information critically and acknowledge that our understanding is likely limited. That being said, the social credit system is relatively transparent and accessible, unlike China's secretive defense research endeavors. With a development history spanning approximately 25 years, a wealth of information is available for analysis.
Source: Mercator Institute for China Studies
The subject of the social credit system in China is vast and complex. It's also a misnomer because there isn't one integrated system. Instead, it is a general term used to represent a diverse collection of policies and initiatives implemented by various levels of government in China, central and local. Despite this diversity, these initiatives align with their fundamental principles and objectives, which become more apparent when examining the issues the government seeks to address.
From Beijing's perspective, the absence of transparency, ethical standards, and a robust legal framework stifles economic and social growth. A prime illustration of this issue is the frequent disregard for court rulings. Such problems create an unfavorable business environment, as the inability to enforce court decisions renders contracts ineffective. In essence, agreements are reduced to verbal assurances, which can be precarious, particularly for smaller companies entering into contracts with larger, more powerful entities that may exploit their vulnerability.
Beyond these issues, the government acknowledges that inadequate law enforcement has led to a multitude of ongoing concerns, including devastating industrial accidents, breaches of food and medicine safety, bogus financial claims, the proliferation of fake goods, tax avoidance, false insurance claims, academic dishonesty, and other such illicit activities that continue to plague the system despite repeated prohibitions.
The social credit system was launched as a comprehensive solution to address many challenges. As a result, its reach goes beyond the traditional concept of creditworthiness in the marketplace, as seen in other nations. In defining the social credit system, the Chinese government has traditionally employed sweeping and ambiguous language, deliberately avoiding specificity. This approach allows for adaptability in policy-making, which is a top priority.
At first glance, Beijing may seem to be granting itself the unlimited authority to control the Chinese populace, which is a concerning prospect. Yet, surprisingly, the social credit system is quite dispersed and lacks centralized control. Local authorities have been afforded significant autonomy to respond innovatively to Beijing's vague objectives and develop their own unique iterations of the social credit system.
Due to the social credit system's complex and constantly shifting nature, it can be more productive to clarify what it is not rather than attempting to define what it is. A good starting point would be to debunk the prevalent myths surrounding this system and then work backward to better understand its true nature.
One widespread misconception about China's social credit system is that the government assigns a numerical score to every citizen. However, this is not the case. In reality, no centralized scoring system is in place, and most initiatives under the social credit system do not involve numerical ratings. The few that do are limited to experimental programs introduced and managed by local city administrations. These pilot cities played a significant role in shaping the social credit system in the 2010s, with many emerging and disappearing over the past decade.
The initiatives ranged from the ordinary to the foreboding and the bizarre. What they all shared, however, was an air of innovation, as the social credit system remains a developing project with much still to be ironed out. It was the city-based trials that generated the most alarming news stories about China's social credit system, which were then picked up by Western media outlets, perpetuating a sense of unease about China's social credit system.
Rumors have circulated about draconian measures proposed by local authorities to penalize citizens for minor infractions, such as crossing the street illegally, failing to honor reservations at hotels or restaurants, or blasting loud music on public transportation. While most of these harsh initiatives stalled in the planning phase, the few that made it through sent a disturbing message.
The City of Rongcheng in Shandong province stands out as the most egregious violator, exemplifying the most extreme application of the social credit system on record. According to Adam Knight, a PhD candidate at the University of Leiden who researched Rongcheng's social credit initiative, the city's system evaluates businesses, government agencies, and individuals across a staggering 570 criteria, assigning scores that reflect their performance.
People could earn credits for virtuous acts such as donating to charity or giving blood, while they may lose points for negative actions like littering or engaging in public fights. If an individual's rating falls too low, they might face restrictions on purchasing transportation tickets for up to a year. Moreover, they could be publicly exposed and humiliated on a billboard. On the positive side, the initiative led to the dismissal of corrupt local officials and a significant reduction in grievances about misbehaving taxi drivers.
The positive development is that China's state media openly criticized rating systems incorporating punitive measures, such as the one in Rongcheng. The China Youth Daily aptly noted, “People should have rated government employees, and instead, the government has rated the people.” Following this, the central government prohibited scoring systems that penalize individuals. They are now more akin to a loyalty rewards program rather than resembling something from a George Orwell novel.
By 2022, at least 62 cities had implemented their own social credit initiatives. Participation in these programs was optional, and not all utilized rating systems. Residents of these areas must proactively request a government-issued score, as it is not automatically assigned. The incentives offered to high-achieving individuals differ by location, ranging from discounted public transportation fares to priority parking and marginal tax breaks.
On the other hand, having the lowest score in the area would have no significant impact. A more appealing option is to opt out of participating in such initiatives altogether. The latter choice is widely favored in China. Involvement in these programs has been minimal, with many individuals unaware of their existence.
According to a study conducted by Genia Kostka, a professor specializing in Chinese politics at the Freie Universität in Berlin, a mere 7% of participants were aware of a social credit system within their local government. Additionally, the research highlighted that the primary focus of social credit systems in China is on evaluating the creditworthiness of government entities and businesses rather than individual citizens.
Source: Mercator Institute for China Studies
The primary objective of the social credit system is to enhance governance and foster a favorable business climate in China. Consequently, most of the central government's resources have been dedicated to developing the corporate social credit system. This emphasis is evident on the government's Credit China website, which offers a comprehensive overview of the social credit system. The website's content primarily focuses on businesses and public entities, reflecting the system's main priorities. Furthermore, data on enforcement actions undertaken under the social credit system confirms this bias towards corporate entities.
From 2014, when the city pilot programs began, to 2020, 73% of enforcement measures were aimed at businesses. Government agencies were the next most targeted group, accounting for 13% of these actions; 10% focused on individuals, with the remaining percentage focused on non-governmental organizations. While social credit's significance for individuals may increase in the future, its primary focus is on evaluating and impacting private companies rather than personal reputations.
Regardless of their penalty points, individuals and businesses can be subject to government pressure by being placed on a specialized register. This registry, comprised of "blacklists" and "redlists" (the government's term for trusted or "white lists"), plays a crucial role in the social credit system. These two lists are highly fragmented and uncoordinated across central and local governments.
The Supreme People's Court oversees the most influential blacklist on a national scale. This registry documents entities and individuals legally mandated to settle outstanding debts yet deliberately choose not to despite having the financial capability to do so. Before establishing this black list, the court lacked the authority to enforce its decisions, leading to a widespread phenomenon of individuals disregarding its judgments.
Ever since the blacklist was established in 2013, it has evolved into a fundamental component of the social credit system and a valuable instrument for the judiciary. Individuals on the blacklist face limitations on indulging in lavish expenditures, such as purchasing plane and high-speed train tickets, staying at high-end hotels, enrolling in expensive private schools, and acquiring luxury vehicles.
Before inclusion on the list, the court must inform the affected individual or business of its ruling and its justification. Parties that have been blacklisted have the opportunity to have their names stricken from the list and sanctions revoked, provided they consent to settling their outstanding debt and committing to lawful behavior going forward.
In addition to the above, the Civil Aviation Administration and the National Railway Administration maintain no-fly and no-ride lists. These are lists of individuals prohibited from flying or taking the train. Disruptive behavior, such as physically harming transportation employees or fellow travelers, disregarding safety protocols, using counterfeit tickets, or smoking onboard, can land you on one of these lists. As a consequence, you may be barred from purchasing new tickets for a period of six to twelve months. Notably, being placed on this list has no broader implications for your personal or professional life.
Source: AIES Conference
Regardless of one's stance on the infractions and penalties detailed, the centralized government's blacklists appear to possess a certain level of consistency and well-defined boundaries. In contrast, certain pilot cities' ad hoc blacklists lack uniformity and coherence, with no clear-cut parameters or limitations.
Various cities had numerous black and red lists, with their content and emphasis differing significantly from one city to another. To illustrate, in a particular inner Mongolian county, parents who sought to remove their children from local schools teaching Mandarin were allegedly intimidated by the prospect of being placed on a blacklist.
Amid the pandemic, certain cities put citizens on a blacklist for not adhering to mask-wearing regulations in certain urban areas. In Anqing, a resident was even ostracized for allegedly "spreading panic" after sharing footage of an ambulance transporting a person suspected of having contracted the virus. Mainstream Chinese media outlets have denounced these actions, deeming them capricious and unrelated to the principle of "social creditworthiness."
In Zhengzhou, the city authorities indiscriminately red-listed all hospitals handling pandemic victims, commending them for simply fulfilling their obligations. In Rongcheng, 75% of red-listed individuals earned their prestigious status due to their exemplary tax compliance. Similarly, roughly 75% of distinguished entities in Putian were red-listed for meeting food safety standards.
Source: Mercator Institute for China Studies
Beijing seemed dissatisfied with the situation and consequently released a policy document in 2020 aimed at enhancing the standardization of social credit and limiting the abuse of power by local officials. The updated guidelines emphasized that blacklists should be reserved for cases of significant harm, focusing on safeguarding information security and privacy. Additionally, the document underscored the importance of widespread agreement before implementing social credit measures, discouraged the arbitrary creation of new blacklists, and highlighted the need for a transparent process for black-listed entities to restore their credit standing.
One could easily view China's social credit system as an expansion of the surveillance state. The government could monitor and manipulate citizens with precision and ease through algorithms, artificial intelligence, massive data collection, and numerous cameras. This dystopian scenario appears plausible, given the government's penchant for control and access to the technological tools necessary to implement such a system on a massive scale.
Despite the prevailing notion, the facts don't support this assessment. It's striking that a government with extensive surveillance infrastructure relies on an astonishingly rudimentary social credit system, which relies more on antiquated technologies like fax machines and paper-based documentation rather than cutting-edge machine learning applications.
The social credit system's level of digital maturity is evident in official government documents, which repeatedly emphasize the necessity of building comprehensive databases and platforms that facilitate seamless information sharing. A notable challenge, however, is the lack of standardization in data presentation, with cities submitting reports in varying formats, including spreadsheets, news articles, and even JPEG images.
The pilot city initiatives gathered data through manual efforts, utilizing basic tools like Microsoft Excel and WeChat, resulting in inconsistent and uneven data quantities. For instance, in Anqing, a single department was responsible for a staggering 90% of all data accumulated under the social credit system. In contrast, in a metropolis with a population exceeding 9 million, numerous departments contributed a mere trickle of data, with fewer than 100 weekly entries.
The social credit system has taken the concept of big data to a new level, mainly due to the rampant inflation and the motivations of local officials to exaggerate their statistics. Impressive figures can boost a team's reputation and even lead to career advancement. However, a curious phenomenon has been observed: the more data collected, the fewer individuals are actually penalized, suggesting an inverse relationship between the two.
Initial obstacles have hindered the government's efforts to transition to digital systems. This slow progress is attributed to the absence of standard guidelines, a centralized data storage system, ambiguous credit classifications, and disparities in data collection practices across regions and institutions. Consequently, it's unsurprising that the capital has recently prioritized standardization and digitization.
However, suppose you believe this enables them to suppress individuals more effectively. In that case, it is essential to note that the disorganized, chaotic, and outdated execution of the social credit system has led to numerous negative consequences, such as unjust blacklisting of innocent individuals and contentious practices of gathering and evaluating behavioral information in trial cities. In every scenario, the central government in Beijing stepped in to limit the abuses carried out by out-of-control local authorities.
Beijing may not necessarily be portrayed as the positive force in this situation, as we will discuss shortly. However, it appears that the social credit system is becoming a permanent fixture, and streamlining and modernizing its application to eliminate its current chaotic state is not a terrible idea. Furthermore, those concerned about a surveillance state can take comfort in the central government's awareness of the risks of relying solely on automated decision-making processes.
China prioritizes human oversight in its social credit system, as demonstrated by a 2021 amendment to the administrative penalties law emphasizing the need for human review of digitally gathered evidence. Furthermore, as of 2023, most social credit-related decisions were allegedly made by human assessors rather than artificial intelligence.
During a speech in 2018, former US Vice President Mike Pence connected the social credit system to China's surveillance State, describing it as “An Orwellian system premised on controlling virtually every facet of human life.”
In truth, it is a public, somewhat transparent, and diminishing effort to enforce moral standards in the public sphere that is quite separate. While not entirely harmless, it is not as sensational as Pence and others have portrayed. The concept of a social credit score, which is largely exaggerated, has frequently been used to represent a frightening, techno-dystopian future. Over time, it has become a popular cultural reference and the only version of reality that people tend to recall.
It's common to see satirical posts on Chinese social media platforms ridiculing individuals who naively assume that a social credit system is fully operational. On Weibo, for instance, users have created humorous mock-ups of China's social credit app, displaying absurd scores like 726, accompanied by warnings of being under close surveillance as a "second-class citizen" or alarmingly low scores of 0, instructing the individual to surrender, or even a score of -278, demanding immediate execution.
Source: X
Regrettably, the social credit system has garnered excessive attention, overshadowing the fact that China, similar to numerous other governments globally, possesses numerous more effective methods for widespread surveillance, counterinsurgency, countersubversion, political oppression, and social control that often operate covertly and outside the confines of laws and regulations.
While China's social credit system is well-known, fewer people know about initiatives like Project Sharp Eyes, Golden Shield, the Integrated Joint Operations Platform, and Skynet. Unfortunately, freedom and privacy violations occur daily in China and globally, often flying under the radar, maybe because they just aren't as meme-able as the idea of social credit.
It's crucial that we approach all of these issues with a critical eye, accurately identifying and understanding their impact and origins. If we fail to think critically and look beyond the surface level of popular narratives and memes, we risk becoming vulnerable to a surveillance state that erodes our autonomy.
Tim Moseley
After last week's price action was dominated by Friday’s news from China and the employment report, precious metals markets were squarely focused on inflation data and the Federal Reserve’s interest rate path this week.
After kicking off the week trading at $2,293.70 per ounce during the Sunday evening Asian session, spot gold broke above the $2,300 level about two hours before the North American market open, and that level held throughout the rest of the week's roller coaster ride.
Gold prices chopped along in a relatively narrow $15 channel as market participants waited for Wednesday, which would bring the consumer inflation report in the morning, then the FOMC rate announcement, updated economic projections, and Chair Powell's press conference in the afternoon.
The CPI report finally shook the market out of its sideways trading, spiking spot gold from $2,313 per ounce just before the data release to its weekly high of $2,336.72 immediately afterward. By the time the Federal Reserve announced that they were keeping rates unchanged at 2:00 p.m., the price had pulled back to $2,326 per ounce, and spot gold continued to sell off steadily as markets digested Powell’s hawkish rhetoric and the FOMC's updated projection of only one rate cut in all of 2024.
By Thursday, spot gold had once again slid back down to support, but it saw a firm bounce just below the $2,300 level and by Friday morning the yellow metal was once again marching higher into the weekend.
The latest Kitco News Weekly Gold Survey has a majority of industry experts and retail traders seeing green for gold prices next week as they emerge from their bearish hibernation and return to bullish pastures.
“Gold snapped a three-week decline, encouraged by political uncertainty in Europe, and a sharp drop in interest rates,” said Marc Chandler, Managing Director at Bannockburn Global Forex. “It recovered about half of what it lost after the US jobs data on June 7 and on reports that the PBOC did not buy gold for reserves last month.”
Chandler noted that spot gold traded to around $2841 in the middle of last week before consolidating. “Gold was relatively restrained, perhaps pulled by conflicting signals—of a stronger dollar on the one hand, and lower rates on the other. Trendline resistance begins the new week near $2362. On a medium-term view, I suspect gold is nearer a bottom than a top and expected lower interest rates to underpin the yellow metal.”
“I’m sticking with ‘up’ for this week as bulls put in a strong defense of $2300,” said James Stanley, senior market strategist at Forex.com. “The pullbacks are getting more concerning, however, as that shows bulls taking advantage of strength to realize profits and square up positions. That’s helped to build a possible head and shoulders pattern. That formation requires a breach of the neckline, but if it does then I think we could be soon looking at a deeper pullback scenario. And for that, I’m tracking the longer-term range resistance, around the $2,075-$2,082 level for longer-term support to play in.”
“For now, support remains in play and I’m biasing bullish, but I’m ready to change if the neckline breaks,” Stanley said.
“Up,” said Adrian Day, President of Adrian Day Asset Management. “Gold is recovering from last week’s sell-off as U.S. economic news has been more ‘dovish’ – weaker producer inflation numbers and higher claims for unemployment – both helping the case for a cut in interest rates, and geopolitical tensions heighten – more attacks on Israel from Hezbollah and Russian warships in the Caribbean.”
“I am bullish on Gold for next week,” said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. “It’s looking ready for a technical bounce up off of support.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, was reflecting on what traders had learned from both last week and this one.
“I think this recent drop is just a reflection of two things in gold,” Lusk said. “Obviously, last week China just shot an arrow across the bow when nobody was looking, that they were backing off some gold purchases. They said that stuff so they can buy it cheaper, that’s how I view that. And China can say whatever the hell they want, but they have to back up all their money printing.”
“We also had what was deemed to be a blowout unemployment report by some media outlets,” he said. “What a laughable joke that was; not a blowout employment report, it wasn't even close to that. A lot of the gains were government-created, not in the private sector, and if you look within the numbers, and the revisions lower the prior two months, it wasn't that much of a gain, if any.”
Lusk said last Friday’s sharp correction downward wasn’t justified based on those releases. “But the market's going to do what it's going to do, and sometimes you can't fight it,” he said.
“Then CPI came in [this week], hit the dollar one day, and then they brought it back up on PPI,” Lusk observed. “It's just a mixed bag of nonsense, really. But I think for gold's price here, it's a pure consolidation. We held the weekly low down at $2,304. There's a lot of uncertainty all over the place, and I think that the path of least resistance for metals is still higher.”
Lusk said that since last Friday, the August futures contract dropped from $2,406 all the way to $2,304. “You dropped $100 in a day,” he noted. “That's pretty steep, right? But you haven't revisited that low. So now the key resistance is going to be that big ‘drop day’ high. You can draw a trend line from the May high the week before Memorial Day weekend at $2,477 to $2,406. Wherever that line's coming in, that's your trend line that you’ve got to watch. If they blow through last Friday morning's high before China made that announcement, then we're going up to $2,485, if not $2,500.”
“Now, should we blow through $2,304, then we're going down to $2,280 and we might go down to $2,200,” he cautioned. “But I think the trend is still up overall, no doubt about that. You've come off the highs a little bit, but you've had a hell of a run since the February lows. From $1,996 you ran up to $2,454 on the continuous. That’s a $458 move in three months.”
This week, 13 Wall Street analysts participated in the Kitco News Gold Survey, and after this week’s performance, they were considerably more optimistic about the precious metal’s near-term prospects. Eight experts, representing 62%, expect to see gold prices climb higher next week, while only two analysts, or 15%, predicted a price decline. The remaining three, or 23% of the total, expect gold to trade sideways during the coming week.
Meanwhile, 216 votes were cast in Kitco’s online poll, with Main Street investors somewhat more cautious than their institutional counterparts, but positive on balance. 117 retail tradSpot gold last traded at $2333.21 at the time of writing, up 1.26% on the day and 1.71% on the week.ers, or 54%, look for gold prices to rise next week. Another 49, or 23%, expected the yellow metal to trade lower, while 50 respondents, representing the remaining 23%, saw prices chopping sideways during the week ahead.
With the Federal Reserve’s monetary policy decision in the books, markets will shift their focus to Europe next week as the Swiss National Bank and the Bank of England will both announce their monetary policy decisions on Thursday morning.
Markets will also receive the Empire State manufacturing index on Monday, and retail sales for May on Tuesday. Then, Thursday brings housing starts and building permits for May, as well as weekly jobless claims and the Philly Fed manufacturing index. The week’s data wraps up with existing home sales on Friday morning.
Darin Newsom, Senior Market Analyst at Barchart.com, expects gold to build on this week’s rebound and make further gains. “While August gold’s intermediate-term trend remains down, its short-term trend has turned up,” he said. “This means the contract should take out its previous high of $2,358.80 with the next upside target near $2,370, then $2,391.”
“As we head into the weekend, I’m looking for increased investment buying tied to the political chaos in France,” Newsom added. “We can’t call it a Black Swan event given it was predictable as the China/Russia coalition gets more desperate ahead of the global 2024 election cycle.”
Alex Kuptsikevich, senior market analyst at FxPro, said he thinks gold’s support at $2,300 looks extremely fragile and unreliable.
“Firstly, last Friday, Gold went over 4% from peak to bottom, on high volumes and with a horrendous amplitude falling under the 50-day moving average,” he said. “All other dynamics of this week may well be considered as consolidation of liquidity by bears for a new blow to the metal. This thesis is reinforced by the fact that this 50-day average is already actively working as resistance.”
“Secondly, the dollar has been rising since last Friday, as if switching into a ‘buy on the downturn’ mode,” Kuptsikevich said. “The dollar index has pushed back from its 200-day moving average since the beginning of the month. And a rising dollar with attractive bond interest yields makes dollar bonds an effective competitor to gold.”
The third factor weighing on gold is the ongoing slide in stocks. “Separate from the short-squeeze-backed gains in individual stocks in the Nasdaq100 and S&P500, there is noticeable heaviness in the Dow Jones and Russell 2000 indices, not to mention the 5% loss by the French CAC40 for the week,” he said. “Politics was back to spooking the markets as we heard of new barrages of trade wars and the risks of increased protectionism.”
Adam Button, head of currency strategy at Forexlive.com, was also reflecting on the shifting political landscape and its short- and long-term implications for precious metals and the dollar.
“The consensus around open borders and open trade was built with the U.S. dollar at the heart of it,” Button said. “Breaking that system will have impacts, and we're seeing them, on the U.S. dollar, especially now that the U.S. is wielding tariffs as a tool. Trump the other day was talking about replacing income tax with tariffs. That's an attack on even a country like Canada, potentially. I don't think it's realistic, but 10 years from now, who knows? And what does 2028 look like? Does it look like two reasonable human beings in an election fight?”
“That's the way the pendulum is swinging,” he added. “And if it is, what are you doing holding Treasuries? When they say you're cheating on your tariffs, or you're cheating on imports, and they decide to steal your money, like they did to Russia?
“That seems outlandish, but in a world like that, what's gold worth?” Button asked. “$10,000? $20,000?”
Turning to Europe, Button said that the Franco-German consensus that has governed Europe since the dawn of the euro is ending. “What happens to the Eurozone from here? And the EU, what's the point of the whole thing if that's broken?” he asked. “We're seeing that in French bonds right now. It's not hard to envision the next German election, the next Hungarian election again, even the Dutch swung that way.”
“Political turmoil is the theme right now,” he said. “And that's a classic gold driver.”
That said, Button still doesn’t expect gold to rise in the near term. “Do I want to be long gold next week? No, I don't,” he said. “If something can't rally on good news, then it's not going to rally. That was the best CPI report that gold bulls could have hoped for, and gold didn't rally. It's having a decent day today, but maybe that's the push and pull of the political side.”
“I don't like the price action this week, that's what it comes down to for me,” Button added. “If $2,300 breaks, what's the downside? Probably like $2,150, something like that. Maybe I'm interested there.”
The other thing he’d like to see is whether gold prices can withstand some real pain in equities.
“No one has forgotten how poorly gold did at the outset of COVID,” Button said. “And I'm not to say that we'll see equities puke like that, but it hasn't been a counter-cyclical trade. So I just want to see what gold looks like in a poor day for equities, a real poor day, which I think we're headed toward. We just need one bad NVIDIA headline. It's really carrying the whole market here.”
Michael Moor, Founder of Moor Analytics, was breaking down the technical picture from gold’s recent price action in the lower and higher timeframes.
“On a lower timeframe basis: The trade below 24343 (+1.3 tics per/hour) has brought in $130.1 of pressure,” Moor wrote. “The trade below 24216 (+4 tics per/hour) projects this downward $60 (+)—we have attained $117.4. These rolled from (M) into the (Q). The trade back below 23642 (-1.2 tics per/hour) in (Q) has brought in $60.0 of pressure. Decent trade above 23489 (-1.2 tics per/hour starting at 7:00am) should bring in decent strength.”
“Areas of possible exhaustion to contend with below come in at 65216-4785, 62926, and 60280-59628; and we have entered into the ideal timeframe for one of these to hold more than temporarily – if we settle below the lower of these, this should be a larger, higher timeframe correction,” he said.
And Kitco Senior Analyst Jim Wyckoff holds a balanced view toward gold going into next week. “Choppy and sideways as bulls and bears are on a neutral near-term technical playing field,” he said.
Kitco Media
Ernest Hoffman
Tim Moseley
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Tim Moseley
Gold heads into Friday a little stronger but also little changed from the week’s open.
It appears to have consolidated around the critical $2,312/oz level following the previous week’s decline. However, we note that some technicals have deteriorated, with the 50-day simple moving average now becoming a constraint and a head and shoulders pattern now apparent.
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Nevertheless, from a fundamental perspective, gold has remained relatively resilient, facing mixed US inflation data and, crucially, the Federal Reserve cutting its ‘dot plot’ projection of interest rates from an implied three-quarter-point cut to just one such cut this year. In mitigation, the Cleveland Fed inflation nowcast has moderated a little over the last week, but with the core PCE (the Federal Reserve’s preferred inflation measure) still at 2.6%, this currently gives US rate-setters little scope for comfort.
Against this backdrop, one might expect that positive (downside) surprises for gold are now priced out of US rates markets. However, both 2-year and 10-year US Treasury yields have moved some 20bp lower this week, leaving a rebounding dollar as the only rate hawkish signal. CME FedWatch suggests futures are still pricing a significant (c. 30%) probability of more than one quarter-point cut in US rates by the end of 2024, little changed from a week ago.
The market calendar for today is quite light, with only May US import prices and June Michigan Consumer Sentiment prints likely to be of some interest to gold investors.
Mike Ingram
Tim Moseley
Market Analysis
Gold prices edged higher on Tuesday, posting modest day-on-day gains, as the markets looked ahead to the release of macroeconomic data on Wednesday for renewed direction.
Prices rose as high as $2,320 an ounce on Tuesday, compared with around $2,310 an ounce in late trades on Monday.
KAU/USD 1-hourly Kinesis Exchange
The relative price stability this week followed a dramatic price drop from as high as $2,388 an ounce last Friday after news reports said China’s central bank had stopped buying gold in May, breaking an 18-month streak of monthly purchases.
The latest action leaves gold prices some way short of their all-time high of just over $2,450 an ounce seen on May 20.
The markets were left speculating over the PBoC’s next move and what price level would encourage a resumption of purchases for its official gold holdings, with some suggesting a drop to $2,200 an ounce could reignite regular buying.
Current heightened geopolitical tensions around the world have combined with political uncertainty due to upcoming elections in several countries, and these factors have contributed to gold’s strength along with central bank buying in recent months.
Looking ahead, the markets will be watching out for Wednesday’s US inflation figures for May, as well as an expected interest rate decision by the US Fed, which is widely expected to involve keeping the current rate of 5.5% on hold for the time being.
Then Thursday will see the release of US Producer Price Inflation numbers for a further update on price rises, as the markets try to gauge the timing of possible interest rate cuts by the US Fed in the autumn.
Frank Watson
Tim Moseley
Federal Reserve Chair Jerome Powell used his post-FOMC press conference to try to reassure markets that even though the central bank’s latest data showed inflation projections rising and the number of expected rate cuts falling, the committee’s policy bias was still tilted toward easing. However, he also suggested people were getting used to the idea that interest rates would not return to pre-pandemic levels, signaling that the Fed may be preparing markets for a higher neutral rate.
Powell was asked at the outset whether FOMC members expected no further progress on inflation this year, given that the new Core PCE forecast was 2.8% by the year-end, and it's already at 2.75%.
“What's going on there is that we had very low readings in the second half of last year, June through December really, and we're now lapping those,” he said. “As you go through the 12-month window, a very low reading drops out and the new reading gets added to the 12-month window.”
“It's just a slight element of conservativism, that we're assuming a certain level of incoming monthly PCE and core PCE numbers,” he continued. “We're assuming good but not great numbers, and if you put that on top of where we are now, you get a very slight increase in the 12-month reading.”
“Now, do we have high confidence that that's right? No,” Powell said. “It's just a conservative way for forecasting things. If we were to get more readings like today's reading, then of course that wouldn't be the case.”
The Fed Chair was also asked if two or three more inflation readings like the one markets saw this morning would make a September rate cut possible.
“I talk to all of the other participants on the FOMC every cycle, and we talk about their summary of economic projections [SEP], and their dot plot, and everything,” he said. “What I hear and see is that people are looking at a range of plausible outcomes, and in many cases, they're thinking ‘I can't really distinguish between two of these, they're so close, these are very close calls.’ But we ask them to write down the most likely one, so they do.”
“As you've said, 15 of the 19 are clustered around one or two [cuts],” Powell went on. “I look at all of them as plausible, so I think that does tell you what the committee thinks. But what everyone agrees on is it's going to be data-dependent. They're not trying to send a strong signal that this is what I think is the right thing. It's just what they think at a given point in time, subject to data.”
“In terms of future meetings, we don't make decisions about future meetings until we get there,” he added. “We want to gain further confidence. Certainly more good inflation readings will help with that.”
Powell was asked whether any FOMC members had changed their interest rate projections after the 8:30 am CPI release.
“When there's an important data print during the meeting, first day or second day, what we do is we make sure people remember that they have the ability to update, we tell them how to do that, and some people do, some people don't,” he said. “Most people don't, and I'm not going to get into the specifics. But you have the ability to do that, so that what's in the SEP actually does reflect the data that we got today, to the extent you can reflect it in one day.”
“I think we'll see PPI tomorrow, we'll know more about the PCE reading as the month goes on,” Powell added.
The Fed Chair was also asked whether the labor market is more vulnerable to higher rates now that many of the post-pandemic imbalances have eased.
“By so many measures, the labor market was overheated two years ago, and we've seen it gradually move back into much better balance between supply and demand,” Powell replied. “So what have we seen? We've seen labor force supply come up quite a bit through immigration and through recovering participation. On the demand side, we've seen quits moving down, we've seen job openings moving down, we've seen wage increases moving from very, very high levels a couple of years ago back down to more sustainable levels.”
Powell acknowledged that unemployment has risen by about 0.6% in a little over a year, but he characterized that as “very, very gradual,” and said 4% unemployment remains historically low. “We watch […] the labor market very carefully, and that's what we see,” he said. “We see gradual cooling, gradual moving toward better balance. We're monitoring it carefully for signs of something more than that, but we really don't see that.”
Chair Powell was then asked about the significant shift in the SEP since the March meeting, with the latest version showing a much shallower path of rate cuts this year.
“The big thing that changed was the inflation forecast moved up several tenths before the end of the year,” he said. “We had really good inflation data in the second half of last year, then a pause in progress in the first quarter. And what we took away from that was that it's probably going to take longer to get the confidence we need to begin to loosen policy.”
“The sense of that is that rate cuts that might have taken place this year, take place next year,” he continued. “There are fewer rate cuts in the median this year but there's one more next year. So really, if you look at year-end 2025 and '26, you're almost exactly where you would have been, just it's moved later because of that progress.”
The Chair was then asked about the SEP’s long run interest rate forecast, which also moved higher, and whether this indicated that rates may not be restrictive enough.
“You're right, it did move up,” he replied. “I just think people are coming to the view that rates are less likely to go down to their pre-pandemic levels, which were very low by recent history measures. Now, we can't really know that. Ultimately, we think that things like the neutral rate are driven by longer run, slow moving forces.”
The Fed Chair added that as time has gone on, everyone is wondering just how restrictive the policy has become. “My answer has been that policy is restrictive,” he said. “The question of whether it's sufficiently restrictive is going to be one we know over time. I think the evidence is pretty clear that policy is restrictive and is having the effects that we would hope for.”
Powell was then asked to explain why the central bank would cut at all this year when the growth forecast doesn't predict any slowdown in 2024, the unemployment forecast doesn’t show significant weakening of the labor market, and the latest inflation forecasts average out to no change.
“We think policy is restrictive and we think ultimately that if you just set policy at a restrictive level, eventually you'll see real weakening in the economy,” Powell replied. “That's always been the thought, that since we raised rates this far, we've always been pointing to cuts at a certain point. Not to eliminate the possibility of hikes, but no one has that as their base case, no one on the committee does.”
Powell then addressed signs that consumer-level inflation pressures were easing, saying that there were still problematic areas.
“It's true that inflationary pressures have come down, but we're still getting high inflation readings,” he said. “In some parts of non-housing services you see elevated inflation still, and it could be to do with wages.”
Powell added that goods prices have fluctuated. “There's been a surprising increase in import prices on goods which is kind of hard to understand, and we've taken some signal from that,” he said. “Wages are still running, I would say, above a sustainable path, which would be that of trend inflation and trend productivity. We haven't thought of wages as being the principal cause of inflation, but at the same time, getting back to 2% inflation is likely to require a return to a more sustainable level, which is somewhat below the current level of increases.”
Gold prices trended lower throughout Powell’s press conference, with spot gold sliding from $2,332.34 when he began speaking to $2,317.29 by the time he finished taking questions.
Kitco Media
Ernest Hoffman
Tim Moseley