Gold Hits Record Highs Rising with the US Dollar

Over the last six weeks, gold and the US dollar have been moving higher in strong correlation. This is contrary to the typical moderately inverse relationship between the two Tier 1 bank assets.

Gold & The Dollar

I use the term “moderately” because the media and mainstream market analysts talk about the relationship as if it’s a tick-for-tick strong inverse relationship. Over a long period of time, the correlation between the dollar and gold is around -30% (the statistical study I’m referencing was conducted by a Trinity College (Dublin) professor and the LBMA – it examined the data from 1975 to February 2012).

Over very short periods, the inverse relationship might be considerably stronger.

Gold Vs The Dollar

However, since late 2005, gold and the dollar have occasionally traded higher with a strong correlation for a short period. In those instances, that particular trading relationship often precedes a sell-off in the dollar while gold continues to move higher.

The chart above shows gold vs the US dollar for the last 52 weeks. The two assets have been moving higher with a very strong positive correlation. There’s been a positive correlation between gold and the dollar as both have been trending higher since the beginning of 2024.

Gold’s Divergence

Also note that after the periods in which gold and the dollar moved higher together, at some point the dollar headed south while gold continued higher. Gold continued higher to a new all-time high in all three instances (March 2008, September 2011 and July 2020). If this trading pattern holds this time, it implies that there will be an all-time high price for gold that is considerably higher than the current level at some point after the dollar diverges negatively and heads south.

The chart above shows the dollar vs gold from 2004 to present, weekly. Annotations show the periods when gold and the dollar moved higher in correlation.

The best explanation in my opinion for this trading occurrence between gold and the dollar is that financial turmoil is unfolding in the financial system around the period when the two assets move higher in tandem.

Enter Inflation

In 2005, inflation began accelerating along with the price of oil, the mortgage finance bubble was inflating rapidly, interest rates were rising and the real (inflation-adjusted) GDP was falling.

2008 saw the culmination of the mortgage crisis which ushered in a full-fledged banking crisis. 2020 needs no explanation. Currently, it is starting to appear as if the entire debt-driven financial system globally is at risk of collapsing.

Thus, I believe the best explanation for the dollar and gold moving higher together is a flight to safety into gold and the dollar by those who can “see” what’s unfolding. At some point, the financial turmoil triggers a sell-off in the dollar and an even bigger movement of capital into gold and silver.

The financial system could be approaching the tipping point which will trigger a sharp sell-off in the dollar and an even bigger move higher in the precious metals sector.

Dave Kranzler

Time to Buy Gold and Silver

Tim Moseley

Wall Street sees higher gold prices next week, Main Street gets pessimistic with NFP, Fed decision on the docket

While gold would appear to have had a poor week, down over 2% since the open on Sunday night, a cursory glance at the weekly chart shows that virtually all of the losses were traders selling off their weekend insurance after the Middle East conflict didn’t escalate beyond Israel’s retaliatory strikes on Friday.

If we subtract this move, gold prices traded in a narrow $30 band since dipping briefly below $2,300 Tuesday as markets digested worrisome but not earth-shattering economic data.

The latest Kitco News Weekly Gold Survey showed retail investors increasingly losing faith in the precious metal, while analysts and institutional players see this week’s consolidation as a harbinger of further gains.

Mac Chandler, Managing Director at Bannockburn Global Forex, was among those who saw this week’s price performance in a positive light.

“Gold in the cash market found support near $2300,” he said. “I think it can test $2370 in the coming days. I suspect the real test is with the US jobs data next week. The FOMC meeting comes first, but a hawkish hold is widely anticipated. The service PMI and small business surveys warn of downside risk.”

“A disappointing jobs report could send the dollar and rates lower and lift the yellow metal,” Chandler said.

Adrian Day, President of Adrian Day Asset Management, also sees gold trading higher next week. “Buying worldwide is picking up,” he said. “Central banks continue to be net buyers of gold, in size, if so far this year at a somewhat slower rate than the last two years.”

“Chinese consumer buying is up this year, as investors and savers look for a safe place to put their money amid a weakening economy and threatened yuan devaluation,” Day said. “Now buying in North America is turning, albeit at a slow pace, but turning none the less. Gold ETFs are beginning to see some inflows, after steady and relentless selling most of last year and earlier this year.”

“Investors, both individuals and institutions, are extremely underweight gold assets, so even a slight shift in buying patterns could be dramatic,” Day added.

Adam Button, head of currency strategy at Forexlive.com, was parsing gold market demand for clues about its future direction.

“The open question is how much of the bid is safe haven and how much of it is driven by the same fundamentals that have been underpinning gold for the past seven weeks,” Button said. “One thing to look at is oil. Many people are still estimating there's a five-dollar premium in oil from the Middle East. I think that's aggressive, but oil hasn't come down that much this week either, so either the premium is still there, or it's not that big of a factor at all.”

“I lean towards that the geopolitical premium is small,” he said. “At this point, at the risk of being wrong on the weekend, but the Iran-Israel tensions appear to be dwindling. It's clear the U. S. doesn't want a war, and Iran doesn't want a war. I don't think Israel's going to go it alone.”

Button said that as the pressure drops in the region, the market should return its focus to the real driving force behind gold’s price action.

“I think all roads lead to China in this gold discussion,” he said. “And the question I have is how much of the China bid is retail and how much of it is official or semi-official. And I would split that off and say retail financial flows versus retail physical flows, because if it's physical retail buying, that's not going to unwind, whereas there's a lot of talk about China ETF inflows… that can unwind really quickly if the price starts declining.”

That said, Button sees plenty of signs of continued strength for gold prices.

“The bids keep coming in,” he said. “And the sellers have had a good reason. You've got hot inflation numbers, strong dollar, a rough week in markets with tech there, and a more peaceful kind of resolution [to the Iran-Israel strikes].”

“If you look at the week, gold faced three or four tests of demand. And to my mind, it passed them all.”

Button said that while we’re seeing steady buying and higher lows again, gold will need buyers outside of China to propel prices higher still.

“I think if gold is going to rally further from here, it's going to take more of a global retail demand spike to make it happen,” he said. “There's a little bit more talk on CNBC about gold, but it just gets so easily overshadowed when you have Google up 10% or Meta down 20%. Gold can't seem to grab ahold of that retail bandwidth. And that's fine, because that's probably what's going to lead to a top, is some kind of retail piling in. But for now, the bids are still there, and at wonderful levels. There's a lot of money to be made in the gold space right now.”

Button also believes the market is primed for an overreaction to a disappointing employment report. “The market will move much more than it should on a soft jobs report,” he said. “This week we had the S&P global PMI that was soft and we saw what happened, there were some big moves on that. And that's a second-tier indicator. Nonfarm payrolls is tip-of-the-top.”

“GDP was a little soft, rates are high again, there's some election angst, demand really isn't that strong,” he said. “The market might have a really quick rethink if there is a soft nonfarm payrolls report.”

This week, 10 Wall Street analysts participated in the Kitco News Gold Survey, and the views were virtually identical to those shared last week. Seven experts, or 70%, expected to see gold prices climb higher next week, while two analysts, representing 20%, see gold continuing to trade sideways. Once again, only one analyst, or 10%, predicted a price drop.

Meanwhile, 155 votes were cast in Kitco’s online poll, with only a minority of Main Street investors now seeing gains for the precious metal after another week of restrained price action. 74 retail traders, representing 48%, looked for gold to rise next week. Another 46, or 30%, predicted it would be lower, while 35 respondents, or 22%, expect the precious metal to trend sideways in the week ahead.

Next week’s economic news highlights are the Federal Reserve’s monetary policy decision on Wednesday and the nonfarm payrolls report on Friday, but markets will also pay attention to Tuesday’s U.S. Consumer Confidence report, Wednesday’s ADP nonfarm employment, ISM manufacturing PMI, and JOLTS job openings, weekly jobless claims on Thursday, and the Friday release of ISM Services PMI.

Darin Newsom, Senior Market Analyst at Barchart.com, believes gold will finally get its long-overdue pullback next week.

“Going out on a limb here, but if the June futures contract closes higher Friday and Monday, it would be 3 days against the short-term downtrend that was confirmed with the move to a new 4-day low this past Monday,” Newsom said. “The daily chart would also be showing a bear flag pattern, with the old technical saying being, ‘flags and pennants fly at half-mast.’ If so, and the contract breaks down next Tuesday (theoretically), then the short-term target would be near $2,268.”

James Stanley, senior market strategist at Forex.com, thinks the Fed will send some dovish signals, which should help gold prices.

“I think the Fed will still have some element of a dovish lean, and I think that’ll keep gold bulls in the game,” he said. “That said, the April monthly bar in spot gold could take on a different tone depending on how Monday and Tuesday of next week go. If bulls cannot hold 2300 into month-end, there’ll be a greater build of bearish short-term price action, and when combined with the lower-high last week and the stall at 2400 this month, that can start to open the door to a deeper pullback move.”

Sean Lusk, co-director of commercial hedging at Walsh Trading, was looking through this week’s sideways chop on Friday, and sees geopolitics and inflation continuing to drive gold prices higher.

“It has been hesitant,” Lusk said. “You get a little move overnight and then it's right back to where it came from in the morning, in either direction. Some of the inflation data was a little scary yesterday, now it's reset itself. This is probably an overreaction to the upside of the equity markets, the metals gave back all of the rally from last night, but I still think the path of least resistance is higher.”

Lusk said he doesn’t believe the Middle East situation has really cooled down, and he expects more conflict in the near future.

“You're just getting a little bit of a pause, but my feeling is this is the calm before the storm,” he said. “The actions that have taken place in the last couple of weeks over there, where it's just tit for tat, missile over here, missile over there. There's no consequences, but there's going to be consequences. That's why I think eventually, energy is going to lead a lot of these things up.”

Looking ahead at next week’s April nonfarm payrolls report, Lusk said that while it remains a tradable event, the inflation indicators should really be the market’s focus these days.

“I think the employment report used to be the standard, the most important economic data. And it's very important. But now, when you have rates back up off these historic lows that sat there at 2% for year in, year out, and we sank them to zero for the pandemic, brought them back out of hibernation, finally, to combat inflation.”

“Can we not argue that the GDP, and more importantly, the CPI and PPI, are way more important indicators than unemployment? Because you can,” he said. “The unemployment report is just a simple survey, there's no accuracy there. That's why there's revisions, and the revisions are major.”

“I think the market for gold, for energy, for other things, is going to take its cue from the inflation indicators as they relate to the bond market, and obviously the dollar. Remember the February employment number? Blew away expectations! Real positive! Gold dipped down below $2,000 an ounce. And since then we've taken off. Why? Because inflation started to run hot again, and that took some muscle out of the stock market.”

“The dips, the profit-takes, the unwinds have been limp, maybe $40 here one day, $30 there, and what happens? It just slowly gets bought back,” he said.

“I'd be a buyer of dips in gold until the technicals and the fundamental focus and picture of the market says no more rate hikes,” Lusk added. “Flow is going back in the dollar. Bonds are crashing because yields are soaring. Those really are the traditional enemies of a sustained rally in gold.”

Ole Hansen, head of commodity strategy at Saxo Bank, thinks gold prices will take a breather next week. “Gold needs more time to recover, so next week I’m neutral to lower.”

And Kitco Senior Analyst Jim Wyckoff still sees potential gains for gold next week. “Steady-higher as charts remain overall bullish,” he said.

Spot gold last traded at $2,337.40 per ounce at the time of writing, up 0.22% on the day but down 2.27% on the week.

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

Gold Price News: Gold Falls Back as Geopolitical Risks Ease

Gold prices fell sharply at the start of the week, pulling back from near all-time highs as geopolitical risks were seen easing.

Prices fell to around $2,320 an ounce by Tuesday afternoon, down from around $2,330 an ounce in late deals on Monday, and from highs of over $2,400 at the end of the previous week.

Gold’s falling price on Monday and Tuesday was linked to an easing of geopolitical tensions after it became clear that Israel and Iran were not willing to enter into an escalating round of retaliatory air strikes that would risk a broader confrontation. Recent tensions in the Middle-East, as well as Russia and Ukraine, have increased the appeal of safe-haven assets like precious metals.

On the economic front, US manufacturing PMI figures for April released Tuesday came in weaker than the markets had expected, posting a four-month low. Signs of a weaker-than-expected economy strengthen the case for interest rate cuts, which are seen as supportive for non-interest-bearing assets like gold. However, the markets still appear to be dialling back expectations of as many as three interest rate cuts by the US Fed this year.

Looking ahead, Wednesday will see the release of monthly US durable goods orders for March, providing the latest snapshot on the state of the US economy.

Arguably more important will be the US GDP growth rate data for Q1 on Thursday, as well as the latest weekly initial jobless claims figures, both of which will play into expectations for the US Fed’s stance on monetary policy in the coming months.

Frank Watson

Time to Buy Gold and Silver

Tim Moseley

Sharp daily declines don’t spell the end of gold’s bull run – OANDA’s Kelvin Wong

While gold has posted a pair of disappointing days this week, the technical picture still points to further price gains for the precious metal, according to OANDA Senior Market Analyst Kelvin Wong.

“The price actions of Gold (XAU/USD) have shaped the mean reversion decline after a test on the US$2,420 intermediate resistance,” Wong wrote. “It tumbled by -2.7% on Monday, 22 April, its worst daily performance since 13 June 2022 (almost two years), and continued to extend its losses in yesterday’s (23 April) Asian session.”

Wong noted that yesterday’s intraday low of $2,291 represents an accumulated loss of 5.8% from spot gold’s recent all-time high of $2,431 set on April 12.

“Now, the golden question for Gold (XAU/USD); can the bulls be revived or is it game over for its medium-term uptrend that kickstarted in mid-February 2024?” he asked.

Wong highlights several technical indicators that he believes support gold’s medium-term uptrend, beginning with the gold/copper ratio, which is the spot price of gold divided by the price of high-grade copper futures in USD.

“[T]he ratio removes the US dollar exchange rate effect from the equation which in turn solely measures the relative value or outperformance or underperformance of gold against copper,” he said. “If the ratio of Gold/Copper declines steadily, it suggests that global economic growth is likely in an expansionary mode, and vice versa when the Gold/Copper ratio rises due to a relatively higher demand for gold for hedging purposes due to economic growth slowdown or uncertainties.”

Wong points out that the Gold/Copper ratio has stayed above support since late November and has remained within a major ascending channel in place since Oct. 15, 2021. “Therefore, the current configuration of the ratio suggests that there is still a relatively higher demand for gold as a hedging asset for stagflation risk.”

Another technical indicator that helps make the case for the precious metal to post further gains is the 50-day moving average (MA), which continues to support the spot gold price.

“Based on a technical analysis standpoint, the price actions of Gold (XAU/USD) are still trading above its 50-day moving average which confluences with a key medium-term pivotal support zone of US$2,260/2,210 that is defined by the former major ascending channel’s upper boundary from 28 September 2022, and the 38.2% Fibonacci retracement of the recent six-month impulsive upmove sequence from 6 October 2023 low to 12 April 2024 high,” Wong said. “In addition, the daily RSI momentum indicator is still holding above a key parallel support at around the 50 level after its exit from the overbought region which suggests that the medium-term uptrend phase from 14 February 2024 low remains intact.”

“A clearance above US$2,420 may see the next medium-term resistance coming in at US$2,540,” he added. “On the flip side, a break below the US$2,210 lower limit of the key medium-term pivotal support zone sees an extension of the ongoing corrective decline within its major uptrend phase to expose the long-term pivotal support zone of US$2,075/2,035 (also the 200-day moving average).”

Gold’s price action has been volatile on Wednesday, with spot gold trading in a range between $2,311.81 and $2,337.38 per ounce, but it has thus far managed to keep from posting a third consecutive down day. At the time of writing, spot gold last traded at $2,322.18 per ounce, exactly flat on the session.

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

Record gold prices are driving historic contract volumes across the metals complex – CME Group

Gold’s recent surge to new all-time highs has coincided with historic performances for a wide range of metals contracts, including copper, silver, platinum, and lithium, according to the recently published Q2 2024 Metals Update from Chicago Mercantile Exchange (CME).

The CME wrote that sky-high gold prices drove futures volumes to their highest levels in years during the first quarter of 2024.

“Volume and open interest in Gold futures (GC) and Micro Gold futures (MGC) has surged in response to higher prices,” they said. “March Gold (GC) ADV of 332.6K contracts was its highest since July 2020, while OI of 540.6k on March 13, 2024, was its highest since March 2022. March Micro Gold (MGC) ADV of 75.4K was its highest since December 2020, while OI of 41.5K contracts on March 21, 2024, was its highest since January 2021.”

The CME also set its all-time daily volume record the day gold broke above $2,400 per ounce, with volume in its metals complex reaching a record 1,728,362 contracts on Friday, April 12, breaking the previous record of 1,670,920 contracts set on February 28, 2020.

“Amid shifting geopolitical conditions directly impacting the global metals trade and related sectors, market participants are utilizing our entire suite of metals products to adjust their portfolios and manage risk,” said Jin Hennig, Managing Director and Global Head of Metals at CME Group.

Gold’s standout price performance also drove other metals complex contract volumes to historic highs. April 12 was the third highest volume day on record across the precious metals complex, with 1,461,859 total contracts traded, the second highest for metals options, with 305,732 contracts traded, the second highest volume day on record for Micro Gold futures, with 311,919, and the third highest for Micro Silver futures, with 58,485 contracts traded.

It also saw the single day volume record for Micro Copper futures with 16,597, and was a top-ten volume day for the base metals complex with 265,021 total contracts changing hands.

April 12 was a momentous day for other reasons, as the CME, in coordination with the London Metal Exchange, enacted the most comprehensive limitation on Russian exports to date: a ban on all Russian metal produced after that day. The move was made to bring the two exchanges into compliance with the latest U.S. and UK sanctions imposed in response to Russia's invasion of Ukraine.

The ban was put in place to hamper Russia’s ability to profit from the export of metal produced by companies such as Rusal (aluminum) and Nornickel (nickel) which help the country fund its ongoing military operations in Ukraine.

The CME told Reuters that they “are reviewing and will communicate any impact to our markets,” adding that they “do not disclose the origin or brands of the eligible or registered metal we have in store and that is consistent across all of our physically delivered markets.”

The red-hot precious metals market has also driven platinum contracts on the CME to record volume levels. “For the first time since 2018 platinum and palladium prices are near parity,” they said.“Platinum volumes reached record levels in March trading over 42K contracts on average per day, including an all-time high day of 60,410 contracts on March 19.”

“Palladium (PA) saw average daily volume in February of over 8K contracts, its highest since February 2014, while YTD average open interest of 21.6K is up 36% vs. 15.8K in 2023,” they noted.

Lithium futures on the CME have also benefitted from the ongoing green energy transition. “Q1 trading volumes in lithium hydroxide has already eclipsed the volume for the entire year last year,” they said. “Over 320 contracts have traded per day on average in Q1, up over 2000% compared to the same period last year. Open interest has surged to over 24K contracts as of April 2.”

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

Gold price could drop through the summer but will end the year around $2,500 – Capitalight’s Chantelle Schieven

The gold market is seeing solid selling pressure after failing to hold its ground at $2,400 an ounce. Although the market has room to fall lower during the summer, one market analyst says that the precious metal remains in a solid position to rally by year-end.

In an interview with Kitco News, Chantell Schieven, Head of Research at Capitalight Research, said that not only is gold technically overbought, but it has also started its historical seasonal weak period. In this environment, Schieven noted that she sees gold prices potentially falling back to $2,150 an ounce, representing the March breakout level.

Although Schieven is looking for a correction in gold in the next few months, she remains a long-term bull. She said she is raising her year-end price target to $2,500 an ounce, up from $2,400 an ounce.

The comments come as June gold futures start the week with a more than 2% loss, last trading at $2,349.10 an ounce.

At the start of the year, Schieven was the most bullish analyst who participated in the London Bullion Market Association’s annual price forecast.

“It’s been kind of surprising to see gold take out all these levels, and while I do think it goes higher, I do think we need to see a bit of a pullback,” she said. “I don’t think gold goes all the way back to $2,000 or below, but we could see $2,100 before the end of the summer.”

Schieven said that the most significant reason she has turned near-term cautious on gold is due to shifting interest rate expectations that are supporting higher bond yields and a stronger U.S. dollar. Markets are now pushing back the start of the Federal Reserve’s easing cycle until after the summer.

According to the CME FedWatch Tool, markets see less than 20% chance of a rate cut in June. At the same time, the chance of a rate cut in July has dropped below 50%.

“Gold has broken a bit away from its fundamental drivers, and I think we are starting to see these drivers come back into focus, which can be negative for gold,” she said.

However, Schieven added that the gold market has become significantly more nuanced than just following bond yields and the U.S. dollar. Although the Federal Reserve is not expected to cut rates during the summer, it's unlikely to raise interest rates.

“The Federal Reserve will eventually cut rates this year. I expect to see them cut rates after the 2024 election, and that is when we will see gold prices climb higher and push towards $2,500 an ounce. The summer lows could prove to be a good time to buy for long-term investors.”

At the same time, Schieven said that she expects inflation to play a more critical role in gold’s price action. She pointed out that with the Federal Reserve holding firm on its monetary policy, higher interest rates mean that real rates will rise, lowering gold’s opportunity costs as a non-yielding asset.

“Ultimately, the Fed, even with their hawkish comments, continue to leave themselves room to lower interest rates,” she said. “They will be lowering interest rates even as inflation remains stubbornly above the 2% target. The Federal Reserve can’t afford to maintain higher interest rates because of rising debt levels.”

Looking beyond U.S. monetary policy, Schieven said that she expects gold to remain an attractive safe-haven asset. Although the global economy has seen relatively better-than-expected growth so far this year, Schieven said she has not entirely dismissed the threat of a recession.

She added that rising U.S. debt will strangle economic growth as more money is thrown at just servicing its debt. In March, economists at Bank of America noted that U.S. national debt is rising by $1 trillion every 100 days. Schieven pointed out that this is a significant reason why central banks will continue to buy gold.

“Nobody wants our debt right now,” she said. “As the debt grows, it's not surprising that central banks want fewer U.S. dollars and want to diversify their holdings.”

Finally, Schieven said that U.S. geopolitical instability as the 2024 election draws closer will also provide new support for gold.

“I don’t really know how to put this, but neither choice is that great. No matter who gets elected, deficits will still rise, and the U.S. dollar will still be devalued,” she said. “Those things are not good for the U.S., but they are certainly good for gold.”

Looking through higher volatility this year, Schieven said that gold remains in a long-term uptrend. She pointed out that during the 1970s, higher inflation, economic uncertainty, and geopolitical turmoil caused gold prices to double.

While that might be an unlikely scenario today, Schieven said that it is not out of the question.

“We do not think it is out of line to look for a $3300+ gold price over the next 5-6 years,” Schieven wrote in a recent report.

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley