Gold, silver smacked by strong USDX, rising bond yields, technical selling

Gold and silver prices are sharply lower in midday U.S. Trading Monday, with both scoring 2.5-month lows. The precious metals are getting hit early this week by the bearish outside market forces of a strong U.S. dollar index that is near a 20-year high, higher U.S. Treasury yields and chart-based selling pressure as the near-term technical have eroded significantly the past two weeks. June gold futures were last down $42.50 at $1,869.40 and May Comex silver was last down $0.42 at $22.62 an ounce.

The economic data point of the week in the U.S. Federal Reserve Open Market Committee (FOMC) meeting that begins Tuesday morning and ends Wednesday afternoon with a statement. It’s widely believed the Fed will raise the key U.S. interest rate by 0.5%, amid the highest inflation levels in 40 years. The monthly U.S. jobs report is also due out Friday morning.

The key outside markets today sees Nymex crude oil futures prices slightly lower and trading around $104.50 a barrel. The U.S. dollar index is solidly higher today and not far below last week’s 20-year high. The yield on the 10-year U.S. Treasury note is presently fetching 2.99%–the highest in nearly 3.5 years.

Global stock markets were mostly lower overnight. Markets in China and Hong Kong were closed for a holiday. U.S. stock indexes are mixed at midday. The U.S. stock indexes are trying to recover from April’s losses, which were the worst since the beginning of the pandemic.

Gold is an 'ideal' asset right now but why isn't the price higher? Fidelity weighs in

Three major elements in the marketplace remain static but still prompting risk aversion among traders and investors: the Russia-Ukraine war, the Covid outbreak in China and problematic inflation around the globe.

China’s strict lockdowns to curb Covid-19 cases are taking a toll on the world’s second-largest economy and further disrupting global supply chains. China President Xi Jinping is under pressure to deliver on pledges to support economic growth. China’s manufacturing and services purchasing managers indexes (PMI)in April plunged to their worst levels since February of 2020.

Technically, June gold futures prices hit a 2.5-month low today. A price downtrend is in place on the daily bar chart. Bears have the overall near-term technical advantage and gained more power today. Bulls' next upside price objective is to produce a close above solid resistance at last week’s high of $1,935.50. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at $1,883.00 and then at $1,900.00. First support is seen at today’s low of $1,853.40 and then at $1,800.00. Wyckoff's Market Rating: 4.0

May silver futures prices hit nearly three-month low today. A steep price downtrend is in place on the daily bar chart. The silver bears have the solid overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $24.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the December low of $21.445. First resistance is seen at today’s high of $22.83 and then at $23.00. Next support is seen at today’s low of $22.12 and then at $22.00. Wyckoff's Market Rating: 2.5.

May N.Y. copper closed down 1,415 points at 425.35 cents today. Prices closed nearer the session low today and hit a 4.5-month low. The copper bears have the solid overall near-term technical advantage. A price downtrend is in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 450.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the December low of 411.65 cents. First resistance is seen at 430.00 cents and then at today’s high of 438.55 cents. First support is seen at today’s low of 419.00 cents and then at 415.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

A massive destruction of wealth is coming, this is what the Fed is 'engineering' – Alfonso Peccatiello

Attempting to slow down the economy and subdue inflation, the Federal Reserve has already raised interest rates by 25 basis points and is expected to raise rates by 50 basis points at each of its next two meetings in May and June.

"Right now, the wealth effect still dominates the way we engineer economic growth to make sure the balance sheets of consumers become stronger. As asset prices keep going up, consumers' liabilities, debt and leverage get cheaper," explained Alfonso Peccatiello, Author of The Macro Compass. "If equity or housing prices drop by 50%, it will be a destruction of wealth generated by two generations, because of this loss of wealth effect. Nobody wants to see this happen."

Peccatiello spoke to David Lin, Anchor at Kitco News about his views on wealth, markets, and the Federal Reserve. Paccatiello worked as a portfolio manager for a multibillion-dollar portfolio comprised of multiple asset classes, prior to becoming an author.

Comparing the Fed's current tightening policies to policies of previous years when the Fed wanted to ease conditions, Peccatiello said they are trying to engineer an economic slowdown.

"From 2016 to 2019, the Fed was basically selling the put to the market, putting the floor on the asset prices," he noted. "Right now, the Fed is doing the opposite. They are trying to slow down the demand side of the equation in the economy. They are making your balance sheet weaker, your 401(K) go down a bit, and your second home worthless. This way demand slows down, therefore, inflation slows down."

Peccatiello discussed how high he believes the Fed will hike interest rates. "The Fed will raise rates 50 basis points in May and then again in June. They are going to hike rates until something breaks. The Fed believes neutral rates are between 2 and 2.5%, which means they can easily hike all the way to 2.5% without much happening," Peccatiello predicted. "If the economy can handle 2.5%, and the labor market remains solid, and the equity market remains buoyant, then the Fed is going to keep raising rates fast. But that assumption is just a fairytale."

On equities, Peccatiello disclosed he shorts the S&P 500, which is his main trade, and tech stocks. "My target is for the S&P to drop below 4,000 in the next two months. The reason for this target is because the Fed has been explicit about wanting financial conditions to tighten," Peccatiello emphasized. "If you look at the financial condition index; equity markets, real interest rates, credit spreads, mortgage rates and the dollar are all tightening."

Peccatiello explained why there's very little positive macro-economic news to find at this stage. "Things must get worse, unfortunately, before they get better. The big picture is that central banks won't aggregate demand to slow down. When we start seeing more signs that growth is slowing down, and or when the equity markets start to drop more aggressively, it will get worse. 4,000 for the S&P will ring some bells for the Fed," he said. "If growth slows down, it will imply that inflation will also slow down as a result. If that happens the Fed will feel more comfortable slowing down their hawkish stance."

Speaking about the real estate market, Peccatiello pointed out that it is the biggest and most leveraged asset class out there. "People should pay attention to it. The real estate market is huge, almost a $300 trillion market cap. It's much larger than the equity market, at a $100 trillion cap, or the bond market," he stressed. "Housing prices sit on the asset side of the balance sheet of consumers. Real estate prices are of paramount importance for the wealth effect. If housing prices go down, then consumers appetite to spend will also drop."

"The housing market could face a 50% slowdown. Despite all the rumors you hear about all cash buyers, 85% of all home purchases are bought with mortgages. Mortgage rates have gone up massively. 30-year mortgages in the U.S. have risen from 3% to 5%," Peccatiello stated.

"Wages have not changed for most Americans and most people around the world. And housing prices compared to last year have gone up 20%. In order to buy the same house a year ago, you must pay 30% higher in your monthly mortgage payments, which means you can't afford it."

Peccatiello advises investors to be defensive in this macro environment we are facing.

"Investors should raise their cash allocation. I know it feels uncomfortable with this spot inflation levels. It's better to be defensive than to be offensive where the macro environment doesn't allow you to be offensive," he continued. "You just must be patient. This is an environment where you have nowhere to hide. You can't buy stocks, you can't buy gold, you can't buy Bitcoin."

For more on Alfonso Peccatiello's views on wealth, markets and the Federal Reserve, please watch the full video above.
 

By Kitco News

For Kitco News

Time to buy Gold and Silver on the dips

 

Tim Moseley

What's in store for gold price as Fed remains laser-focused on inflation and its supersized hikes?

The gold market will be wrapped up in the Federal Reserve's interest rate decision next week as analysts see the U.S. central bank ignoring the steep drop in the U.S. Q1 GDP data and remaining fixated on fighting inflation.

Gold is looking to end April down 1.7% on the month despite Friday's gains. June Comex gold futures were last trading at $1,912.20, up $21 on the day.

"April was a terrible month for gold. Many traders were surprised by another strong move higher in the U.S. dollar. Greenback's strength was driven by safe-haven flows on concerns about economic slowdown across Europe, China's zero-COVID strategy, and expectations of a rather wide interest rate differential between the dollar and its major trading partners due to the Fed's aggressive stance," OANDA senior market analyst Edward Moya told Kitco News.

The Federal Reserve, scheduled to make its interest rate decision on Wednesday, has locked itself into an aggressive rate hike cycle for the next three meetings. "The market has around 250 basis points worth of rate hikes priced in over the next 12 months," Moya said.

The big surprise this week was the U.S. economy contracting 1.4% in the first quarter. But the Fed is likely to look past that negative number because the outlook for the second quarter looks better, according to analysts.

"You have to take a look at why the economy contracted. The consumer was still strong, and the consumption was still fairly robust. But imports were one of the key reasons why. They over-delivered when you consider that exports were soft. A lot of traders shrugged the data off a bit. Nothing to change Fed rate hike expectations," Moya explained.

Fed Chair Jerome Powell will remain focused on inflation, which is tricky to control, especially considering the type of price pressures the U.S. is seeing, noted CIBC World Markets chief economist Avery Shenfeld."Some are pointing to the fact that the Fed has never achieved as sharp a deceleration in inflation as it aims to engender without causing a recession," Shenfeld said. "That's actually not our central worry because we haven't really faced this type of inflation in the past … The problem is that just as this year's spikes in such prices have made the inflation problem look worse, next year's retreats will have the CPI understating the true trend. Getting inflation down will be easier than keeping it that way unless we slow the pace of hiring and prevent a further tightening in the labor market."

 

Here's what to expect from the Fed

The two main things the markets are anticipating to see next week are the 50-basis-point rate hike and the start of quantitive tightening.

"We doubt that the unexpected 1.4% annualized decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, the temporary impact of the Omicron wave, and the pick-up in the growth rate of final sales to private domestic purchasers, which is arguably a better gauge of underlying demand. But the bottom line is that with inflation rampant, it simply doesn't have a choice; policy needs to be tightened rapidly regardless of the costs to the real economy," said Capital Economics chief North American economist Paul Ashworth.

The minutes from the last FOMC meeting suggested that "participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate."

Strategists at ING said they are forecasting for the Fed to start with $50 billion "being allowed to run off each month before getting up to $95bn by September."

Looking forward, however, the Fed is unlikely to get more aggressive and talk about 75-basis-point rate hikes, said ING's chief international economist James Knightley, citing the weak GDP number. "For now, our base case remains that the Fed will follow up next week's 50bp hike with 50bp increases in June and July before switching to 25bp as quantitative tightening gets up to speed. We see the Fed funds rate peaking at 3% in early 2023," Knightley clarified.

Gold is an 'ideal' asset right now but why isn't the price higher? Fidelity weighs in

What gold price is looking for from the Fed

The gold market is looking at the Fed to show signs of optimism, said Moya. "Is inflation peaking? You are probably going to see many traders very fixated on that," he said.

The latest core PCE price index data published on Friday suggested that core inflation peaked at 5.2% annually in March, following 5.3% reported in February, Moya noted. "This is pretty significant. It is the first time we've seen a decline since October 2020. This could help the argument that Fed could develop a soft landing and not be as aggressive once we get past super seized rate hikes," he said.

After the Fed meeting, gold could start to benefit from some safe-haven flows, especially if uncertainty in the equity markets continues, Moya added.

The $1,875 an ounce level remains good support for gold in the short term. On the upside, Moya is watching $1,940 an ounce. "If we break $1,875 on the downside, gold could fall to $1,830. But this is the level at which many technical traders become bullish. That is when you see gold testing a 200-day moving average," he said.

It is only a matter of time before gold can break above its critical psychological $2,000 an ounce level, said Bloomberg Intelligence senior commodity strategist Mike McGlone. And the main trigger is likely to be the Fed showing some hesitancy in the face of the promised aggressive rate hikes.

"The base now appears closer to $1,800, and $2,000 is key resistance. We expect that it's just a matter of time for gold to potentially break above this threshold. A top potential catalyst is a trough in Fed's rate-hike expectations, which may not occur until the stock market declines further. The S&P 500 down about 10% in 2022 to April 28, appears to be insufficient," McGlone said. "When fed funds futures start anticipating a rate-hike cycle end, the precious metal should breach $2,000-an-ounce resistance."
 

Data to watch next week

Monday: ISM manufacturing PMI

Tuesday: Factory orders

Wednesday: Fed's interest rate decision, ADP nonfarm employment change, ISM non-manufacturing PMI

Thursday: BoE interest rate decision, U.S. initial jobless claims

Friday: U.S. nonfarm payrolls
 

By Anna Golubova

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold bounces off yesterday’s lows but is unable on to hold today’s highs

June 2022 gold futures opened this morning (4/29/2022) at $1895.80, far above yesterday’s low of $1871. Trading to a high of $1921.30 and settled in New York up 1.1% at $1911.70. However, on Fridays, Globex trading remains open until 6 PM EDT before closing for the weekend. As of 5:10 EDT gold has moved back below $1900 and is currently fixed at $1896.90 a net gain of $5.60 or 0.30% in afterhours trading.

The tremendous price swings evident in gold over the last couple of days likely resulted from multiple factors influencing gold prices. Investors continue to focus on next week’s FOMC meeting. It is widely anticipated that they will enact a ½ a percent interest rate hike which will go into effect at the end of next week’s meeting. Concurrently it is widely believed that the Federal Reserve will begin to reduce its balance sheet assets over the next three years. Economists polled by Bloomberg news believe that the Federal Reserve will reduce its balance sheet from the current level of $8.8 trillion to $6.4 trillion by the conclusion of 2024.

According to the CME’s FedWatch tool, there is a 99.1% probability that the Federal Reserve will announce ½ a percent rate hike. This indicator predicts a 91.9% probability that another half a percent rate hike will follow next week’s rate hike at the June FOMC meeting. The speed at which the Federal Reserve will raise interest rates in an attempt to play catch-up to the spiraling level of inflation provides bearish market sentiment for gold.

Today’s release by the Bureau of Labor Statistics of the PCE report indicated that inflation continues to surge higher. The PCE (Personal Consumption Expenditure) index was up 0.9% on the month and 6.6% on the year a 42-year high. This is the highest level since 1980. Yesterday’s the BEA released advance estimates for first-quarter GDP. The U.S. economy had a major contraction during the first three months of this year due to a resurgence in Covid 19 and a decline in government stimulus. This is the first decrease in U.S. GDP in approximately two years.

These two reports will certainly lead to bullish market sentiment for gold.

Additionally, there is a major economic fallout from the ongoing war in Ukraine. Inflation globally has been pressured higher especially in food costs because both Russia and Ukraine are major exporters of grains such as corn and wheat. Russia also is a primary provider of energy products such as oil and natural gas. Russia is the 3rd largest producer of oil. This continues to support higher pricing for oil and natural gas.

Since the largest components of spiraling inflation are energy and food costs, the war in Ukraine had a significant impact on moving inflation higher.

Unquestionably, there are multiple factors and events which have influenced gold prices. The complexity of all of these components we have spoken about today are providing both bullish and bearish undertones for the safe-haven asset gold, and in fact, might be the primary cause of recent price volatility.
 

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley

Western and Eastern technical studies suggest a bullish reversal in gold has occurred

Gold traded to its lowest value in the last nine trading days with market forces taking the June 2022 futures contract to $1870.90 this morning. After opening at $1886.80, gold futures drifted lower and then recovered strongly. As of 4:30 PM EDT, the most active June 2022 gold contract is fixed at $1896.20 which is a net gain of $7.50. More importantly if it finishes this Globex session at these levels it will be a strong indication that the support level at $1885 is active support. However, when we combine today's price range with Eastern and Western technical analysis a case can be made that a pivot or key reversal has resulted from today's price action.

Chart #1 is a daily gold chart that we have used and published in which we highlighted the support level we had identified at $1885. This chart also clearly illustrates that the intraday low this morning moved just below gold's 100-day moving average.

Chart # 2 is the daily chart enlarged to better view the daily Japanese candlestick to identify it. The candlestick chart allows us to easily visualize the open and closing price, represented as a rectangle. The rectangle is filled in green, indicating that the close is currently above the opening price (a red candle indicates that the current pricing or the close is below its opening price). In the case of today's open and closing range, which is labeled as the "real body" in a candlestick chart, we can see that it opened and closed above the support at $1885 that we have identified.

A single Japanese candlestick can also be identified. The candlestick that formed today can be branded as a "Hammer." This single candlestick is part of a group known as the umbrella lines and consists of four primary candles labeled; hammer, shooting star, hangman, and inverted hammer. Umbrella lines are candles that show either very long lower shadows and small bodies near the top of the trading range or very long upper shadows and small bodies near the bottom of the trading range.

The "Hammer – Hangman" is the same except for their location within a trend. Therefore, depending on its location, it will be interpreted as a bullish or a bearish candlestick. If it appears during a downtrend, it can indicate that the correction has concluded. In such places, we name it a hammer. If the same candlestick appears after a defined uptrend, it is labeled as a "Hang-man."

While a single candlestick cannot indicate a potential pivot or reversal if it occurs within other variables, it can be a strong indication that a bullish reversal is taking place. Today's low fell below the 100-day moving average creating a long lower wick. This long lower wick occurs below both the open and closing price, which illustrates that when prices moved to today's low, buyers quickly stepped into the market and bought the dip. These buyers could be covering short positions or initiating long positions. Also, the real body (which is created from the open and closing price) of today's candlestick occurs above the support level at $1885.

This becomes an extremely important and valid piece of information,n if tomorrow's candlestick is a long green candle with a higher high and a higher low than today's, it would be labeled as a confirming candle. All of these factors would strengthen the assumption that the correction, which began on April 18, taking gold from $2003 per ounce to today's low of $1870, has concluded.

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

 

Tim Moseley