Eyes on the Fed, the ECB, and the BOJ

Next week, markets will be digesting the Federal Reserve, the European Central Bank, and the Bank of Japan's monetary policy statements.

There was a lot of optimism this week that the Fed was close to being done with its tightening cycle despite Powell's promises of at least two more rate hikes this year.

"The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at next week's FOMC meeting, but we increasingly believe that will prove to be the peak," said Capital Economics chief North America economist Paul Ashworth.

Behind this optimism was June's inflation data, which showed inflation sharply cooling in the U.S. The consumer price index rose 3% last month — the slowest pace in over two years. And the core CPI measure, which excludes volatile food and energy prices, was up 4.8%, marking the slowest advance since 2021.

"Despite the 'higher for longer' rhetoric from officials, a more marked decline in core inflation and easing in labor market conditions in the second half of this year will eventually persuade the Fed to pivot and cut rates aggressively next year," Ashworth noted Friday.

For next week's FOMC statement, analysts will pay close attention to any changes to the inflation narrative and how strongly the Fed maintains its tightening bias.

"In his press conference, Chair Jerome Powell may even go as far as to stress that additional rate hikes this year are still necessary," Ashworth said. "Markets are unconvinced, however, and broadly agree with our view that the Fed is almost done tightening."

Before the Fed can signal that it's done raising rates, there will be a period of uncertainty and data dependence, said TD Securities senior commodity strategist Ryan McKay. And for gold, it could mean a pause before the next move higher.

"Speculators have been unwilling to fully buy into the bullish gold narrative," McKay said Friday. "Indeed, discretionary traders and investors have thus far remained on the sidelines for now. But, this also offers the potential for additional upside should Fed expectations turn more dovish, and this cohort begins deploying their dry-powder."

The ECB is also expected to raise rates by 25 basis points on Thursday, with analysts paying close attention to ECB President Christine Lagarde's comments. Meanwhile, the BOJ is projected to keep rates steady and its yield curve control unchanged.

"It seems that while the BOJ stands pat, the other major central banks are tightening, and that should continue to drive that interest rate differential trade," Moya pointed out.

Data next week

Tuesday: U.S. CB consumer confidence

Wednesday: Fed decision, U.S. new home sales,

Thursday: ECB decision, U.S. jobless claims, U.S. durable goods orders, U.S. GDP Q2, U.S. pending home sales

Friday: BOJ decision, U.S. PCE Price Index

By

Anna Golubova

For Kitco News

Time to Buy Gold and silver

Tim Moseley

Market participants brace for the potential of more hikes after next week

Members of the Federal Reserve tend to keep their future actions close to their chest revealing little insight as to any upcoming revisions to their aggressive monetary policy that has been in play since March 2022. While they have announced that they plan to implement two more quarter-percent rate hikes by the end of the year, many investors, economists, and analysts believe that next week’s rate hike will mark a conclusion to the aggressive campaign the Fed has undertaken to reduce inflationary pressures.

The CME’s FedWatch tool has conveyed an exceedingly high probability of a rate hike this month but is predicting a high probability that the next rate hike could be the last by the Federal Reserve this year. The probability that the Fed will raise rates next week has grown from 96.7% a week ago, to 99.2% yesterday. Today the CME’s probability indicator is now predicting a 99.8% probability that the Fed will raise rates next Wednesday.

At the same time if you look out to the three remaining FOMC meetings scheduled for this year there is a reasonable possibility that they will let rates stand between 5 ¼% and 5 ½% for the remainder of the year. The likelihood now stands at 84.9% that the Fed will pause and leave rates at their current levels in September, followed by a 70.8% probability that they will continue to maintain those levels in November, and a 65.3% probability that by the end of this year, the Federal Reserve’s benchmark terminal rate will stand pat between 5 ¼% and 5 ½%.

The question becomes will the written statement released after Wednesday’s meeting or comments made during the press conference by Chairman Powell allude to the potential that their aggressive rate hikes may be concluding? Members of the Federal Reserve especially the chairman is very guarded when it comes to monetary policies in recent history Powell’s statements might not express that possibility or even mention whether such discussions were on the table between Fed members during next week’s critical FOMC meeting.

It is this uncertainty that is once again moving gold to lower ground while at the same time strengthening the dollar. As of 6:20 PM EDT, gold futures basis the most active August contract is down $7.00 and fixed at $1963.90. Today’s settlement price is just above the 100-day simple moving average. But it must be noted that gold traded to an intraday low that broke below both gold’s 100 and 50-day moving averages.

The dollar continues to gain traction gaining 0.21% in trading taking the dollar index to 100.81. It is quite feasible that we see continued dollar strength and lower gold prices before Wednesday’s conclusion of this month’s FOMC meeting. While there will be a lot of conjecture and assumptions on possibilities that might occur after the September meeting it seems unlikely that it will be revealed in the federal reserve statement released at the conclusion nor found in the words of Chairman Jerome Powell when he holds his standard press conference one’ half-hour after the meeting concludes.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and silver

Tim Moseley

Gold encounters technical and fundamental resistance at $1980

Gold futures are definitely under pressure today, with the most active August 2023 contract down $8.70 or 0.44% and fixed at $1972.10. The root cause is dollar strength that overcame fractional buying and still was able to take gold prices moderately lower. While gold futures declined by 0.44% the dollar gained 0.56% with the differential indicating that market participants were lightly bidding the precious yellow metal higher. Currently, the dollar index has moved back over 100 and is currently fixed at 100.545.

This can also be seen in spot gold pricing which according to the Kitco Gold Index (KGX) is currently fixed at $1969 per ounce, down $7.50 on the day. However, on closer inspection dollar strength reduced an ounce of gold by $10.50, and normal trading bid gold prices $3.00 higher resulting in today's decline.

This is quite different from silver pricing today which is also trading lower. Currently, the most active September 2023 futures contract is fixing silver prices at $24.95 down approximately $0.44. Spot silver is currently fixed at $24.72 after factoring in today's decline of $0.39. However, unlike gold prices silver traded lower from both dollar strength and market participants bidding silver lower. Dollar strength accounted for a decline of $0.13, and selling pressure by investors took an ounce of silver $0.26 lower resulting in today's $0.39 price decline.

In the case of gold, the fractional buying was a sign that market participants still believe that there is upside potential based on positive market sentiment that the Federal Reserve might only raise interest rates ¼%, rather than their recent announcement that they would raise rates by ¼% two more times this year. According to the CME's FedWatch tool, there is a 99.8% probability that the Federal Reserve will raise rates at next week's FOMC meeting by ¼%. The FedWatch tool is predicting that after raising rates this month they will pause at the September meeting with the probability of that occurring at 83.9%, a 66.2% probability that they will continue to hold rates between 5 ¼% and 5 ½% in November, and a 60.8% probability that the Fed will do the same thing in December leaving rates where they will be after one more rate hike.

This differs from silver because the silver investors have implemented a round of aggressive profit taking moving both spot and futures prices back below $25. Silver futures traded to a double top Wednesday and today after hitting intraday highs at approximately $25.48. The editor of Kitco News, Neils Christensen interviewed Huw Roberts, the head of analytics at Quant Insight today where he said that “according to the firm's modeling, the silver price is about 5.7% overvalued." He said that fair value is around $23.86 an ounce. Adding that, “The signals we are starting to see in silver are getting interesting… The rally in silver has overshot its fundamentals."

Our technical studies have shown that it is highly probable that the recent decline in the dollar has concluded after the dollar index bottomed at 99.25 on Tuesday. In fact, since July the dollar index was trading well above 103. On July 6 the dollar hit an intraday high of 103.27 and began a strong decline in value trading lower for seven consecutive days resulting in recent lows in the dollar approximately 3% lower than the high achieved the first week of July. In other words, the dollar lost approximately 3% in value when compared to the basket of six currencies it is weighted against. We believe on a technical basis that the dollar index will increase short-term taking the index to approximately 101.50 before encountering any technical resistance.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and silver

Tim Moseley

There is a reasonable probability the Fed will conclude its rate hikes this month

The CME Fed watch tool is predicting that there is a 99.8% probability that the Federal Reserve will implement a ¼% rate hike on July 26 when the next FOMC meeting concludes. It is also likely that this month's rate hike will conclude the series of hikes by the Federal Reserve that began in March 2022. The latest CPI (Consumer Price Index) and PPI (Producer Price Index) reports indicate that inflationary pressures are diminishing and getting closer to the Federal Reserve's target of 2%.

At its highest point, the CPI was at 9.1% and has now contracted to 3% in June. This combined with a decrease of 0.2% through June in the Producer Price Index (for all goods minus food and energy). A survey conducted by the University of Michigan revealed that consumer sentiment skyrocketed to 72.6% in July 13% above sentiment in June.

If the Fed is as they have long proclaimed "data dependent" then these recent reports demonstrate that the U.S. economy has contracted substantially bringing down the level of inflation.

The CME's probability indicator is forecasting an 87.9% probability that rates will be left where they are at the September FOMC meeting, a 71.8% probability in November, and a 64% probability in December.

An article penned by Avraham Shama an Opinion Contributor for THE HILL titled, "The Fed is raising interest rates again: it's a mistake that could spark a recession", warns that if the Fed wants the best serve the US economy it must stop raising rates to avoid a recession.

In his article, he addresses the fact that "the Fed and its Chairman Jerome Powell have been unable to recognize a heating or cooling economy in a timely fashion to take quarterly action to minimize the negative effects". He discusses a series of missteps beginning with monetary tightening by the Fed in 2019 prematurely which required a pivot to reverse that trend. He addressed the fact that the Federal Reserve waited too long before initiating the first rate hike in March 2022 when inflation was already above 8%.

Gold traded to its highest value this year during the first week of May when gold briefly touched $2083 and then corrected to a low of $1900 on June 20. Today gold futures basis the most active August contract is fractionally lower down $0.40 or 0.02% and fixed at $1980.40.

It is reasonable to assume that market sentiment will assume a much more bullish demeanor if it has clear knowledge that the series of rate hikes is over. More importantly, when the Federal Reserve does initiate its first rate cut which could occur as early as the first quarter of 2024 one would expect bullish market sentiment to return allowing gold to challenge the recent record highs just below $2100 per ounce.

By

Gary Wagner

Contributing to kitco.com

Time to Buy Gold and silver

Tim Moseley

Gold rallies as empowered bulls set sights on $2,000

Gold prices are sharply up and hit a 2.5-month high in midday U.S. trading Tuesday. Silver prices are also sharply up and hit a nine-week high. The charts have recently turned more bullish for both precious metals, which is inviting the technically based speculators to the long side of those markets. A weaker-than-expected U.S. retail sales report this morning is also supporting ideas the Federal Reserve can take its foot of the gas sooner, regarding its interest-rate-increase cycle. August gold was last up $26.40 at $1,983.00 and September silver was up $0.347 at $25.365.

June U.S. retail sales were reported up 0.2% versus expectations of a rise of 0.5%, month-on-month. This report, along with the U.S. employment report for June released in early July, seem to fall into the sweet spot for those market watchers looking for a soft landing for the U.S. economy. No U.S. and/or global recession setting in would be a scenario for better global demand for metals. Yet, global growth is not so strong as to prompt major central banks to continue tightening their monetary policies and raising interest rates, which would crimp demand for commodities.

Asian and European stock markets were mixed in quieter overnight trading. U.S. stock indexes are higher at midday and hit new highs for the year. The U.S. stock index bulls are enjoying price uptrends in place on the daily bar charts, also reflecting the upbeat trader and investor attitudes at present.

The U.S. dollar 'will die' with BRICS new currency, warns Robert Kiyosaki

The key outside markets today see the U.S. dollar index slightly higher. Meantime, Nymex crude oil prices are up trading around $75.50 a barrel. The benchmark 10-year U.S. Treasury note yield is presently fetching 3.777%.

Live 24 hours gold chart [Kitco Inc.]

Technically, August gold futures prices hit a 2.5-month high today. Bulls have gained the overall near-term technical advantage. Prices are in a three-week-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $2,000.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the June low of $1,900.60. First resistance is seen at today’s high of $1,988.30 and then at $2,000.00. First support is seen at $1,972.00 and then at today’s low of $1,958.10. Wyckoff's Market Rating: 6.0.

Live 24 hours silver chart [ Kitco Inc. ]

September silver futures prices hit a nine-week high today. The silver bulls have the firm overall near-term technical advantage. A three-week-old price uptrend is in place on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the April high of $26.645. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at today’s high of $25.405 and then at $25.85. Next support is seen at this week’s low of $24.815 and then at $24.50. Wyckoff's Market Rating: 7.0.

September N.Y. copper closed down 85 points at 383.55 cents today. Prices closed nearer the session high today. The copper bulls and bears are on a level overall near-term technical playing field amid choppy trading. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the June high of 396.40 cents. The next downside price objective for the bears is closing prices below solid technical support at 368.30 cents. First resistance is seen at 390.00 cents and then at the July high of 395.40 cents. First support is seen at today’s low of 380.30 cents and then at 374.25 cents. Wyckoff's Market Rating: 5.0.

By

Jim Wyckoff

For Kitco News

Time to Buy Gold and silver

Tim Moseley