Gold sharply up as USDX, U.S. bond yields plummet after cooler CPI

Jim Wycoff – Thursday November 10, 2022

Gold and silver prices are solidly higher in midday U.S. trading Thursday, with gold scoring a 2.5-month high and silver a 4.5-month high, following a U.S. inflation report that came in just a bit cooler than market expectations and in turn pushed the U.S. dollar index and U.S. Treasury yields sharply lower. December gold was last up $38.60 at $1,737.90 and December silver was up $0.323 at $21.66.

The U.S. consumer price index report for October came in up 7.7%, year-on-year, versus expectations for a rise of 7.9%, year-on-year, and compares to the 8.2% rise seen in the September report. This report may be the most important data point of the month, if not the quarter. A slightly cooler reading in the CPI print may influence the Federal Reserve”s decision-making process ahead of its December FOMC meeting. The Wall Street Journal is reporting the Fed is likely to raise its Fed funds rate by 0.5% in December, following a string of 0.75% increases at past FOMC meetings.

The U.S. stock indexes soared on the cooler CPI print, with Bitcoin also posting solid gains after the report. However, the crypto currency markets remain in turmoil late this week, with fears of a contagion effect and more illiquidity in the cryptos. Broker SP Angel this morning reports in an email dispatch: A proposed takeover of likely insolvent FTX crypto exchange by rival Binance is set to fail, sending Bitcoin down 26% this week and triggering concerns of wider market contagion. FTX exchange, whose founder Sam Bankman-Fried (likened to John Pierpont Morgan during the banking crisis of 1907), is looking for support for a reported $8 billion debt shortfall. The exchange”s insolvency has triggered a further step down in crypto market values, with the total crypto market cap standing at $914 billion, down from over $3 trillion in November 2021. JP Morgan are reporting crypto market participants are facing a “cascade” of margin calls, although it is unclear whether this will feed into wider equity markets.

The key outside markets today see the U.S. dollar index sharply down and hit a two-month low after the cooler CPI. Nymex crude oil prices are higher and trading around $87.25 a barrel. The 10-year U.S. Treasury note is yielding 3.852% and has fallen sharply in the wake of the cooler CPI report.

Technically, December gold futures prices hit a 2.5-month high today. The gold futures bulls and bears are back on a level overall near-term technical playing field. Bulls have momentum as a price downtrend on the daily bar chart has been negated. Prices this week have also seen a bullish upside breakout from a trading range, to suggest still more upside in the near term. Bulls” next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,618.30. First resistance is seen at today”s high of $1,757.20 and then at $1,775.00. First support is seen at $1,738.70 and then at $1,725.00. Wyckoff’s Market Rating: 5.0.

December silver futures prices hit a 4.5-month high today. The silver bulls have the overall near-term technical advantage and have momentum. Prices are in a choppy nine-week-old uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $23.00. The next downside price objective for the bears is closing prices below solid support at $20.00. First resistance is seen at today”s high of $21.94 and then at $22.50. Next support is seen at $21.00 and then at this week”s low of $20.435. Wyckoff’s Market Rating: 6.5.

December N.Y. copper closed up 720 points at 377.15 cents today. Prices closed nearer the session high and hit a four-month high today. The copper bulls have gained the overall near-term technical advantage. Prices are in a six-week-old uptrend on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at 400.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the October low of 330.30 cents. First resistance is seen at 380.00 cents and then at 390.00 cents. First support is seen at today’s low of 362.85 cents and then at this week’s low of 356.25 cents. Wyckoff’s Market Rating: 6.0.

By Jim Wycoff

JPMorgan’s Jamie Dimon: U.S. to face recession in 6-9 months, markets could become disorderly

Anna Golubova  
Monday October 10, 2022

The situation is dire, with problematic inflation, oversized rate hikes, unknown effects from the Federal Reserve’s quantitative tightening, and the war in Ukraine acting as primary triggers for a recession.

“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon told CNBC Monday.

Dimon added that the S&P 500 could fall by “another easy 20%” from the current levels. And the next 20% drop is likely to “be much more painful than the first,” he noted. “Rates going up another 100bps will be a lot more painful than the first 100 because people aren’t used to it,” Dimon said.

The type of recession the U.S. is likely to see ranges from something very mild to quite hard. And a lot depends on what happens with the war in Ukraine, Dimon explained.

“To guess is hard, be prepared. One guarantee is volatile markets. You are going to have volatile markets. You’ve already seen markets down quite a bit, which is typical but still [has] been orderly. It’s possible to see it be disorderly sometime in not too near future,” he said.

On the Fed, Dimon said that the U.S. central bank waited too long and did too little, with QT starting too late. But the Fed is motivated to catch up now, he added. “And, you know, from here, let’s all wish him success and keep our fingers crossed that they managed to slow down the economy enough so that whatever it is, is mild — and it is possible,” Dimon said.

Dimon’s comments come as markets adjust to rising rate hike expectations amid fears of an economic recession.

Last week, the United Nations urged the Federal Reserve and other central banks to ease up on rate hikes, warning that tighter monetary policies are pushing the global economy into a recession.

“There’s still time to step back from the edge of recession,” UNCTAD Secretary-General Rebeca Grynspan said. “But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”

The Federal Reserve raised rates by 300 basis points the year to the current range of 3% to 3.25%. Meanwhile, the European Central Bank hiked 125 bps, and the Bank of Canada raised by 300 bps.

At the beginning of June, Dimon also told investors to brace for an economic “hurricane.”

“You know, I said there’s storm clouds, but I’m going to change it … it’s a hurricane,” CNBC quoted Dimon as saying at a financial conference in New York. “You’d better brace yourself … JPMorgan is bracing ourselves, and we’re going to be very conservative with our balance sheet.”

By Anna Golubova

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Despite its losses, the gold market continues to outperform most other major assets – WGC

Neils Christensen   Monday September 26, 2022

The gold market continues to struggle in the face of unprecedented strength in the U.S. dollar; however, a new report from the World Gold Council said that investors need to put the recent price action in perspective compared to larger movements within financial markets.

Although the gold market has seen some significant selling pressure, dropping briefly to fresh two-year lows at $1,633 an ounce, prices are still only down less than 10% since the start of the year. In his latest report, Juan Carlos Artigas, global head of research at World Gold Council, said that given where the U.S. dollar is along with bond yields, gold prices should be down closer to 30%. December gold futures last traded at $1,646.90 an ounce, down 0.53% on the day.

“In fact, gold has done much better than inflation-linked bonds both in the U.S. and elsewhere. And we believe that gold’s performance so far this year reflects the behavior of its underlying drivers,” he said in the report.

Looking at broader financial markets, the S&P 500 is down nearly 23% year to date. The tech sector has been even harder hit, with the Nasdaq dropping more than 30%. The only sector that gold hasn’t outperformed is the broader commodity index.

It’s time to buy commodities, not equities – Goldman Sachs

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“The fact that gold has performed as well as it has, all things considered, is a testament to its global appeal and more nuanced reaction to a wider set of variables,” said Artigas.

Although gold prices are expected to continue to struggle in the face of rising interest rates, Artigas said he remains optimistic that the gold market can still find some support through year end.

Although the Federal Reserve is expected to continue to aggressively raise interest rates, the WGC said that the tightening cycle is closer to the end.

“Given how much tightening has occurred so far, we would expect rate hikes to slow down, allowing some of gold’s other supporting factors to play a more important role. Also, the fact the other central banks are being more resolute in their policy decisions – partly to curb inflation, partly to defend their currencies – should weigh on the U.S. dollar,” Artigas said.

Artigas added that growing recession risks as central banks continue to tighten monetary policy worldwide should also provide some support for the yellow metal.

Finally, Artigas said that central bank demand is also providing solid support for gold as they continue to diversify their holdings away from the U.S. dollar.

Last week, the WGC noted that the central bank of Uzbekistan has been extremely active in the gold sector, buying another 8.7 tonnes of gold in August. This is the third consecutive month of purchases.The WGC noted that Uzbekistan has bought 19.3 tonnes of gold this year, pushing total reserves to 381.3 tonnes

By Neils Christensen

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This is the scenario in which gold price jumps $300 this fall – RBC Capital Markets

Anna Golubova  Wednesday August 31, 2022

Even though gold is heading for its fifth monthly drop, a high price scenario of above $2,030 an ounce cannot be ruled out this fall, according to RBC Capital Markets.

After peaking above $2,000 an ounce back in March, gold is ending the month of August down more than 5% year-to-date, with December Comex futures last trading at $1,731.70 an ounce.

“The large rally that we saw at the beginning of the year, particularly as Russia invaded Ukraine, was the type of crisis performance typical of gold,” Christopher Louney, commodity strategist at RBC Capital Markets, told Kitco News.

But since then, gold has fallen from its yearly highs. And that’s because the particulars of this type of crisis were negative for the precious metal, Louney explained.

“It takes economic and financial fallout to get gold to perform more strongly in the long term,” he said. “And even though there’s certainly been financial and economic fallout, this crisis played out in a way that means higher rates and a stronger dollar, which when we think of a crisis, is not always the case. That’s part of why gold is priced the way it is.”

The macro drivers from aggressive rate hikes and a strong U.S. dollar have been keeping gold below $1,800 an ounce, RBC’s strategists added.

“Gold has been stuck. The day-to-day has been defined by expectations versus surprises in response to macro data or Fed speak. That sort of repricing of 50 versus 75-basis-point hikes and how long they last are what drives gold daily,” Louney said.

But the heightened geopolitical tensions could still support gold into the year-end, which is why a price tag above $2,000 is still possible this fall.

“Gold’s tug of war is happening against a high-risk environment. One where there is a war in continental Europe that’s ongoing. Also, I wouldn’t write off U.S.-China tensions over Taiwan. On top of that, there are the broader geopolitical trade intricacies of what is happening in terms of an energy crisis and economic performance more broadly,” Louney pointed out. “There is this high-risk perceived safe haven undercurrent that is a tailwind supporting gold above where the macro factors otherwise would put gold.”

Due to these opposing forces, RBC is pricing in two potential scenarios into the year-end — the middle and the high.

The middle one, defined by more rate hikes and a strong dollar, sees gold at $1,679 in Q3 and $1,663 in Q4, with an annual average of $1,773. “That’s a fair gold price if it were determined just by its macro drivers,” noted Louney.

The high scenario, which estimates more geopolitical risk and safe-haven undercurrents, puts gold at $2,036 in Q3, and $1,986 in Q4, with an annual average of $1,944 for 2022.

“This is the outlook where the geopolitical risks come to the fore and become the driving principles of how the gold price discovery process is done, such as more safe-haven flows into the ETFs and other gold assets. If the market becomes more concerned about the geopolitical risk or the broader risk faced by the economy, our high scenario is a fair bet,” Louney described.

Gold’s current trading pattern puts the precious metal between the RBC’s middle and high scenarios.

“It’s really about what investors are placing in the driver’s seat for gold — whether we’re in a risk-on environment or a risk-off environment. That question really matters. Those triggers can lead to higher gold price levels seen earlier this year,” Louney said.

On the economic front, RBC’s base case is a mild recession in the U.S., which will be enough to keep gold prices somewhat elevated but unlikely to lead to fresh record highs.

The ETF flows for gold is the one gauge to pay close attention to for the rest of the year, Louney added. “The ETF flows have not been good this year. That’s a good indicator of how the market views risk and the desire for a perceived safe haven,” he said.

By Anna Golubova

Dark clouds for equities in Sept. may be silver lining for gold, silver bulls

Jim Wyckoff _ Thursday September 01,2022

CNBC’s “Pro Playbook” email dispatch on Thursday said: “August was rough for Wall Street, and September could be more of the same. Data compiled by the Stock Trader’s Almanac shows September is on average the worst month for stocks.

Since 1950, the S&P 500 has averaged a loss of 0.5% in September, including a drop of 11.9% in 1974. The benchmark index has also posted September losses in the last two years, dropping 4.8% in 2021 and 3.9% in 2020. This historically weak performance for the month, along with August’s declines and expectations of even higher rates from the Federal Reserve and other central banks, raise concern over a potential retest of the mid-June lows” in the stock indexes.

The above scenario may be what puts in price bottoms in for the gold and silver markets. Gold hit a six-week low Thursday and silver a more-than-two-year low.

The metals markets (hard assets) and the stock market (paper assets) compete for trader and investor monies, and the turbulent months of September and October for the stock and financial markets may be just what the doctor ordered for the safe-haven gold and silver markets.

It can also be argued that the hawkish central banks and notions of weaker global economic growth that are likely to crimp consumer and commercial demand for metals, has now been factored into gold and silver prices.

Don’t be surprised if a “sell the rumor, buy the fact” scenario develops in the gold and silver markets in the near term, regarding the bearish central bank element for the metals.

Also, from a short-term technical perspective, the gold and silver markets are oversold, technically, and due for corrective bounces very soon.

The risk of gold price plunging below $1,700 is limited, says Standard Chartered

By Jim Wyckoff

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