CNI Gold Market Commentary – Fed or No Fed?

Commentary for Friday, October 8, 2021 (

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……

Gold closed down $1.60 today at $1,756.30 and silver closed up $0.05 at $22.68. To say this was a confusing trading week would be an understatement. Pensive market sentiment moved from bearish to bullish and back to mildly bearish. By today’s close most paper traders were happy to go home for a quiet weekend. Of course, all this drama was created by trying to figure out what the Fed might do about winding down pandemic financial support. And that question remains unanswered within the context of a still-strong dollar. I would not be surprised to see next week present another set of whirlwind speculation and more volatility. Last Friday gold closed at $1757.00 / silver at $22.51 – on the week gold was up $0.70 and silver was up $0.17.

Silver Markets, Gold markets, Platinum Markets

The good news is that delivery on 2021 US Gold and Silver Eagles is getting better (still not “normal” but improving). And we are finally receiving early .9999 fine silver round orders. The bad news is that “any new orders” are still three to six weeks coming from the manufacturer. My guess, however, is that delays will continue to shorten.

Should you decide to use our Delayed Delivery Program please talk with your service rep and understand how this program works. It is handy if you want to lock in the price “now” and insist on new product – but is not for everyone. Just like us – you must pay upfront to “lock in” prices and you can’t “change” your mind. So, unless God has blessed you with patience, please ask your rep for other options and thank you for your understanding.

On Monday gold dipped on the open as Treasury yields firmed but quickly regained session highs as the Wall Street Journal suggests broader inflation pressures are running ahead of the 2% Fed target. Reuters – “Gold will track moves in U.S. yields, while risk appetite will continue to provide short-term direction in terms of safe-haven demand ahead of the U.S. nonfarm payrolls report on Friday,” said Ricardo Evangelista, senior analyst at ActivTrades. The report, expected to show a continued improvement in the labor market, could influence the Federal Reserve’s timeline for tapering economic support. Hence, “investors are in a wait-and-see mode”, and any indication about the timing of the next decision from the Fed could offer new direction to gold, Kinesis Money analyst Carlo Alberto De Casa said.”

While the gold trade is always inflation-sensitive, I think today’s firmer pricing is simply the result of a delayed reaction to a mildly weaker dollar. The Dollar Index has trended lower since last Wednesday – this morning coming in around 93.75. Keep in mind that the index was trading around 92.00 in late September and reached a high (94.34) only a few days ago. This massive jump was the result of the still sound idea that the Fed will soon modify quantitative easing. But the longer they wait the weaker the dollar may become – supporting current gold prices.

This dynamic does not provide enough “juice” however to reinvent the bullish scenario. Because sooner or later the Fed will act. But it does provide a wider opportunity window for the bulls to reinvent the buzz that was in the air when gold topped $2,000.00 in March of 2020.

Zaner (Chicago) sees a mixed market – “Fortunately for the bull camp, the dollar seems to have stalled below the 94.50 level, but the trend remains up and therefore problematic for the longs in gold. However, the bull camp has been able to shape US Federal Reserve dialogue recently into a positive despite several Fed members indicating tapering was likely in November or December. From the ETF front, it should be noted that gold saw ETF holdings decline by 577,807 ounces last week, while the silver market saw silver ETF holdings increase by a very significant 7.4 million ounces! In fact, silver ETF holdings have risen to the highest level since August 19th and therefore daily flows of silver ETFs should be monitored directly ahead.”

With the holidays right around the corner, I can’t see the Fed being particularly aggressive. Who wants to rain on the Santa Clause parade? This may further encourage the bulls. But a longer-term solution to the Fed problem of winding down quantitative easing remains a problem.

While gold looks quiet today, volatility always looms in modern financial times. The Evergrande debacle has not been resolved and trading in its stock was halted today. Crude oil is trending higher, perhaps confirming higher inflation. Boston Fed President Rosengren and St. Louis Fed President Bullard will speak during morning trading hours today – which introduces potential volatility because I’m not sure all the governors are on the same page. Also, consider the massive drop in tech stocks this morning. This will likely increase safe-haven demand in the metals.

Finally, not long ago I said delays in delivery of gold and silver bullion were once again getting longer. And got the usual reply. How can you have significant large order delays when pricing is moving lower? Actually, it’s easy. Manufacturers judge production on a demand curve. They cut back when they believe demand is moving lower because they don’t want expensive inventory just sitting in their safes. We just placed another large order of 1 oz silver rounds. Paid upfront for the deal and were told not to expect delivery for a month. It’s still a crazy world out there and FOMC still has not made up its mind. On the day gold closed up $9.20 at $1766.20 and silver closed up $0.11 at $22.62.

Gold on Tuesday dipped lower likely on a strong ISM economic reading. The ISM is a monthly indicator of US economic activity based on a survey of purchasing managers at more than 300 manufacturing firms. A strong ISM reading may suggest robust economic activity is right around the corner and this will prompt the Fed to act, perhaps before year-end in modifying its quantitative easing program. This “on-again / off-again” QE story has driven gold prices higher and then lower for months because while the Fed has turned hawkish relative to early pandemic days Powell is still cautious about this recovery.

Stock indexes are also back in the green this morning adding to this “risk-on” trading environment. But the price of crude oil is soaring ($80.00). Because oil is widely used in manufacturing and commerce, sustained higher oil prices suggest the inflation scenario will continue to grow – ultimately supporting higher gold prices.

So as usual these days, the pricing picture for gold remains mixed. Reuters suggests that yesterday’s selloff in stocks and higher oil prices created a safe-haven run towards the dollar.

“It’s another frustrating trading day for the gold market,” focusing on the usual short-term developments such as gains in the dollar and U.S. Treasury yields, “while ignoring an unfolding energy crisis that’s driving a negative growth narrative,” said Saxo Bank analyst Ole Hansen.

Apart from inflation, fragile U.S.-China trade ties, China Evergrande’s debt crisis and a stalemate over the U.S. debt ceiling also dampened risk appetite for equities.

While gold could still move higher, a significant move would require a break above technical resistance, especially the 21-day moving average, Hansen said.

Investors’ focus was also on U.S. nonfarm payrolls data due on Friday, expected to show continued improvement in the labor market which could allow the U.S. Federal Reserve to begin tapering its monetary stimulus before yearend.”

If you look at the 30-day gold pricing chart it’s easy to see that gold has been defensive – moving from $1820.00 through $1730.00. But the most recent bounce higher at $1,730.00 was strong enough to encourage the bullish scenario. Most likely based on the belief that the FOMC would not act quickly on QE. But I suggest that gold has not acted classically in relation to growing inflation fears. “Transitory” or not, higher inflation both here and in Europe has not generated the expected buzz within the gold trade. Until “inflationary fear” translates into higher gold prices this back-and-forth pricing based on the FOMC soup du jour will remain in place.

Zaner (Chicago) – “In the near term, gold should draft support from predictions that the National Bank of Poland will increase its gold reserves by 100 tons this year and because of reports that Perth mint gold coin and bar sales jumped 83% in September from August. It is possible that the markets have revisited comments from the Federal Reserve last week where the Chairman suggested that inflation might be more than transitory!” On the day gold closed down $6.60 at $1,759.60 and silver closed down $0.04 at $22.58.

On Wednesday gold dipped on the open as the dollar strengthened. The Dollar Index pushing as high as 94.44 in the early trade. But as the index cooled gold recovered, the trading range being $1,745.00 through $1,760.00. Expect traders to push either way depending on their perception of dollar strength. The expectation being that treasury yields and a higher dollar will continue to plague higher gold prices. And while these markets reflect bearish sentiment there is also a mildly bullish trade that manages to buy the dips and bargain hunt. Today being a good example with gold trading in the aftermarket around $1765.00. Granted, no big deal but this would suggest traders may not be as dire as the headlines might suggest.

Reuters – “Xiao Fu, head of commodities markets strategy at Bank of China International said that even if the non-farm payrolls data is not “spectacular and just in line with expectations”, some Fed members already think the condition for tapering has been fulfilled, and that is putting pressure on gold. Expectations are for 488,000 jobs to have been added in September, enough to keep the Fed on course to begin tapering before year-end. Therefore, markets are unwilling to make a decisive move ahead of the report, as they “grow more accustomed to the heightened prospects of the Fed’s tapering which is boosting the dollar and U.S. real yields,” said Han Tan, chief market analyst at Exinity.”

Perhaps a brighter outlook would better serve the physical trade. With all the bearish news out there is not much chance of a big surprise. This scenario may turn into a grind, but cheaper prices keep the bulls attentive. Gold will still have to push above $1,770.00 to get out of the semi-doghouse but as long as upbeat economic news points further Fed action our shiny friend will remain left-footed and at the lower end of its current trading range.

And again, a brighter outlook will make a value case for gold bullion. These past 6 months the $1,750.00 support line has been tested 4 times. And because gold topped $1900.00 during that time today’s tepid bull likes taking advantage of the pricing discount. Obviously, this market is not on fire but it’s actually holding up well considering most of the spec money has moved on, not sensing an immediate momentum play.

There continue to be logical working illustrations which the hard asset base embraces. Regardless of the wider held theoretical aspects of what the FOMC might do in the short term.  From a practical standpoint, Americans are paying up at the gas pump – dealing with the highest gas prices seen in seven years. This is obviously because of the massive rise in crude oil ($78.00) which has almost doubled this past 12 months. And I think hard money advocates think there has been too much made of possible interest rate hikes. Money has been too cheap since early pandemic days but moving to high interest rates is off the table considering the cost of carrying our massive debt and the negative implications to a highly leveraged Wall Street. The Fed will raise but has a lot of latitude so you will likely see a small increase, in keeping with the Europeans. The bottom line being, that money will still be historically cheap, so rising safe-haven gold demand and rising interest rates may not be mutually exclusive. On the day gold closed up $0.90 at $1,760.50 and silver closed down $0.07 at $22.51.

On Thursday gold remained choppy looking at the unemployment numbers. The weekly jobless claims moved lower, and the more reliable moving average was somewhat lower. This all points to an improving economic picture that boosted Treasury yields and stoked bets that the Federal Reserve may soon start winding down economic support according to Reuters. The big kahuna number (how many jobs created) will be out tomorrow. And will create more turbulence.

The Federal Open Market Committee

Lower unemployment is a proxy, but I expected more of a dip in gold considering the build in negative buzz this week. Employment numbers are highly touted because they suggest possible Fed action. Not to be cynical here – but if unemployment numbers paint a great picture why is the Dollar Index mildly flat to lower since yesterday? It remains strong (94.00) but is not acting like it expects a strong rise in the number of jobs created tomorrow. Still, just the threat of Fed action has gold stymied and traders are cautious, anxious for Labor Department numbers Friday.

Zaner (Chicago) offers an interesting slant. “While Chinese gold reserves at the end the September were pegged to be unchanged versus the end of August, we suspect China is building its central bank gold reserves in secret, and at an appropriate time in the future, they will reveal that build up to the world. Obviously, China seeks to be the world’s financial hub and world reserve currency and that requires substantially expanding the number of gold reserves currently attributable to the country. In a potential positive ahead, Indian daily infection counts have declined to 7-month lows amid climbing vaccination rates which some analysts think will improve peak sales season interest for gold jewelry just ahead. Typically, Indian demand for gold picks up in the 4th quarter ahead of Diwali, Festival of lights, and Dhanteras in Noida. Last year the World Gold Council pegged Indian 2020 gold consumption at 315.9 tons of gold and that compares to the world’s largest buyer’s (China) purchases of 433.3 tons.”

We remain in the middle of a “wait and see” gold trade even through commentary is generally bearish because of possible Fed action. Still, gold pricing is stronger than what might have been expected. Not that our shiny friend is bulletproof, but gold is holding its own against a rising dollar. Silver on the other hand is reinventing itself after its recent washout. Prices have stabilized. Both the public and exchange-traded funds are buying cheaper prices. US silver eagle monster boxes remain in short supply as the mint slows production and retools for 2022 dated coins. On the day gold closed down $2.60 at $1757.90 and silver closed up $0.12 at $22.63.

Gold Friday initially moved to two-week highs as the dollar took a breather after US jobs data came in well below expectations, casting doubts about an immediate start to tapering by the Federal Reserve according to Reuters.

The problem with this end-of-week rally was that it held little conviction as gold then moved back to almost unchanged. The pop to higher prices was a relief rally supported by short-covering. But this enthusiasm was based on a faulty premise – the Fed is in a weak position. And that is simply not true considering the enduring power of the US dollar.

As soon as traders realized that the “miss” on jobs was not the big game-changer everyone expected they, in the usual fashion, sold into the rally. Professionals are still cautious as to what the Fed has in mind. They are convinced this Covid menace will disappear, world economies will recover, and inflation will not soon become a problem. All this bullish economic scenario still supports the notion that the Fed will likely begin tapering next year.

Gold Dealer Newsletter, by Richard Schwary

Still there are other important reasons gold bulls should not be permanently disappointed. Crude oil at $80.00 has large inflationary consequences which for some reason are still being ignored. Zaner (Chicago) points out this morning there is an inflationary feel out there and physical markets are heartened by the return of China from holiday. Indian gold imports have been slow to recover but they now are improving. And silver is regaining its mojo based not on spec demand but expected industrial usage.

Most however would still question whether today was a good day or bad day for the metals? It was disappointing to see the big “pop” in early trading turn into a weekend whisper. But consider the alternative. A solid jobs number would have created the perfect bearish scenario – likely testing gold support ($1700.00) going back to March of this year. At today’s close, we are still holding recent highs ($1760.00). Granted we are not out of the woods, but I don’t see near as many bears as I did earlier in the week. Considering all the uncertainty flying around as the Fed draws nearer to a definite decision (or not) I would consider this a great trading day.

Finally, it helps to keep gold’s fundamental nature in mind. It has always been a faithful financial partner. You may not always like the price, but it represents “no questioned asked” cash on demand. It is private, quiet, easy to store, has no third-party obligation, and stands “at the ready” to provide a better night’s sleep. On the day gold closed down $1.60 at $1756.30 and silver closed up $0.05 at $22.68. Whew, what a week!   

Platinum closed up $42.70 at $1,026.60 and palladium closed up $118.00 at $2,075.80.

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