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GoldDealer Newsletter – Gold: Lower Highs and Lower Lows

Commentary for Friday, April 29, 2022 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By  Richard Schwary of California Numismatic Investments Inc ……

Gold closed up $20.60 at $1,909.30 and silver closed down $0.09 at $23.04. Gold surprised in the early domestic trade offering a mild price rally on what looks like paper short covering going into the weekend. A mild dollar retracement and higher crude oil prices also helped brighten the bullish trading mood. But this has been a tough week for the metals in general. Gold’s technical picture remains bearish as it continues to make lower highs and lower lows since its peak in early March. Still, uncertainty rules for both the bulls and bears. Traders must cobble together a strategy that considers shorter-term negative factors like rising interest rates. And longer-term bullish factors like rising inflation numbers in a troubled world. Last Friday gold closed at $1,931.00 / silver at $24.26 – on the week gold was $21.70 higher and silver was down $1.22.

On Monday rising concerns over Covid restrictions in China, falling crude oil prices and continued fears of rising interest rates hammered the price of gold. The slowing of the Chinese economic picture over these virus shutdowns has already created a large downdraft in the price palladium. This is turn creates collateral damage for other precious metals but the surge in the Dollar Index is the primary reason gold continues weak. Since last Thursday the index has risen nearly 2 full points as the 10-year Treasury yield approaches 3%, which is a bad omen for stocks according to Barons. It also suggests the latest from Chief Powell is not rhetoric. The Fed is ready to raise interest rates in a dramatic fashion. What they ultimately have in mind is still in question, but Jerome has accomplished his first goal – slowing down inflation expectations. Traders are now even worried that the Fed may “overreact” and so the metals remain defensive. I believe there is no chance of an overreaction. It’s popular today to claim that Powell and the FOMC are over their heads – that they created an out-of-control mess in their effort to defend against the pandemic. They have created a mess, but they understand the old English proverb well – that killing the goose that laid the golden egg makes no sense. The dramatic drop in the price of gold today has unnerved the equity market – but I still suspect this is temporary. The technical damage however is the real thing so expect further rocky days until traders confirm a short-term bottom. It’s good that traders bought this dip in the aftermarket as gold reversed direction. And it seems to be holding around $1,900.00. But this market remains dangerous for the bullish scenario because if $1,900.00 breaks down it would introduce the 8th woe (for you that are biblically inclined). The next channel of price support being between $1,800.00 and $1,850.00. But we have been here before and the resilience of the physical metals is encouraging. The fact that gold and silver bullion are real money and represent cash on the barrel head under any circumstance is a bigger deal than most realize.

On the day gold closed down $37.80 at $1,893.20 and silver closed down $0.59 at $23.67.

Zaner (Chicago) – “As in many markets, the unrelenting buzz of higher interest rates has finally unnerved equity markets which in turn tempers economic hopes and deflates inflationary expectations. As if rising rates were not enough for the bear camp to seize control, persistent contract highs in the dollar index adds another element of selling pressure to gold and silver. While the markets have been presented with many rate hike predictions by Fed members for several months, seeing the US Federal Reserve chairman indicate a 50-basis point rate hike was on the table for the next meeting pulled the rug out from under markets that were already sliding. Even the flight to quality angle has been lost with a top Russian general indicating Russia’s objective was to capture southern Ukraine and for some that reduces the scope of uncertainty. However, military experts suggest Western military aid is beginning to strengthen the Ukrainian cause. Therefore, the war looks to continue but could produce smaller amounts of flight to quality interest ahead as the fight settles into a war of attrition. In addition to a clean sweep of negative outside market influences, both gold and silver damaged their charts last Friday and set prices up for downside follow-through today. Last week gold ETF holdings increased by 416,695 ounces to finish the week up 9.4% year-to-date. While silver ETF holdings declined on Friday by 1.1 million, silver holdings last week increased by a very significant 7 million ounces leaving holdings 2.3% higher on the year. The most recent COT positioning report showed a moderate liquidation of the net spec and fund long in gold, positioning clearly highlights a market capable of further stop-loss selling. Gold positioning in the Commitments of Traders for the week ending April 19th showed Managed Money traders were net long 124,967 contracts after decreasing their long position by 19,697 contracts. Non-Commercial & Non-Reportable traders were net long 302,171 contracts after decreasing their long position by 14,484 contracts. Like gold, the silver market continues to damage its charts in action that is very discouraging to the bull camp especially with the silver Institute last week predicting record demand for silver. The April 19th Commitments of Traders report showed Silver Managed Money traders reduced their net long position by 1,535 contracts to a net long 41,282 contracts. Non-Commercial & Non-Reportable traders net sold 679 contracts and are now net long 64,436 contracts.”

On Tuesday gold enjoyed a short-term price bounce which reflected yesterday’s stronger aftermarket, some short covering – professionals claiming Monday’s drop in prices was “overdone”. And perhaps light bargain hunting. I believe the jury is still out as to whether this week will produce a short-term bottom in either gold or silver. There are plenty of headwinds to chill higher prices. And the bulls are looking for fresh news to gather themselves.

Gold Market Report Commentary by Richard Schwary - GoldDealers.com

The Dollar Index is still trading comfortably above the whopping 102.00 level. And traders still expect two half-point rises in interest rates by the summer months. The technical damage to both gold and silver yesterday was significant and the pros claim that neither the bulls nor bears can now claim an advantage. Which is obviously discoursing to the bulls who not long ago were considering $2,000.00 + gold as world inflation roared and Ukraine safe haven was featured.

But that bullish scenario has turned into yesterday’s newspaper as traders refocused their attention and their dollars. First to the likely threat of an unexpectedly strong jump in interest rates and the obvious fallout as Wall Street dips further into the red. Second, the uncertain economic outcome of China locking down over yet another pandemic surge. And third, the collateral damage as the Balkan war turns into a miserable stalemate.

Obviously, none of the above is new insight. These factors have however turned into a revolving door. And the rising and falling metals prices a broken record. Unfortunately, both the physical and paper markets are prone to bullish or bearish scenarios which come in and out of focus on the short term. The fact is that since gold again made highs two years ago it has traded sideways, between $1,800.00 and $2,000.00. Trying to figure out the importance of rising inflation and safe-haven demand. It strayed within these relatively narrow limits because these concerns remain unanswered. The physical trade, for the most part tries to ignore this elephant in the living room. Choosing instead to talk about the more benign fact that the price of gold in 2018 was $1,200.00 and the price of gold today is something around $1,900.00. This sounds better but does not explain why our shiny friend cannot seem to hold ground approaching $2,000.00.

The biggest reason is rising interest rates. That is why it is difficult to say if today’s bounce is a short-term bottom. No one really knows how crazy the Fed might get so it is smart to expect continued volatile markets. Not the end of the world, it is in this region of pricing that bargain hunting can be rewarding, but like I’m fond of saying “Be slow on the trigger but ready”.

There are other collateral issues at work as well. Gold at $2,000.00 represents a nice profit to those who have been accumulating it over time. Profit-taking makes sense, especially when the market has turned choppy and defensive. During times of trouble the dollar is always a great “safe haven” to preserve wealth. The world turns to the good old greenback because of its unquestioned liquidity. Today is no different. And finally, when interest rates are low people are willing to experiment with ideas which compensate them for money invested. They consider the price record of gold over the last decade and figure their savings are not producing much so why not put that money to work. Today, as bond yields rise, this dynamic reverses itself. Investors sell physical gold and decide to take advantage of higher interest rates and guaranteed income.

On the day gold closed up $8.20 at $1,901.40 and silver closed down $0.13 at $23.54.

On Wednesday gold continued weak as gold unfortunately failed to hold $1,900.00. There are turbulent crosswinds at work here as trader fear an increasingly hawkish FOMC and analysts argue about how much red ink Wall Street can produce before the deep thinkers declare a recession. This is of course what everyone is worrying about and there is still a surprisingly wide difference in opinion. Some professionals claim the economy can handle rising interest rates, no problem. Others are preparing for the next recession. I believe a “soft” Fed landing will put the US somewhere between the extremes. But if rising interest rates pushes the US into recession, it would obviously be another problem for the bullish scenario.

Today’s sudden drop may have been a small surprise, but I think most gold bullion players know that rising interest rates present more challenges. The good news is that gold found some support around $1,880.00. But that bounce too might be suspect. From a technical point of view the 6-month pricing chart suggests that the channel between $1,800.00 and $1,850.00 is more defensible. It is also important to keep in mind that when pricing is generally moving lower the public usually takes a breath, which is natural. So, step aside and be patient. You will recognize legitimate bargain hunting when the “short paper” covers. I’m first looking for a stable market, and second a discounted price in gold large enough to withstand a few months of rising interest rates. Once this level of moderation is achieved the world will again consider the still not solved problem of rising inflation and gold’s bullish scenario will recover. The story of rising gold prices is not over, it is just adjusting to another government fiat reality.

On the day gold closed down $15.50 at $1,885.90 and silver closed down $0.08 at $23.46.

Reuters (Seher Dareen) – Gold falls to two-month low as dollar surge hurts appeal – “Gold prices slipped to a more than two-month trough on Wednesday as the dollar rallied on expectations of an aggressive monetary policy tightening by the U.S. Federal Reserve.

“There’s a flight to safety right now out of other currencies into U.S. dollar… Gold is going to struggle to rally between now and the Fed meeting,” said Bob Haberkron, RJO Futures senior market strategist. The dollar index charged to its highest level since January 2017, fueled by expectations that the U.S. central bank will be more hawkish than peers and safe-haven flows fanned by concerns over slowing growth in China and Europe. The Fed is expected to increase rates by 50 basis points at its May 3-4 policy meeting. Rising U.S. interest rates increased the opportunity cost of holding non-yielding gold, while also boosting the dollar, in which it is priced. The greenback is also seen as a rival safe-haven asset to gold during economic and political crises. “While the yellow metal’s prices have remained extremely resilient against an aggressively hawkish Fed, as a protracted war in Ukraine simultaneously raised both geopolitical uncertainty and inflation risks and thereby fueled demand for havens, we see few participants left with appetite to buy gold,” analysts at TD Securities said in a note.”

On Thursday gold pushed mildly higher, recovering from overnight lows in Hong Kong. The London and domestic market also showed interest, perhaps light short-covering, mild bargain hunting, and a semi-bullish inclination on the surprising news that the US GDP (Gross Domestic Product) dopped 1.4% in the first quarter. This negative growth information might create some concern and perhaps temper growing FOMC hawkishness. Although I’m doubtful.

It looks like the bulls are trying to stabilize this volatile market. Today’s pricing was not spectacular, but an active aftermarket (+$8.00) pushed gold towards $1,900.00 and will confirm that for now gold traders are not hiding under the bed.

I would also say that recent gold weakness has not created subsequent interest in shorting this market. Not with German inflation numbers approaching 8% and crude oil firm at $103.00. Still today’s trading feels halfhearted, which might mean the bearish scenario is getting tired.

Still my hope for short-term bottom this week is fading in the absence of fresh information. Our physical volume numbers are moving lower as long-time physical gold bulls wait for better prices, but this is typical for savvy investors.

Again, there are not many big sellers at these lower levels. Which highlights an interesting point in our little corner of the world. We are almost always net sellers not net buyers. Which means our average customer is almost always a net buyer and not a net seller. There may be something to learn here which is not obvious. The US customer is turning into a stronger buyer than most would have you believe. Physical gold and silver bullion have become a kind of private and perhaps a permeant savings account. Which helps support longer-term pricing trends.

There are also particular bullion products which for reasons I don’t understand hold special status to certain groups. The Asian community favors a particular type and brand of gold bar. There are big local buyers who appear on a phone call, with cash in hand, regardless of relative price. Hot market or cold market, it makes no difference. What is interesting is that this group of specialists never sell these bars back to us regardless of pricing. I have mentioned this before but cannot piece together a realistic answer as to where this gold bullion product is going?

Still, the US market for precious metals is developing slowly. Which suggests untapped potential as the inflation problem is stubborn and busy destroying the middle class.

The big players in the physical bullion world remain China and India which account for 50% of the current world gold demand. Both have a strong historical and psychological attachment to gold which has been in place for centuries. And both are off their usual physical game these days. Chinese demand is down because of the reinstated Covid restrictions. And Indian demand has slipped 18% because of rising prices according to the World Gold Council. The WGC also notes that consumers expect prices to fall after there is a resolution to the Russia-Ukraine war.

On the day gold closed up $2.80 at $1,888.70 and silver closed down $0.33 at $23.13. Silver is drifting lower. It is worth mentioning that our physical sales explode as prices approach $22.00. Producers are still behind the manufacturing curve. New live product is a challenge.

On Friday gold was surprisingly active overnight in Hong Kong, settled somewhat in the domestic trade but still finished nicely in the green for the day. Did we get that bottom I wasn’t looking for? Still not likely in my mind but this welcome bounce in a rising interest rate market at least gives us some fresh perspective.

I would not read too much into this happy bounce, it is likely the result of a modestly weaker dollar. It does however lift the trading mood considerably in suggesting that dollar strength is not invincible. Especially if our economy slows and the Fed begins to worry about recession.

It might also be valuable to rethink the notion of “a short-term bottom” in this cloudy trading weather. Is it possible that gold has already factored these rising interest rates into its current pricing range? Not a new idea but one that would suggest less price volatility which is good in dispelling a rising bearish scenario. I may only be punching around in the dark but there is something, perhaps less obvious at this stage which has created a small, short-covering rally. And even though the gold and silver technical picture remains bearish I would consider today a psychological plus for the bulls going into the weekend. You may have to deal with a sideways market until the FOMC actually begins to raise interest rates and reduce its balance sheet.

On the day gold closed up $20.60 at $1,909.30 and silver closed down $0.09 at $23.04.

Platinum closed up $27.20 at $937.60 and palladium closed up $94.20 at $2,302.80.

Reuters (Ashitha Shivaprasad) – Gold gains over 1%, but on course for monthly fall – “Gold prices rose more than a percent on Friday, driven by a retreat in the dollar, although the yellow metal was set to post a monthly drop on bets of aggressive policy tightening by the U.S. Federal Reserve. “Gold market has seen consistent sell-off in the past weeks as the dollar rallied. Currently, the dollar index has declined, which is lifting gold prices,” said Edward Meir, an analyst with ED&F Man Capital Markets. The dollar index fell 0.4% after touching a 20-year high on Thursday, making gold less expensive for those holding other currencies. Further lifting bullion’s appeal, data showed the U.S. economy unexpectedly contracted in the first quarter amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government. U.S. labor costs surged by the most in 21 years in the first quarter, pointing to rising wage inflation and supporting the Federal Reserve’s aggressive monetary policy stance. “The GDP data and the cost index for employment data showed that inflation still running fairly hot, this is generally supportive for gold,” Meir added. Gold is considered a hedge against soaring inflation and uncertainties, but rising interest rates dampen its appeal by increasing the opportunity cost of holding the non-interest-bearing asset. Markets participants’ focus now shifts to the U.S. central bank’s two-day policy meeting starting on May 3, when officials are expected to increase the target policy rate by half a percentage point.”


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