While the headlines overnight from the press suggest that gold and silver prices are higher this morning off speculation of hot inflation from the US later this week, we suggest that is an overstatement or not the case yet.
At least recently the major focus of the gold trade has been the direction of the dollar with the direction of treasuries periodically taking control.
Therefore, seeing the dollar correct after extending its uptrend last week some gold and silver bulls are hopeful the dollar will have trouble extending the upward pattern in the coming week...[MORE]
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Even though the dollar has not posted a higher high for the move yet today it remains near breakout pricing and should remain a headwind against early gains in gold and silver.
While minimally lower US treasury yields provide a very small measure of week-ending short-covering activity, markets continue to lack a key internal fundamental driving force.
In retrospect, gold and silver withstood hawkish dialogue from three Fed members this week potentially signaling thinner and more orderly declines ahead...[MORE]
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While bearish outside market forces are not presenting significant pressure on gold and silver prices, early on those forces remain and are likely to expand their impact directly ahead.
Unfortunately for the bull camp in gold and silver treasury prices are just above new lows for the move and the dollar index in the early trade matched the multi-month high posted yesterday in the overnight trade.
Internal market forces like demand are mixed with gold and silver ETF holdings falling significantly (especially in silver) and Chinese gold reserves at the end of August increasing from 68.6 million ounces to 69.6 million ounces...[MORE]
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While early action today has produced a slight reversal of yesterday's very bearish outside market forces of rising rates and a strengthening dollar, gold and silver are likely to remain under a constant cloud of potential liquidation because of outside market forces.
In fact, despite very strong market expectations of a Fed pause (93% Fed funds watch tool) market rates have continued to rise!
In other words, US treasury implied yields are tracking a different course than expectations for Fed actions, which could be a sign world markets are taking control of US treasuries away from the Fed...[MORE]
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Not surprisingly, the gold and silver markets are under attack early with the dollar breaking out to the upside and extending its sharp recovery from last week.
Adding into the bearish tone is higher US interest rate signals and deflationary services and composite PMI readings overnight from China and the eurozone.
Unfortunately for the bull camp, both gold and silver saw large outflows from ETF holdings on Friday with gold holdings last week declining by 43,390 ounces and silver ETF holdings down by a very significant 7.7 million ounces last week...[MORE]
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At least in the early Friday action outside market forces are negative for gold and silver. However, the magnitude of strength in the dollar was limited despite an early rise above yesterday's high.
Fortunately for the bull camp gold ETF holdings saw another inflow yesterday of 31,603 ounces, while silver ETF holdings saw another large outflow of 3.2 million ounces. Gold ETF holdings year-to-date are down 4.2% while silver ETF holdings year-to-date are down 4.4%.
Despite the slight blip higher in US treasury implied yields this morning, the CME Fed watch tool continues to register a very high 89% probability the Fed will pause next month...[MORE]
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While initial prices are softer today both gold and silver maintain bullish charts but will be heavily impacted by initial claims which are expected to show an increase in those claiming unemployment benefits.
In other words, the bull camp needs soft economic data to further the rate pause mantra which was given added credence overnight from comments from the Atlanta Federal Reserve president Bostic who indicated that US interest rates are "high enough".
However, the PCE data is typically a significant input into Fed decisions and that combined with the last significant cycle of monthly jobs news ahead of the September 14th Fed meeting should mean volatility and the potential for a trend signal for early September...[MORE]
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Despite minimal outside market headwinds gold enters the Wednesday session virtually unchanged and within striking distance of yesterday's upside breakout highs.
In a minimally supportive development overnight Harmony Gold showed a slight decline in the first half of production this year but managed to produce a profit. The company produced 1.47 million ounces of gold over the year compared with 1.49 million ounces and guidance of 1.4 million to 1.5 million ounces.
Unfortunately for the bull camp gold ETF holdings continue to decline with yesterday's outflow of 24,341 ounces expanding the year-to-date outflow to 4.3%...[MORE]
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Gold fell to a 5-month low of $1884.88 last week but was unable to sustain losses below $1900 despite rather hawkish FedSpeak from Chairman Powell at the Jackson Hole Symposium. The yellow metal was able to post a 1.3% weekly gain, its first in five weeks.
Spot Gold Daily Chart through 08/28/2023
Powell acknowledged that inflation has come down some, but it remains too high. He warned that further rate hikes could be in the offing.
“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”– Fed Chairman Jerome Powell
The 10-year Treasury yield reached 4.35% early last week, a level not seen since 2007. While rates moderated in subsequent trading this is likely attributable to profit-taking in advance of the Powell speech rather than any real shift in the perception of policy guidance.
The market certainly seems to be leaning toward “higher for longer” with perhaps some new risk for more rate hikes. However, the hawkish bias remains very much data-dependent.
This week happens to be chock full of U.S. data, including home prices, consumer confidence, GDP, PCE, and nonfarm payrolls. These data points and others in the weeks and months ahead will probably have a greater impact on the rate path than any Fed jawboning.
Interestingly, while the 10-year yield reached a 16-year high, the dollar index is thus far holding below the 104.24 high from May 31. It seems like the dollar should be garnering far more support from the rise in yields. And by extension, gold should be under greater pressure.
The greenback’s share of global reserves has gradually eroded over the past 20 years. News that BRICS membership will more than double as of January 1, 2024, and rumblings of a joint currency conspire to further undermine dollar hegemony.
Speculation that the BRICS currency will at least partially be backed by gold makes for a pretty compelling case to lighten dollar exposure in favor of the yellow metal. This investment theme is already being embraced by a number of central banks.
Silver
Silver snapped back smartly last week, gaining more than 6%. It was the white metal’s second consecutive higher weekly close.
Spot Silver Daily Chart through 08/28/2023
While China has taken a measured approach to stimulus thus far, there seems to be a growing expectation that the Chinese government will deliver more robust measures to prevent a recession in the world’s second-largest economy.
With substantial currency reserves at its disposal, China has the means for large-scale fiscal stimulus. There is historic precedence as well.
However, silver is not out of the woods yet. The range that was established in June and July remains intact at this point. I’m also not seeing the recent gains mirrored in the copper market.
Despite last week’s rally, silver ETFs saw outflows of 6.3 Moz. Holdings are down 3.6% YTD.
Until investors come back to the market, I have to consider the downside still vulnerable. However, the longer-term supply/demand dynamics remain favorable.
PGMs
Platinum rose nearly 4% last week. It was the second consecutive higher weekly close and an additional upside extension (2.6%) was seen on Monday. Most of the declines off
Spot Platinum Daily Chart through 08/28/2023
Here too, while the long-term fundamentals remain broadly favorable, higher U.S. rates and the negative impact on auto demand, as well as persistent worries about the Chinese economy are seen as limiting to the upside.
Palladium continues to consolidate at the low end of the range, still within striking distance of multi-year lows.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
While the gold trade this morning is showing positive action, optimism is seemingly based on the slim idea that gold "held up" well against last week's hawkish Fed guidance.
However, hedge fund managers reduced their net long last week and gold ETF holdings last week reduced their gold holdings by a very significant 257,994 ounces.
Year-to-date gold ETF holdings are down 4.2%! Similarly, silver ETF holdings last week declined by 6.3 million ounces with holdings year-to-date down 3.6%...[MORE]
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