Gold Sees Slight Rally On Short Covering

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The gold market is seeing some minor buying activity as shorts look to cover some positions. The yellow metal is still quite a ways from the $1800 level, however, and may remain vulnerable to further selling pressure. Even with the Fed shakeup this week, the metal is still not seeing much of a bid and that could keep the sellers highly motivated. Markets are also significantly calmer today compared to yesterday when the equity markets saw a major slide.

 

The clock is ticking on the U.S. Government funding. The funding is set to run dry Thursday evening at midnight, and if not extended, could lead to a partial government shutdown beginning on Friday. Thursday is also the day on which the House of Representatives will vote on the Biden infrastructure plan, making it a potentially market moving day.

 

Rising bond yields have been a major factor in recent market volatility. The benchmark 10-year Treasury is yielding some 1.50% today. A further steep rise in yields is possibly on the horizon, and if it does come to fruition, stocks and risk assets could see additional volatility and possibly selling. The rise in yields may not only affect stocks and risk assets, but it may also have additional, bearish effects on the gold market.

 

The dollar hit an 11-month high overnight. Dollar strength is also likely having an impact on the gold market and additional upside for the currency could spell trouble for the gold bulls. As the prospects of tapering from the Fed close in, the dollar could continue to ascend with renewed vigor. Earlier than anticipated rate hikes from the central bank could also keep the currency bulls on the offensive. The gold market would likely struggle further with additional dollar strength and the currency could be a major key holder for the market’s prospects in the months and year ahead.

 

The bears maintain control of gold on the daily chart. The market is now in the midst of a three-week downtrend on the chart. The bears will next target the $1700 level on a closing basis. The bulls, on the other hand, still need to take out resistance in the $1800 region followed by the mid 1830s. A failure of gold to take out these areas on a closing basis will keep the bears in control for the time being. The gold market may now be pushed lower to the early August flash crash lows and with little buying support could exceed those levels on the downside.

 

Despite gold’s recent lackluster performance, the market still has numerous reasons to be a buyer, especially for the long-term. A debt ceiling debacle for example, could send gold sharply and rapidly higher if the government is forced to shut down due to a lack of funding. The long-term prospects for the dollar and U.S. fiscal situation also remain very bearish. Whatever the case may be, the gold market may end up rewarding the patient, long-term investor while punishing the short-term trader or investor. A gold investment should, therefore, be made only with the long-term in focus.

A Slow Start

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The gold market is off to a slow start as the new trading week gets underway. Spot prices are little moved from unchanged, trading up some thirty cents per ounce. The market is focused on government spending today as two key issues come up for a vote later in the week.

 

President Biden’s infrastructure plan is due to be voted on by the House of Representatives on Thursday. That is the same day in which government funding could dry up, leaving the government partially shutdown starting Friday if no additional funding deal is reached. The potential for the government to run out of funding Thursday evening is likely to become an increasing point of anxiety in the days ahead if a deal is not reached beforehand. The threat of a partial shutdown starting this week could fuel market volatility and selling and may give perceived safe haven assets such as gold a major boost.

 

The Biden Administration’s infrastructure plan could also send waves through financial markets. These waves would come at a time when worries over the debt ceiling are already mounting and concerns over U.S. fiscal health are on the rise. A lack of plan passage could send the dollar lower while also igniting bearish forces within stocks and risk assets.

 

Treasury yields have also again taken center stage as yields are on the rise again. The benchmark 10-year Treasury yield is fetching some 1.446% today and could see a further rise if worries over national spending and debt increase. Higher yields could cause some ripples for gold as it makes the opportunity cost of holding the metal more expensive. A significant rise in yields may not be seen, however, until the Fed actually begins hiking interest rates. Such a move could still be quite a ways off and the central bank is far more likely to taper its monthly security purchases first.

 

The gold bears may now hold a slight overall advantage on the daily chart. That advantage could change quickly, however, to the bulls if they are able to mount a rally back towards the $1800 area. The market appears to be in technical no man’s land for the time being and could spend a lot more time there. The bulls must still target and take out the $1800 level on a closing basis. The bears, on the other hand, want to take prices down below $1677 per ounce. The upside breakout or downside breakdown could be indicative of gold’s fortunes for the foreseeable future. Although this move may take time to develop, it could prove to be very powerful and long lasting once it does.

 

The gold market still has numerous reasons to buy it and hold physical gold for the long-term. Dollar weakness, runaway government spending, geopolitical risks and more are just a few of the reasons to consider an allocation in gold. The current period of consolidation could also prove to be the ideal time to acquire the metal as current price levels may not be seen again once the metal stages an upside breakout.

Focusing On The Long-Term

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The gold market remains weak today following a variety of data that could allow the Fed to move forward with its tapering plans this year. Despite the rise in weekly jobless claims today of 16,000, yesterday’s Fed meeting is being viewed in a more hawkish light today and that is likely the primary culprit behind the selling in gold today.

 

Risk appetite is ticking higher today as worries over the threat of an Evergrande contagion seem to be diminishing. Evergrande has an $83 million interest payment due to be made today, and although it is unclear if that payment has been made, many seemingly believe that the Chinese Government will not allow Evergrande to fail. The lack of contagion could pave the way for stocks to continue their march higher, while causing a decline in the desire for perceived safe haven assets such as gold.

 

The Federal Reserve did also allude yesterday to the possibility of it raising the key interest rate sometime next year. Any rate hikes would almost certainly not occur before the security purchase tapering has been completed. The notion does, however, indicate that the Fed may be feeling good about economic prospects and may look to move quickly in order to contain inflation.

 

Inflation has already become a problem. Although the Fed has said it believes that inflationary pressures may be “transitory” in nature, there simply is no telling how high inflation could get before the Fed takes action. As is usually the case, the central bank may also already be a step behind the curve and could even be unable to quell inflation through traditional changes to monetary policy. Whatever the Fed does, markets are likely to become upset as the era of free money disappears. That could lead to a widespread rotation of assets that could see a dramatic decline in stocks as alternatives such as gold receive those funds en masse.

 

Big changes are on the way. When these changes start to occur, the current investor mindset will change significantly. As investors begin to exit and even shun stocks and risk assets, they may have nowhere to turn to other than physical gold. Bullion could see a rapid and significant rise in value that could put it out of reach of many investors. This means that now is the time to get involved, right now.

 

Adding gold to your portfolio has never been easier than it is today and it may never be cheaper. With gold currently trading for less than $1800 per ounce, the price of gold today could prove in the long-term to be a rock bottom bargain basement deal. If you want to secure your financial future while protecting your portfolio from inflation and dollar weakness, now is the time to act.

 

All of the current Fed discussions are nothing but noise. The most successful investors just learn to ignore the noise and remain focused on the long-term. This “forest through the trees” approach may keep you on the right side of the markets while decreasing portfolio volatility and anxiety along the way.

Can Gold Hold Its Gains

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The gold market is trying to hold onto some gains following a hectic day yesterday. The markets do appear to remain nervous, however, stocks are in the green (for now anyway) and there seems to be calmer heads prevailing today.

 

Chinese markets remain closed today for a holiday. Property developer Evergrande remains the center of attention, however, and has an interest payment due on Thursday of over $83 million dollars. Although Evergrande is reportedly on the verge of default, some now believe that the Chinese Government is likely to step in to prevent a default. A bailout may only occur, however, if the government determines the widespread risk of default as being a risk to the nation’s economy.

 

Against the backdrop of Evergrande and increasing risk aversion, the Federal Reserve will begin its two day policy meeting today. The meeting will end tomorrow afternoon with the Fed’s announcement on policy and a press conference hosted by Chairman Jerome Powell. The sell-off seen yesterday is unlikely to cause any changes in the Fed’s plans, although it may have some influence on the decision. Powell will be forced to answer questions in the post announcement press conference, and markets may be particularly interested in the timing of any tapering the central bank may enact as well as its thoughts on inflation.

 

The Fed and its plans have been a major input for gold and will continue to act as such. The central bank now finds itself in an impossible position and it will be interesting to see how it attempts to normalize monetary policy after so many years of ultra-low rates and stimulus measures. The central bank seems to now find itself in a damned if it does damned it it doesn’t position.

 

The gold bulls will look to take prices back above previous resistance in the $1800 area. Without a breakout above this level on a closing basis, the bears will attempt to take prices lower, possibly even down towards the $1650 region. A significant push by the bears could, at this point, cause remaining bulls to throw in the towel and fuel a sharp price decline in the process. Despite some recent bearish forces, the gold market still has numerous bullish issues working in its favor. Inflation, stimulus measures and other issues may all be viewed as being bullish for gold and could keep the market from falling much further.

 

The bulls must, however, get something going to the upside or risk falling off. The lack of an upside breakout in recent months has frustrated the bulls, and any further lack of upside could be the market’s undoing. Resistance in the mid $1830s remains a major target. Without a breakout above this area, the bulls could find themselves fighting an avalanche of willing sellers on any significant rallies. While neither the bulls nor the bears are in form control on the daily chart, the market has turned from being bullish to being more range bound. This could mean that prices stay within this range for an extended period.

Risk Aversion Monday

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The markets are off to a rough start in early action Monday as stocks sink. Investors are becoming increasingly concerned about a Chinese property developer and its financial condition. The company, Evergrande, is in substantial trouble and markets are worried about the risk of contagion. China may now be facing its own form of a Lehman Brothers moment, and how it handles the situation could determine how financial markets react for months ahead.

 

Stocks are at four week lows in early trading, with the Dow Jones Industrial Average down about 500 points. Fear is hitting stocks and risk assets like a tidal wave today, and market volatility could potentially see a rise that could last not only for days but for weeks or months.

 

Much of the capital outflows from equities today are finding their way into the gold market. Gold is up over $11 per ounce in early action and could see further gains ahead if the stock sell-off does not ease. Investors may also be content with going to cash or even Bitcoin and cryptos if the selling doesn’t ease up. Whatever the case may prove to be, there may be a significant amount of capital looking for a new home by the end of the day and that may be bullish for gold.

 

The Evergrande crisis comes at a time when the Federal Reserve is set to meet Tuesday and Wednesday of this week. The Fed will then announce its decision on policy and provide a press conference for Chairman Jerome Powell. The question investors may now be asking, however, is whether a major sell-off early this week could dictate the Fed’s discussion on its tapering plans. The central bank’s tapering plans have been the subject of ongoing debate and anything that could keep the Fed’s foot on the gas pedal longer may be viewed as being bullish for gold.

 

The Dollar Index is higher today, hitting a four-week high in early action. Gold is climbing despite the stronger dollar, however, and any strength in the currency may simply be a function of risk aversion. Ongoing dollar weakness, however, could pave the way for higher gold prices as they often exhibit a negative correlation.

 

Despite today’s strength and price rise, the gold bulls still have their work cut out for them. The market remains firmly below previous resistance at the $1800 level and will likely not get people too excited without a breakout above this area on a closing basis. The bulls must then target resistance in the mid $1830s and take it out to attract further buying interest. If that proves to be the case, the bulls could then potentially ride a quick wave higher as gold prices could sail all the way towards the $1900 level. The bears, on the other hand, will look to take advantage of recent momentum and to drive prices further below previous support in the $1775 region. If gold declines further, the bears could pave the way for a rapid leg lower that could see prices move towards the $1650 region in short order.

Gold Chart Deteriorating

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The gold market is down in early action Thursday and down hard. Spot prices are lower by some $42 per ounce as futures traders play the short side of the market. The selling has taken prices well below previous resistance at $1800 and thus far the $1750 area is holding the bears in check.

 

Another failure by gold to break through resistance in the $1830 to $1840 area may not bode well for the bulls. This lack of upside follow through may cause the bears to come out in force, while forcing many of the remaining bulls to throw in the towel. Such a scenario could, in turn, lead to a fresh leg lower in price that could see gold move all the way down towards the $1600 area.

 

The sell-off in gold today is causing major chart damage that could fuel further technical selling. The trend reversal lower could set the stage for additional sellers to enter the market. Any rallies are now likely to be sold into rather than bought into and the bulls will need to prove their metal before attracting more buyers.

 

Not only is the gold market suffering technical damage, but the fundamentals may also be deteriorating. Recent economic data suggests the economy is continuing to improve and could give the Fed reason to reign in its stimulus measures. Not only this, but inflation data released recently may also suggest that inflation could prove to be transitory. A lack of ongoing inflationary pressure may keep the pressure on gold as well and could lead to further selling pressure.

 

Today’s release of retail sales data is a prime example of how a stronger economy may affect the gold market. Retail sales came in stronger than expected, up .7% last month. This figure was a strong reversal from the previous month’s figures which showed a decline of 1.8%. Although gold was already trading down steeply, the yellow metal did remain near the session lows following the retail sales data and has been sharply down since. The data may be supportive of the viewpoint that the Fed will look to begin tapering its monthly asset purchases sooner rather than later.

 

Adding insult to injury, the latest release of the Philadelphia Fed Manufacturing did not help gold, either. The index rose to 30.7 in September, while estimates were looking for a decline to 18.8. With manufacturing in the region remaining strong, the Fed has even more reason to consider tapering this year. Less stimulus action by the central bank may be bearish for gold and could lead to a fresh wave of selling interest entering the market.

The weeks ahead will provide further clues about the state of the economy and what the Fed is likely to do or not do. As these clues become available, volatility could rise in the gold market as participants adjust their expectations. For the time being, however, the bears now appear to have an edge in the market and could inflict further damage in the sessions ahead.

Market On Standby for Tomorrow’s Inflation Data

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The gold market is off to a stronger start in mid-am trade Monday. After being down earlier in the session, the bulls have circled up and driven prices higher by nearly $8 per ounce. The gains are coming ahead of tomorrow’s CPI report which could show inflation continuing to rear its ugly head.

 

A rebound in the U.S. Dollar Index  may weigh on gold today as the currency looks to bounce back from a recent test of swing lows in the 92 area. How much potential upside the currency has is another question and it could soon run out of gas leaving it vulnerable to bearish pressure that could send it right back down to 92 or lower.

 

Despite the key issues that may be viewed as bullish for gold, the market continues to struggle with apathy. Recently, the CFTC reported that hedge funds and large market participants lowered their bullish positions in the metal last week. The participants actually reduced longs so that the market’s net length is now 17% less than the previous week.

 

The reduction in net long positions could be indicative of speculators holding the view that the Fed is likely to begin tapering its asset purchases sooner than expected. A reduction in QE by the Fed does have the ability to negatively influence gold and could set the stage for a decline in inflows for the metal that could see it drop in price accordingly. The specs may also see a rise in real rates on the horizon and may be reluctant to get long gold in such an environment.

 

As markets ready for tomorrow’s inflation data, they also continue to monitor the geopolitical scene for any inputs. Overnight, North Korea fired a gtest missile that reportedly traveled nearly 1000 miles. Although the missile firing is not causing market volatility or selling today, it does act as a stark reminder that North Korea is still in search of viable weapons. The rogue nation may yet need to be dealt with in one way or another and could pose a serious threat to global democracy and prosperity.

 

The major spending plan by the Biden administration is seeing some obstacles as the President attempts to get it passed by Congress. Although it is not causing any major upset today, a lack of passage for the bill could send stocks and risk assets lower while also potentially giving the dollar a boost. Such a scenario may be viewed as being bearish for gold and the next few weeks will provide further developments on the story.

Gold Testing Resistance After Jobs Miss

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The gold market is surging higher following the latest jobs data which showed a dramatic miss. The non-farm payrolls data for August showed just 235,000 jobs created with an unemployment rate of 5.2%. The jobs created figure was a major miss from consensus estimates which were looking for some 720,000 jobs created. The data may give the Federal Reserve much to consider as it continues to think about pulling back on its stimulus measures.

 

Not only was the poor data a positive for gold, but wage inflation figures also crept higher. Wages rose by .6% in August while estimates were looking for a rise of .3%. The data is poor but bullish for gold and could keep the Fed from a September taper announcement. The poor jobs figures could be a result of the ongoing viral pandemic, demonstrating how much of an impact the Delta variant is having. With the pandemic having such a strong influence on the economic recovery, it is difficult to imagine a scenario in which the Fed does announce a tapering plan this month. The poor jobs data may have pushed such an announcement into early next year at the earliest.

 

Adding to gold’s bullish behavior today is a weaker dollar. The Dollar Index is still above the 92 level, although the currency is in the middle of a multi-month downtrend that is getting close to breaking major support. A breakdown below the 92 level, on a closing basis, could set the stage for a rapid and dramatic leg lower that could see prices decline down to the 90 level in short order. As the dollar weakens further, gold is likely to catch a bid as it often moves in the opposite direction of the dollar.

 

Adding to gold’s bid is the decline seen today in the services sector. The Institute for Supply Management said today that its non-manufacturing index showed a reading of 61.7%. This was basically inline with expectations of a 61.9% reading, but over two points lower than the previous month’s figure.

 

The recent data trend may keep the Fed’s feet on the gas pedal and could put off any tapering for several months or more. This may, in turn, keep the dollar under pressure while also boosting gold and other hard assets.

 

Despite its strong gains on the session, the gold market has not been able to break through resistance in the $1836 area as of yet. The market is right there, however, and the first few sessions of next week have the potential to see some dramatic upside price swings if the bulls come together. A failure at current levels could be indicative of doubts about any Fed tapering delays and could pave the way for further downside as the bulls throw in the towel. With so many bullish factors, however, it would seem that the smart money is betting on more upside and that the gold market could test all-time highs in the months ahead.

Central Banks Still Buying

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Recent data from the World Gold  Council suggests that global central banks remain strong buyers of gold. Global central banks added just over 30 tons in July to their holdings, a figure that was inline with net purchases the month before. Gross purchases for July tallied some 34.3 tons, while net purchases for June had totalled some 63.1 tons.

 

Despite July’s lower net purchase figure, the data does point to a continuation of a trend in central bank buying. Large purchases were made by several emerging market central banks, including Brazil, Thailand and Hungary. These bigger buys are not likely to be repeated, however, and could put purchase figures more on track with the longer-term trend.

 

Total gold sales were significantly lower compared to June. Only some 4.2 tons were sold for the month, with only Qatar and Poland showing meaningful declines in their gold reserves.

 

All in all, the data seems to suggest that central banks remain positive on the gold market and that more buying could continue. Gold’s recent declines have not been viewed as a negative by central banks either, but rather may have been viewed as a positive buying opportunity to purchase the yellow metal “on sale.”

 

Central banks look to buy and hold gold for several reasons. The yellow metal can provide portfolio stability for central banks while also adding needed credibility to their respective currencies. Gold can be an excellent means of diversifying a portfolio and central banks also need this diversification for their large holdings.

 

In the current global environment of weakening fiat currencies ,rising sovereign debt and other geopolitical risks, owning a large allocation in gold has likely never been more important. With the U.S. Dollar at increasing risk of losing its spot as the global reserve currency of choice, central banks may look to gold, considered by some to be the only true form of money, as an alternative.

 

The global importance of gold may just now be starting to be more thoroughly understood. As demand for gold rises further in the months and years ahead, prices stand to rise and rise substantially. After making new all-time highs last year over $2000 per ounce, the market has pulled back significantly. Currently valued at just over $1800 per ounce, the yellow metal has taken its time digesting last year’s upside. The key, however, may lie in the fact that any substantial declines in gold have been aggressively purchased by traders as well as long-term investors. With long-term players willing to step in and buy the dips, the future for gold looks very bright indeed.

 

The bulls remain in control of the daily chart and will look to take out resistance in the $1830-$1840 region on a closing basis. The bears, on the other hand, will look to take prices down to the $1775 area. Central bank buying could, in the meantime, provide the bulls with additional support and reasons to buy, boosting prices along the way.