Gold Slightly Higher As Crude Stronger, Dollar Weaker

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The gold market has been closely linked to the Dollar Index and the crude oil market for some time now. The yellow metal was lower Monday as the dollar moved higher and as crude oil sank. The metal is seeing the opposite effect on Tuesday, however, as the crude oil market is higher and the dollar is sinking. Gold is less than a dollar above the unchanged line, however, and many investors may already be away from the screens as the Thanksgiving Holiday approaches.

 

U.S. Treasury yields are also seeing a downtick today, which may be limiting any selling pressure in gold. Although the key outside markets may be cooperating today, the gold bulls are likely waiting on the Fed and its plans for 2023 before making any significant moves. Investors are also nervously watching the Covid situation in China. The largest Chinese city of Beijing has reportedly been called a “ghost town.” As China continues to battle the virus, it may be forced to implement more lockdowns or other measures. Some analysts have suggested that 20% of the Chinese economy is already being affected by lockdowns. This is especially important because China is the globe’s second-largest economy and it could have a major dampening effect for the global economy.

 

Although market action appears to be on the quiet side today, do not rule out some possible fireworks for tomorrow. Wednesday’s session will feature the most economic data for the week, and some key pieces of data could move markets. Perhaps most important, the minutes from the latest FOMC meeting are due for release in the early afternoon Wednesday. These minutes could provide clues for investors about the Fed’s intentions as the new year gets underway in a few short weeks. It is currently expected that the Fed will hike rates again in December, although they may not hike by another 75 basis points. A 50 or even 25 point hike may be more likely this time around. Investors will pay close attention to the central bank’s commentary following the decision on rates, however, to gauge the Fed’s plans for 2023.

 

If the Fed maintains a hard line and sounds overly hawkish, investors are likely to fret further about the possibility of a recession next year. If the Fed sounds more dovish, however, it could ignite a fire under the stock and gold markets, potentially sending both quite a bit higher in a short period of time. The Fed may hold the keys to gold’s fortunes next year, and a great deal may depend on how the Fed approaches policy in the months ahead.

 

Recent inflation data has pointed to a possible slowing of inflation. It remains unclear, however, whether that slowdown will become a trend or if it is just a one-off. Any further data possibly demonstrating that inflation is slowing would be cheered on by investors and could keep the Fed from continuing in their aggressive hiking.

Gold Lower As Crude Oil Falls and USDX Rallies

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The rally in the dollar today comes after the Dollar Index hit a 3-month low last week. The dollar has been riding the coattails of the Fed, which has so far stuck with its plans for aggressive rate hiking. Next month could bring some key changes to the Fed’s rhetoric, however, and the central bank may not hike rates by 75 points next month, but could go with a smaller 50 or even 25 point hike. The central bank’s commentary will be what moves markets, if anything. Investors want to know what the Fed sees for next year. If the Fed continues to raise rates aggressively, investors may again become increasingly worried about the likelihood of a recession. If the Fed sends a different signal, however, it could alleviate much investor angst and send both stocks and gold sharply higher.

 

The crude oil market is lower today as some reports have suggested that Saudi Arabia could be considering raising its crude oil output. While any increase is likely to be quite modest, a raise in production does affect the supply and demand equation and could keep pressure mounting on prices.

 

The threat of Covid also remains a key market topic. China, the world’s second-largest economy, recently reported its first death from the virus in six months. Reports have suggested that infections in Beijing have more than doubled in recent days. This could mean more lockdowns might be necessary. The fear of lockdowns may keep investors on edge this week, as risk aversion is already higher on Monday to start the holiday-shortened trading week. Markets will be closed Thursday for the Thanksgiving Holiday but could see some fireworks beforehand. Wednesday will bring some key pieces of data to the market, including the minutes from the latest FOMC meeting. If the Fed appears to sound overly hawkish in the minutes, trouble could brew rapidly for stocks and gold. If the Fed sounds a bit more dovish, however, then stocks and gold could both rally into the holiday.

 

The gold market is eyeing two key levels for trade in the weeks ahead. The bulls will look to produce a close above the $1800 level. The bears will look to take the market back below the breakout point of $1700 on a closing basis. Whichever side is breached could see the market continue in that direction for some time.

Gold Lower As Outside Markets Are Bearish

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The gold market is lower in late morning action on Thursday as bearish outside market action takes a toll. Not only are outside markets in a bearish posture for gold today, but some hawkish Fed commentary is also playing a role in gold’s downside. A strong rally in the dollar today combined with significantly weaker crude oil prices is not doing gold any favors. Add to that the hawkish Fed rhetoric today and you have a recipe for lower gold prices.

 

St. Louis Fed President James Bullard said today that he feels at least another 125 basis points of hiking is necessary. That would put the Fed Funds rate at 5-5.25%. Kansas City Fed President Esther George also sounded hawkish today, suggesting that she did not know how to bring down this level of inflation without inflicting significant slowing, possibly even a contraction in the economy to get there. As an increasing amount of discussion on the Fed’s plans is now taking place, now is not a great time for some to lean hawkish and some to lean dovish. A lack of clarity may be the worst case of all, in which investors do not have a strong sense of what the Fed may do or when it may do it.

 

The Fed seems certain to hike again next month. A December rate hike may not be as tall as previous hikes, however, and could come in at 50 or even 25 basis points. Markets do not appear concerned with what the Fed does next month, however, and appear far more focused on what the Fed may or may not do come 2023. If the Fed continues to raise interest rates into next year, the odds of a recession could increase dramatically. If the Fed elects to take a pause, it may be able to avoid a recession but it may not necessarily appease equity investors. If, or rather when, the Fed decides to start easing rates again; stocks, gold, and other assets could skyrocket. It does not seem to be a question  of “if” the Fed will start easing, but rather a question of “when.”

 

The downside in gold being seen Thursday may not just be due to outside markets, but may also be due to gold needing a pullback before being able to continue higher. The market recently broke out of an extended trading range, and as long as the bulls hold the $1700 level the market could be poised for further upside. For now, the bulls will target a close above the $1800 level. The bears will look to produce a close below $1700, pushing gold back into its previous trading range and potentially nullifying the recent upside. A bullish breakout above $1800 could set the stage for a sharp leg higher. That leg could potentially even take the market back toward previous all-time highs or beyond.

 

The long-term bullish thesis for gold remains firmly intact. The outside markets not cooperating today is likely due to the Fed and its rate hikes. Once the Fed decides to change course, however, the dollar and yields could see a tumble. That decline could make the road higher much easier for gold and could fuel a run back to all-time highs in a short period of time.

Gold Steady As Outside Markets Conflict

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The gold market is lower by about $4 per ounce in early afternoon action Wednesday. The market may be due for a pullback in price levels following the recent upside it has seen. On today’s action, the selling has been limited due to a decline in the dollar and treasury yields. Any buying interest has also been squelched, however, by a solidly lower crude oil market.

 

Markets and investors appear to be quite a bit calmer today after a missile entered and killed two in Poland on Tuesday. Recent reports by the U.S. have suggested the missile was likely not Russian but was rather a Ukrainian missile launched to protect the country from Russian missiles. Overall, risk appetite remains fairly robust at mid-week as investors are still celebrating Tuesday’s weaker-than-expected PPI data. Moves by the Chinese Central Bank and a loosening of Covid restrictions in China are also fueling the appetite for risk Wednesday. The gold market seems to be viewing the Chinese developments as a market positive, in the hopes that the measures will act as a catalyst for more metals purchases.

 

The political scene in the U.S.  may begin to heat up once again as Donald Trump last night announced his third candidacy for President of the United States. How much weight Trump may pull this time around is the topic of much debate, however, and it does not appear Trump carries the same power he did when running years ago. Having Trump in the mix could heat things up between him and his former protégé Ron Desantis, who may also be strongly considering a run for the highest office in the land. Former Vice-President Mike Pence has also suggested he could potentially run. One thing is for certain: Trump does not seem to instill the same fear that he did amongst rivals the first time around. That could make for an interesting election.

 

Investors will closely monitor any fresh developments on the inflation front in the weeks ahead. The Fed may now be unlikely to hike rates by another 75-points next month. A 50 or even 25-point hike now seems more likely. The big question for investors, however, is not what the Fed may do next month, but what it may do as 2023 gets rolling. The recent weaker-than-expected CPI and PPI data may have cleared the way for the Fed to slow the pace of rate hikes in the new year. The markets may be somewhat appeased with a slower pace of hikes but what they really want to see is a reversal by the Fed to start easing again. As is often the case with the Fed, it may wait until it’s too late to reverse course and it could fuel a massive recession next year if it continues to take rates higher.

 

The gold bulls seem to be feeling better about the future of monetary policy. The recent breakout above $1700 seems to have some legs to it, and the bulls will now look to produce a close above the $1800 level.

Gold Higher In Mid-Day Trade

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The gold market is higher by a few dollars per ounce in the early afternoon of Tuesday. The metal had been lower earlier in the day by several dollars, only to bounce back on the word of Russian Missiles being fired into Ukraine, with two of them reportedly traveling into Poland and killing two people. The major data point of the day was the latest reading of the Producer Price Index. The PPI, like CPI, came in under estimates. The 8% reading was below estimates for a reading of 8.3% and may add further credibility to the notion that inflation may now be easing.

 

The previous CPI data had been a major relief for markets. Today’s PPI data will add to that sense of relief. Markets seem to be getting the impression that the worst of the inflation debacle may now be behind us. This is certain to fuel questions about what the Fed may do next month and as 2023 gets started. The Fed will almost certainly still raise rates in December, although at this point a 50-point hike may be far more likely than another 75-point hike. What the Fed does as 2023 gets underway, however, is another matter entirely and could have a major impact on U.S. and global markets.

 

As markets await the Fed and what it may or may not do, they will also be forced to pay attention to other inputs as well. The ongoing war in Ukraine, for example, may become an increasingly important influence on gold and markets. The news that two Russian missiles missed their target today and killed two in Poland could lead to a rise in Russian and Western tensions. While it remains very unlikely the west would get involved in the conflict, the killing of innocent bystanders seen today may draw not lonely criticism but action. With Russian leader Vladimir Putin already discussed the use of nuclear weapons, any escalation in the war could lead to significant risk aversion across markets. This could, in turn, possibly lead to more buying interest in gold for its perceived safety. Because Poland is a member of NATO, action could be seen by NATO members to defend their counterparts.

 

The globe will also watch any fresh developments in the crypto space after the recent FTX liquidity crisis. Cryptos have since stabilized, but it seems that much damage has been done to their reputation as a possible safe haven. Bitcoin remains well below the key $20,000 level, and gold may now not see nearly as much competition from crypto if times get tough.

 

The gold bulls will attempt to take the market over the $1800 in the sessions ahead. The bears will target a close below the breakout point of $1700. If the bulls can produce a close above $1800, the market could be primed for a sustainable run higher that could even see it back near all-time highs before long. If the bears get the market lower for a close below $1700, a fresh wave of selling could be seen, possibly taking the market as low as $1500 before finding willing buyers.

 

 

A Quiet Day For Gold

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The gold market is a tad higher in late afternoon trade Monday as the bulls look to catch their breath after the recent upside. The market has held last week’s gains, thus far, and a change in market dynamics could keep gold moving offensively in the weeks to come. The Federal Reserve recently signaled a possible slowing down in its aggressive interest rate hikes. That, combined with last week’s weaker-than-expected CPI report, could keep gold bulls moving in to buy on any dips from here.

 

The CPI report from last week registered a reading of 7.7% from the same period the year prior. Although a 7.7% print is still massively inflationary, the markets were probably expecting worse. Estimates had called for a rise of 8.2% and at this point, any weaker inflationary data is likely to be market-moving. The Fed has gone from moving far too slow to begin tightening policy, to rapidly raising rates aggressively and possibly fueling a recession. Now that the midterm elections have come and gone, the Fed may elect to take its foot off the gas pedal. The central bank cannot raise rates high enough and fast enough to get inflation to its desired target of 2% annualized, and it may simply begin to slowly give up the inflation battle to avoid a recession.

 

The recent gold breakout above the $1700 level coincides with a major pivot from the Federal Reserve and thus should not be taken lightly. If the Fed does begin to slow the pace of rate hikes, inflation is likely to remain anchored in place and could become a consistent problem. Long-term inflationary pressures could change the way people view money and the dollar, and could also send the prices of hard assets such as gold substantially higher.

 

The gold bulls are now in a prime position to take the market higher. The market is vulnerable to a pullback after last week’s gains, however, any declines in the metal could be aggressively bought as investors look to get longer and longer. The next major hurdle for gold is the $1800 level. If able to produce a close above this key chart level, the bulls will have undone much of the damage inflicted in gold in recent months and could set the stage for a run even higher. The market will need some cooperation, however, from its nemesis, the dollar. Both the dollar and treasury yields have seen steep declines since last week’s CPI data as expectations for the Fed and interest rates have changed. If the dollar keeps moving lower and if yields remain steady to lower, the gold bulls could have a field day taking the market higher over the next several weeks and months.

 

The Fed is still widely expected to raise rates next month by 50-basis points. Once 2023 gets underway, however, expectations for Fed hikes may become a lot less concrete. This could give the gold bulls a reason to buy and keep recent positive momentum going.

Gold’s Best Week In Over 2 Years

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The gold market is higher on Friday to cap off an interesting trading week. The yellow metal is up by nearly $12 per ounce in mid-afternoon action and is rapidly approaching the $1800 level. The metal broke out of its recent trading range following the latest FOMC meeting and thus far has not looked back. If the bulls are able to retake the $1800 level, look out, as the market could go quite a bit higher in short order.

 

Although the recent FOMC meeting was a bit market-moving, it was this week’s slower CPI data that has markets on the move. The latest reading on price pressures registered a rise of 7.7% from the period one year ago. That reading, while still high, is well below consensus estimates for a rise of 8.2%. The drop in inflation could mean that the Fed’s rate hikes are actually chipping away at inflation and making a dent. Markets felt a sudden and significant sense of relief upon the release of the data. Now, questions may arise as to what the Fed may do even as soon as next month. The biggest question, however, is how the Fed may approach policy as 2023 gets underway.

 

Also affecting gold this week was the meltdown seen in crypto markets. The liquidity crisis at FTX sent shockwaves through the sector. Crypto investors may now be more concerned about their capital than they were earlier in the year. Cryptocurrency prices took a major hit on the debacle, and leader Bitcoin is now well below the $20k level once again. The importance of the crypto meltdown for gold is significant. Bitcoin and other digital currencies had been viewed as a potential substitute or competitor to gold for safe haven buyers. That no longer seems to be the case, however, as investors rapidly fled the cryptocurrencies and turned to gold. The metal’s place as the #1 perceived safe haven seems quite intact at this point. Cryptos or other assets are very unlikely to pose any legitimate threat to gold’s status anytime soon.

 

The slowdown in inflation could be due to a variety of factors. The question is not what may have caused it, but whether it will stay around. If inflation begins to trend lower, the Fed may have far more flexibility when it comes to policy and interest rates. If the Fed elects to take a pause on its rate hikes, it would likely be very bullish for gold as the dollar and treasury yields would likely decline. Should the Fed at some point decide to start easing rates again, the sky will become the limit for gold.

 

In the meantime,  the bulls will target a close above the key $1800 level. The bears will try to take prices back below the $1700 breakout point. After this week’s gains, the market may need to do some back and filling before further upside is seen.

Gold Lower But Holding Above $1700

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The gold market is lower on Wednesday as investors monitor the midterm elections results from Tuesday. Although some races are still too close to call,  it appears that the red wave many thought could be calling has fallen far short of expectations. Many Republican candidates have flopped, leading many to wonder how the party may fare in the 2024 presidential election. Investors are not only dealing with the election results but are also still watching the crypto space closely. The recent drama surrounding FTX could prove to be a contagion. That contagion could very well spread and could pressure assets already under significant pressure.

 

The crypto crunch from Tuesday is just like other markets. When a crisis of confidence hits, investors all running for the exit signs at the same time can lead to a liquidity crunch. The cryptocurrencies are still quite shaky Wednesday, and any further declines in the space could lead to more safe haven buying in gold and silver. While the crypto space will be watched closely, investors may now be turning their attention to tomorrow’s release of the latest CPI data.

 

CPI is expected to come in at 7.9% on Thursday. Although still a very high number, the expectations are a bit lower than the 8.2% print seen for September. If the report comes out as expected, it may not have much of a market influence. A large miss or beat, however, could change investor mindsets and could possibly lead to a large sell-off or rally in stocks and gold. A big beat on the data may lead to increasing bets on the Fed continuing to raise rates aggressively into 2023. A large miss, on the other hand, could bolster projections for the Fed to slow down the pace of rate hikes or to even reverse course and begin easing rates again.

 

Now that the metal has retaken the $1700 level, it will attempt to hold above it. The upside breakout seen on Tuesday may be sustainable if it is followed through on by additional buying. If the market tests the $1700 level in the next few days and fails, however, the metal may find itself right back to where it was: in no man’s land. The metal could then  potentially spend even more time trading sideways, with little to no conviction on either side to sustain a move higher or lower. The bulls have an edge for the time being, however, and will need to work to maintain that edge. The next several sessions could be important for gold as it looks to hang onto some of its recent bullishness. The first big test comes on Thursday in the form of the CPI data.

 

Gold prices hit a four-week high today. Despite this, the bears are still in control on the daily chart. Now that the bulls have fueled an upside breakout above the $1700 level, the next major upside target will be $1800. The bears will work to push prices back below the $1700 level, with a target of the November lows around $1618.

Election Day Brings Sharply Higher Gold

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The gold market is sharply higher at midday Tuesday as a combination of factors drive buying in the metal. The market is seeing some benefit from short-covering, bargain hunting, and risk aversion as the crypto markets are sold off today. One crypto exchange has reportedly halted withdrawals today, and that has spooked investors into buying gold and silver today as tensions rise. According to the World Gold Council, gold has risen more than half the time over six months following the midterm elections. This time may prove to be no different, especially if the Fed does decide to reverse course on rate hikes in the months ahead.

 

Today is midterm election day in the U.S. The majority of people seem to believe the Democrats will lose the House and possibly the Senate as well. Any Republican victory today may make it harder for policies to be enacted in the next two years, effectively creating a sort of policy gridlock. Such a scenario could potentially boost the gold market as it may drive investors into its perceived safety. The unknown election results may also be lending gold some support today.

 

In other news, the Covid-19 virus remains a huge factor in global growth. China just reported 7500 new cases of the virus yesterday, and fears of additional lockdowns are on the rise. As the globe’s second-largest economy, any lockdowns in China can potentially crimp or even halt the production of many products. This lower production can slow the global economy tremendously, possibly even putting it into a recession.

 

Global markets will also continue to pay close attention to rising interest rates. In the U.S., higher yields and a stronger dollar have both been major roadblocks to higher gold. These may remain elevated as long as the Fed keeps its foot on the gas. If the Fed takes a pause or starts easing rates in early 2023, however, the dollar and treasury yields may both deflate quickly, possibly paving the way for sharply higher gold prices.

 

After spending many weeks in a range between the $1600 and $1700 levels, gold has finally broken out to the upside. This could mean that follow-through buying may be seen in the days ahead and that the market may now begin to trend higher instead of lower. Today’s breakout could be the beginning stage of a sustained move higher in gold. The bulls will need to keep buying, however, as the market may remain vulnerable to a rapid pullback based on election results and other factors.

 

The gold market may take a slope and steady approach to higher ground as the year comes to a close. The Fed will almost certainly hike again in December, although the hike could be smaller than 75-basis points. This week’s CPI reading due for release on Thursday may set the stage for the Fed and determine how much it hikes next month or even beyond.

Gold ETF Outflows

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The gold market saw net outflows from its ETFs again in October. Global ETF outflows were some 59 tons or $3 billion for the month of October. The outflows put the total net holdings of global gold ETFs down 52 tons for the year. Gold ETFs began the year on the right foot, seeing significant inflows of 316 tons from January to April. Since that time, however, the dollar’s strength and an aggressively hiking Fed have deflated demand for gold to a large degree.

 

All global regions appeared to see outflows last month, with the North American and European regions leading the pack. Global demand for physical gold has remained robust at the same time, with central banks going on their largest buying spree on record. The 400 tons purchased by central banks during the third quarter is a figure that is often the amount purchased over the entire year. Since January, central banks have bought some 637 tons of gold, the largest amount on record since the gold standard was still in place.

 

The difference between gold ETF outflows and record central bank buying may point to one main theme: Those in the know are buyers and those not in the know are sellers. Although this is often the case, it appears to be very clear in this instance that central banks, the most powerful financial institutions on the planet, are buying gold for solid reasons. The investing public is getting out of gold due to a lack of performance. Central banks recognize and understand the value of gold and do not simply rely on its performance when deciding whether or not to own it. John Q investor, on the other hand, is likely far more focused on the “what have you done for me lately” narrative and is therefore dumping gold as it has lacked upside for some time now.

 

Central banks know that while the value of gold could go up, and rise dramatically, it also serves other purposes. Gold is the ultimate portfolio diversifier, adding much-needed diversification to portfolios of stocks, bonds, currencies, and other assets. Gold may also provide an important hedge against inflation. While stocks have seen some crushing days in recent months, the declines for gold have been much smaller and more “controlled.”

 

Once the Fed signals it will take its foot off the gas, the gold market may skyrocket. This is unlikely to happen until sometime early next year, but the day is coming. Once the era of aggressive rate hiking has come and gone, the path to higher gold may become abundantly clear. For the time being, gold may remain stuck in its recent trading range. The $1600 and $1700 levels are key technical support and resistance here. Once either side is breached, on a closing basis, the market may continue in that direction. Despite some investors dumping their gold ETF holdings, the central banks often referred to as the “smart money,” are loading up and patiently awaiting gold’s return to dominance.