Off to a Slow Start

/in , /by

The gold bulls are off to a slow start this week as trading resumes following the Thanksgiving-shortened last week. Gold is lower in  mid-morning action, down by over $7 per ounce. Prices were firmer earlier in the session as investors appeared able to brush off the Omicron Covid strain and focus their attention elsewhere. That has seemingly changed as the session has gone on, however, and spot prices are now decidedly lower for the day.

 

The fear of the new strain may keep markets a tad averse towards risk. That risk aversion could also mean that the Fed may need to rethink its tapering or even rate hike plans, possibly delaying them for a significant period of time. The largest economic threat posed by the new variant is the closure of economies all over the globe as governments attempt to stop the viral spread. Some countries have already closed their borders to foreigners, although that may be considered premature by some. The general opinion, thus far, is that the threat posed by the variant is overblown and markets are likely to realize that quickly. With more questions than answers currently, however, the virus may keep investors turned off to risk and that could benefit gold.

 

Raw commodity markets were sold heavily on Friday as well as stocks. Equity markets are staging a significant rebound today, however, and commodity markets may also follow suit. The crude oil market is up sharply in early action Monday, crossing the $70 barrier as the bulls run prices higher by nearly $3.00 per barrel. Crude oil may provide some important clues regarding inflation this week and in the weeks to come. If oil prices ease further and a downtrend develops, inflation fears are likely to recede. On the other hand, if crude stabilizes and begins to rebound, inflation fears are likely to remain or even increase.

 

The gold bulls will need to put together a rally of sorts in order to maintain control of the daily chart. There is a two-month old uptrend alive on the chart, although the trend higher is now hanging on by a thread. The bulls will need to take out last week’s highs in the $1853 area to attract more interest and keep the bullish trend going. A failure by the bulls to do so could flip the market on its head, providing the bears with needed ammunition to take prices lower. Solid technical support exists at the $1761 level, and the bears may need to close prices below that to attract more fresh selling.

 

The market may continue to spend time moving sideways as it has done for months now. The longer the period of consolidation is, however, the more significant the eventual breakout or breakdown may be. Investors may be appeased taking a wait and see approach regarding Fed policy and may be reluctant to make any major bets in the absence of fresh stimulus.

Bulls Need To Step Up Soon

/in , /by

The gold market is seeing solid selling pressure on Tuesday following the significant decline seen in Monday’s session. If the bulls are unable to step up soon and stem the tide of red, the bears could inflict serious chart damage and turn the bullish tide around. Despite this week’s shortened schedule due to Thanksgiving on Thursday and the lower trading volumes associated with it, the yellow metal does have several key issues working against it currently that could potentially fuel a significant market reversal.

 

Weaker crude oil, a stronger U.S. Dollar and rising U.S. Treasury bond yields are all playing a p[art in gold’s decline. These factors have seemingly overtaken the inflation narrative this week and could cause further selling in the metal over the next several sessions.

 

Perhaps the biggest story of the week is the Jerome Powell appointment by President Biden. The question of who would run the Federal Reserve has been a subject of debate in recent weeks. Some believed that super dove Lael Barinard would be appointed the next Fed Chairman and he would almost certainly keep the central bank on an accommodating path. Although Powell is not widely thought of as being hawkish, he is likely to keep the Fed on its current path. That path has seen some hawkish changes in recent weeks, however, with the central bank announcing its plans to begin tapering its monthly security purchases or QE. Talk of the Fed even raising interest rates has been growing in recent days as well as it becomes more widely thought that the central bank is already well behind the inflation curve and may need to catch up at some point.

 

During a speech on Monday after being appointed by President Biden, Jerome Powell stated that the Fed would focus on fighting inflation. Statements made by Powell and Biden on inflation recently have likely fueled a spike higher in bond yields. The benchmark 10-year Treasury Note is currently fetching some 1.65%.

 

The rest of the trading week may be very quiet as many take Wednesday off ahead of the Thanksgiving Holiday on Thursday. Markets are open Friday for an abbreviated session, although it is typically one of the lowest volume sessions of the year. Many traders and investors may be OK with calling it a week and will likely not return to the markets until Monday.

 

The nearly two-month old uptrend on the daily chart is in serious danger today. The bulls will need to take out resistance at the week’s highs around $1850 in order to get back on track. The bears will target the $1800 level and then the November lows around $1758. Although it may be very unlikely, a further breakdown of prices could see a rapid and sustained move lower. The bulls must, therefore, stabilize prices before further chart damage is inflicted. The sessions ahead will be very important and could dictate how gold will trade into year end.

What Is A Premium?

/in , /by

When looking to purchase a physical gold coin or bullion, one of the key considerations is cost. The spot price for gold is going to be the same anywhere in the world. Spot values for gold can vary based on a wide variety of factors. These factors may include dollar strength or weakness, sovereign debt levels, risk tolerance or aversion, stock market strength or weakness and more. Why then might the price of the same gold bar or coin be different from one dealer to the next? The answer is the premium.

 

A dealer premium is the amount of money added to the price of gold by the dealer. Premiums ensure that dealers make a profit when selling gold coins or bars. These premiums not only

cover the dealer’s cost and profit, however, but also cover other costs such as manufacturing, transportation or distribution and more. Collectibility can also have a major influence on premiums. The more rare a coin is, for example, the higher the potential premium on it may be.

 

Numismatic, or collectible coins, are often best left to professionals. The large premiums on these coins can fluctuate wildly, potentially producing profits but also possibly fueling significant losses. The average bullion investor today may be far better served by sticking with basic gold coins and bars with smaller premiums, thus providing more actual gold for the dollar.

 

Why are premiums so important when buying gold coins or bullion? Because they have a direct impact on how much you spend. The more you pay in dealer premiums, the less actual gold you are going to get for a specified amount of investment capital. If an investor is looking to purchase 50 gold coins, for example, he or she should definitely compare dealer premiums. If dealer A is charging $10 over spot per coin, while dealer B is charging $20 over spot per coin, then the investor can save $500 by purchasing the gold coins from dealer B. That $500 savings could be sued to buy more coins or gold bars, thus allowing the investor to obtain more actual ounces of gold for the money.

 

With so many metals dealers now doing most, if not all, of their business online, comparison shopping has never been easier. Dealers will usually post the cost per coin or bar including any dealer premiums attached to them. Many dealers will also offer discounts, i.e. you pay a premium of $10 over spot on the first 20 coins, then $8.99 over spot on the next 20 coins and so on. Put simply, the larger the purchase is, the more you may be able to save on premiums and total cost.

 

When comparing dealer premiums, take your time and make sure you compare apples to apples. A dealer that offers shipping included, albeit with a slightly higher premium, may in fact be a better deal than another dealer offering a lower premium with substantial additional shipping costs. Always keep in mind that the entire idea is to obtain as much physical gold as possible at the best price possible.

Gold In Holding Pattern

/in , /by

The gold market is modestly lower in late morning trade Thursday. Some downside is to be expected, however, following recent upside gains that have driven the market through key overhead resistance. The market is now within striking distance of the $1900 level, but may need to take a brief breather before it attempts to overtake this level on the upside. A move above $1900 on a closing basis could set the stage for a rapid move higher that could potentially see the bulls challenge previous all-time highs.

 

The gold market may also see several weeks of sideways action at this point. A period of market consolidation could be in store as investors await more clues from the Federal Reserve about its tapering plans and possibly even plans to raise interest rates. The Fed has maintained that it is in no hurry to raise interest rates and that rate hikes need not follow the conclusion of the QE tapering. Recent economic and inflation data could force the Fed’s hand, however, as inflation does not appear to be transitory in nature. Not wanting to send stock markets lower or to boat volatility, the Fed is likely to hold off on any rate increases for as long as it possibly can. The Fed waiting could put the central bank even further behind the inflation curve and could lead to even more significant price pressures in the months or years ahead.

 

Up in the air currently, the path of Fed action may be the primary driver of gold in the months ahead. Not only are Fed actions unknown at this point, but who will be leading the central bank is also not known. Potential Fed Chair candidate Lael Brainard, for example, is widely considered to be a major dove. Indications that he could be the next chief of the Fed could add some upside to gold. As the gold market awaits further Fed clues regarding policy and a better idea of who may lead the central bank, the market is likely to find itself in a holding pattern.

 

Gold bullion stands to gain handsomely on further increases in inflation. Those gains may be tempered significantly, however, by the rising likelihood of rate increases. Higher rates would increase the opportunity cost of holding gold and could make the path higher more challenging for the bulls.

 

The dollar could also have a significant impact on the gold market in the months ahead. After hitting a 16-month plateau last night, the greenback is backing off a bit today and may simply need to catch its breath. Any hikes in rates could also boost the dollar, also providing the gold bears with more ammunition to take prices lower or stall the rally out.

 

For the time being, the bulls are in firm control of the daily chart. Any significant dips are likely to be bought and bought aggressively. Recent upside has bought threw bulls some time. The market may now spend some time consolidating before attempting a fresh leg higher.

Bulls In Control

/in , /by

The bulls have demonstrated their current control over the yellow metal, purchasing Tuesday’s dip to send prices sharply higher in early action Wednesday. Inflation fears remain the central theme for the bulls. Now that the market has cleared resistance in the mid 1830s, it could potentially be off to the races in the sessions ahead. In fact, the bulls could target previous all-time highs in the weeks ahead. An upside breakout into fresh all-time highs could see the metal run sharply and significantly higher in a short period of time.

 

Stock markets have remained strong in recent weeks. Upbeat corporate earnings data combined with holiday shopping has stock investors in a good mood. Whether that positivity can be retained into the new year remains a key question, however, as numerous potential hurdles may present themselves. For now, inflation remains the key economic topic that may dictate market direction for the months ahead. Despite previous reassurances from the Fed that inflation appeared to be transitory in nature, rising price pressures do not seem temporary at this point and could continue to put a stranglehold on the economy and consumer for an extended period of time.

 

The U.S. could, in fact, be entering a prolonged era of stagflation in which prices rise while economic output decays. Although it remains to be seen if this will prove to be the case, the notion may keep investors on their toes for the next several months and could keep interest in hard assets like gold elevated. If the nation does in fact enter stagflation, gold could see a sharp and dramatic rise into new all-time highs. The yellow metal could see such a rise whether the U.S. sees stagflation or not, and any form of rising price pressures is likely to keep the bulls motivated.

 

Regardless of what the Fed may think, the current state of supply is in dire straits. Massive shipping bottlenecks

will take several months to resolve, at a minimum. As long as these bottlenecks persist, higher prices are not only possible but increasingly likely. The Federal Reserve does have the power to squelch inflation and slow things down, the question though is will it. The Fed already seems to be far behind the inflation curve, and the longer the central bank stands by watching, the worse the problem may get. Having backed itself into a corner, the Fed now finds itself not wanting to upset stock markets by adjusting monetary policy. The central bank appears to be quite willing to allow inflation to spiral out of control as it maintains its current state of ultra-low interest rates and accommodating policy.

 

This course of action by the Fed may prove to be its folly. It will encourage investors to go to gold, however, as the threat of even higher prices increases. The effects of Fed policy may take years to unwind, if they can even be unwound at this point. This along with other bullish factors could keep gold moving higher for years to come and may keep any dips in the value of gold attractive to patient buyers.

Should I Buy Gold Bars Or Coins?

/in , /by

Once you have made the decision to invest in physical gold, the next question often asked is whether you should buy gold coins, gold bars, or a combination of both. Although there is no simple right or wrong answer to this question, the type of gold you buy should be determined by your investment objectives, liquidity needs and risk tolerance.

 

Investors simply looking to acquire as many total ounces of gold as possible may prefer to stick to bullion bars. Gold bars can oftentimes carry the smallest over spot premiums and may, therefore, allow the buyer to acquire more total gold for the price. With newer fractional gold bars, investors no longer need to purchase one or more ounces at a time. These smaller bars are sized in fractions of an ounce and can, therefore, allow the investor to purchase a half ounce, quarter ounce or even smaller size switch as 1/10th ounce. As the price of gold again approaches the $2000 level, fractional gold bars may be a great choice for investors on a budget or with limited funds to invest.

 

Gold coins can also be a great investment. Coin values can vary wildly, however, based on several key factors. A highly liquid gold coin, such as the American Gold Eagle one ounce coin, may not carry a significant dealer premium. A rare gold coin, on the other hand, could carry a premium that exceeds the value of the metal it contains. Investors interested in buying and holding physical gold may want to avoid such coins, therefore, as more of their investment dollars would go towards collectibility value than to actual gold. Gold coins do also have a face value and may be good, legal tender. That face value, however, is not where the coin’s value comes from. The coin is still valued primarily on its gold content.

 

Whether you should buy gold bars or gold coins depends on your objectives. If your goal is to get as much physical gold as you can afford, then bars or coins with the smallest premiums are your best bet. If you are looking for products that also have collectibility value attached, then coins may be the better option. In our experience, however, coin collecting is best left to professional collectors. This is because gold coin collectibility values can fluctuate significantly, meaning you can lose a lot of money on them even if the price of gold rises.

 

Figuring out whether you should buy gold coins or gold bars is simple if you ask the right questions. These may include: What am I trying to accomplish by purchasing gold? Am I on

a limited budget-what can I afford to spend on gold? Do I know and understand collectable coins and how they are valued? Will I need to sell any of the gold in the near or intermediate term?

 

As with any other type of investment, spending some time upfront to consider your goals, risk tolerance, liquidity needs and other factors can go a long way towards helping you make the right decisions.

The Market May Now Be Off To The Races

/in , /by

Following strong gains seen in yesterday;s session, the gold bulls exhibited some follow through today. Not only did the price of gold rise further but the bulls were able to take out key resistance at the $1836 level on a closing basis. This move may not only put the bears at risk but may also encourage more bullish behavior from existing and new investors.

 

Inflation remains the talk of the town. Recent inflation data showed a rise in price pressures at the highest level in three decades. As prices continue to climb, existing worries about the Fed falling behind the curve may intensify. If the Fed does fall behind the inflationary curve, it could have a significant impact on the domestic and even global economies. Alongside the threat of rising inflation is a drop in real interest rates. After the latest CPI data, real yields on the 10-Year Note declined to a record -1.235%. The difference between nominal 10-Year yields versus Treasury Inflation protected Securities rose to 2.64%. This break-even rate has expanded as the bond market is now pricing in more inflation risk.

 

With the yellow metal taking out key resistance today around $1836, there may not be much in the way of it headed straight to $1900 or higher. Adding some strength to gld is the fact that the metal rose to break resistance even as the dollar ascended to its highs of the year. This would seemingly suggest that gold could continue to rally as momentum is rich and the market has underlying strength. A dollar reversal could boost gold even more and the bulls would likely try to take advantage of any dollar weakness. If the dollar does top out near recent levels, it has the potential to cause buying across commodity markets and in dollar-denominated asset classes.

 

Despite some short-term indicators showing an overbought status in the market, the bulls may very well be able to take prices beyond $1900 in short order. While buying could potentially start to slow down within the market, it is currently not exhibiting any signs of a pounding reversal. Not only that, but any bears that are still hanging onto their positions could potentially be forced to cover on any further upside. This short covering could fuel another round of rallying higher while also attracting fresh bulls at the same time.

 

It is difficult to imagine a scenario in which gold declines substantially from current levels. That being said, the market will become increasingly vulnerable to a pullback the more it rises in the days ahead. Any pullbacks to support are likely to be aggressively bought at this point. The market may not spend much time on the decline either, but may see a rapid and significant bounce from any downside. The path towards sharply higher gold may now be set and fresh all-time highs could be on the way soon.

Gold Powers To 2-Month High

/in , /by

Now that the Fed has again spoken and laid out its plans for tapering of monthly security purchases, there is little left for investors to be uncertain of. Despite the Fed’s plans to begin cutting its monthly QE, the gold market is seeing solid buying interest that may in fact take it above key resistance, potentially sending it off to the races.

 

The bulls appear to have refocused their attention. The threat of tighter monetary policy is now riding a distant second behind the threat of sustained and problematic inflation. Although the bulls acknowledge the potential problems that inflation may impose, there seems to be very little risk aversion in the marketplace right now. Late Friday, the U.S. House of Representatives passed a slimmed down version of a spending plan. U.S. stock indexes hit record highs the same day and are thus far extending that rally into today’s session.

 

Key outside markets do not appear to be much of a factor today. The benchmark 10-year Treasury yield has declined in recent days, now fetching some 1.481%. The dollar, which hit its highest level for the year last week, is seeing some downside today while the price of crude oil is pushing higher today at over $82 per barrel. Economic data for today is light and may also not be much of an influence on the markets today.

 

The threat of a further rise in prices is not the only bullish factor for gold right now. The bulls can also buy based on dollar weakness, massive sovereign debt levels, a potential stock market reversal and other issues. Inflation may just be the next major bullish catalyst to fuel the rally if it is not transitory in nature as the Fed has called it. Even if it does prove to be temporary, inflation may still cause a significant rally in gold that could take prices well into fresh all-time high territory.

 

The gold bulls are in control on the daily chart and are finally attempting to extend the recent rally beyond resistance. The next key target for the bulls lies around $1836. An upside breach above this level on a closing basis could signal further upside and strong momentum for the rally. A failure at this level, on the other hand, could be indicative of a false rally and could give the bears new power to take prices lower again. Now that the market is well within striking distance of key resistance, the next several sessions could prove to be very key for gold’s near-term outlook. Not only could fresh buying enter the market, but a massive short squeeze could also take place and fuel a sharp and rapid rally in the yellow metal that could take it beyond resistance. If the bulls fail, however, it could set the market  back for weeks or even months. The yellow metal has shown it is quite comfortable trading within a range and it could easily return to that range upon an upside failure.

Bulls Retake The $1800 Level

/in , /by

The gold market ended the session and week higher Friday as the bulls retook previous resistance at the $1800 level. Spot prices ended the day up over $23 per ounce at $1815. The strong showing today comes on the heels of this week’s FOMC tapering announcement and could be the beginning of a sustainable run higher.

 

Despite the Fed’s plans to taper its monthly security purchases, or QE, the central bank does not appear to be in any hurry to raise interest rates. The lack of higher interest rates may provide stock investors reason to continue getting long, but they may also weigh on the dollar and thus potentially provide the gold market with a boost.

 

It has been discussed for some time now that the Federal Reserve may hold the keys to higher gold. That may in fact be true, but perhaps not in the way that many were thinking. It was thought by many that the central bank’s tapering announcement may give the bears reason to bear their teeth and take the market lower. In fact, however,the opposite seems to be happening. The bulls appeared to be out in full force today, despite the Fed’s Wednesday tapering announcement. This could simply be due to the fear of the unknown now being resolved or the notion that investors may now focus their attention elsewhere. Inflation may now become the center of investor attention, and all signs currently point to rising prices.

 

The period of inflation currently being seen may not be transitory in nature, as the Fed has suggested. It could be not only the beginning stages of a significant rise in prices, but could even point to an extended period of stagflation down the road. Whether stagflation does in fact come to fruition remains to be seen. A rise in prices has already been seen, however, and investors may become increasingly wary of a further rise. The threat of inflation could not only slow the global economy significantly, but could even put the domestic and global economies into a full-blown recession.

 

Markets are currently pricing in a rate hike from the Fed by June of next year. Those policy expectations may see a dramatic shift in the year ahead, however, and the Fed will likely want to keep its options open based on economic activity. Fed Chairman Powell, in fact, made clear in Wednesday’s press conference that rate hikes do not need to follow tapering of QE. It seemed to suggest that Powell is in no hurry at all to start tightening policy and that ultra-low interest rates could be here for quite a while still. This may giove gold investors reason to buy throughout the year and could fuel a rise in the price of gold that exceeds or even far exceeds current all-time highs.

 

Today’s gains have put the bulls back in command on the daily chart. The next major task for the bulls lies in the mid 1830s, however. That level must be breached on a closing basis, in order to provide momentum to any further rally higher.

Modest Moves

/in , /by

The gold market is moving modestly higher in mid-morning trade Monday as the new trading week gets going. Spot prices are up almost $7 per ounce putting the yellow metal at $1790 and change. Despite some recent upside, the gold market has lacked any sustainable follow through on rallies or breakdowns in recent months. This has many investors likely asking themselves what it may take for the metals to actually break out and sustain a move either up or down.

 

The answer to that question may lie in the Fed and what the central bank does or does not do in the months ahead. The primary worry for metals investors has thus far been one related to whether the Fed will be forced to act quickly and aggressively to reign in overheating inflation. The possibility of the Fed doing so, while technically possible, seems extremely unlikely. The Fed is very tentative, and with mounting political pressure to focus on the employment side of its mandate, it could continue to maintain a very easy money stance for several more months or longer whether it pulls back on QE or not.

 

If rising inflation is not the determining factor for the Fed, what else may fuel gold to surpass previous all-time highs and to make a sustained run higher that may attract more investment? The answer to that question may lie in gold’s value. Compared to stocks, real estate and other risk assets, gold has not had the run up that they have and thus may be considered to be undervalued at current levels. Of course, investors would have the voice of putting capital to work in stocks, for example, but why would they choose asset classes that some already feel are extremely overvalued and unlikely to provide much of a return in the years ahead?

 

The day of reckoning for investors will arrive and it will come in the coming months. When that day arrives, they will likely feel far more comfortable about the Fed and its inability to aggressively tighten monetary policy. If GDP data were to also trend slightly lower during that time, what reason would the central bank have to tighten aggressively anyway? Likely none-and that could fuel gold to all-time highs or far beyond in the months and years ahead.

 

As the market has maintained its recent trading range, the bulls still have control of the market on the daily chart. The bulls’ control is tedious, however, and fresh strength will need to be shown soon in order to keep the bears at bay. The mid 1830s remains the next key target for the bulls to take out on a closing basis, while the bears will look to make price decline below support at $1750. The longer prices hang around this general congestion zone, the more likely the bears will catch a break and the market may reverse course. Weak economic data and/ or a weaker dollar may be what the market is looking for in order to breakout and rally higher.