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Gold in Freefall as Prospect of Another Large Rate Hike by Fed Sinks Price to 9-Month Low
Gold is currently in freefall with the plunge below the key level of $1,800 an ounce earlier in the week followed by further daily declines to leave the precious metal set for its fourth weekly drop and trading at its lowest level since late September.
The driver of gold’s latest declines is comments from key Federal Reserve officials, Christopher Waller and James Bullard, with both backing a 75 basis point hike by the US central bank when the committee sits down later this month.
The Fed’s adoption of more aggressive monetary policies initially provided a firm ceiling for gold’s potential gains but with the realization that more hikes are still needed with inflation remaining stubbornly high, the market reaction has flipped over into a strengthening dollar with gold falling sharply out of favor.
Bearing in mind gold’s plunge has come before the Fed makes its monthly rate decision, further declines can’t be ruled out over the course of this month.
However, the glimmer of hope for gold investors will be that with the market reacting to the increasing likelihood of another 75 basis point hike by the Fed, any move that comes in below expectations would provide scope for gold to recover some of its recent losses. Read More
Silver Holds Above $19 for Time Being But More Fed Hikes Point to Further Lows Yet
Silver is just about holding above $19 an ounce as it continues to test levels last seen two years ago.
While today’s losses are comparatively small versus what the precious metal has suffered in recent months, it is still on course for yet another weekly loss with the price having lost more than $7 since its March high.
The latest source of pain is a comment from two hawkish members of the Federal Reserve’s rate-setting committee that back another 75 basis point interest rate rise when they meet later this month. This has the dual impact of strengthening the US dollar, which pulls down the commodities priced in that currency including silver, as well as making non-yield bearing assets less attractive, such as physical silver.
During silver’s multi-month slide, any attempt to suggest supportive levels at which the price might rally from having proven fruitless. For the time being silver is so out of favor among investors that it looks best to sit on the sidelines until sentiment changes.
With further hikes expected by central banks, especially the Fed, over the course of the year, that rallying point may still be some way off but when it finally arrives, silver’s scope for gains could be spectacular as the fundamental case for the metal-based on supply and demand remains strong. Read More
Gold price in neutral territory as U.S. economy created 372K jobs in June
U.S. recession fears could start to ease as the U.S. economy created more jobs than expected last month.
The gold market is taking the new momentum in the labor market in stride as it continues to test long-term support just above $1,730 an ounce.
Friday, the Bureau of Labor Statistics said 372,000 jobs were created in June. The data significantly beat expectations economists were forecasting job gains of around 260,000.
Meanwhile, the unemployment rate was in line with expectations holding steady at 3.6%.
The latest economic data does not provide a lot of good news for gold investors; however, the precious metal is holding in neutral territory for the day in initial reaction to the labor market report. August gold futures last traded at $1,736.40 an ounce, down 0.19% on the day.
It has not been a good week for gold as prices are down roughly 4% as markets continue to focus on the Federal Reserve’s aggressive monetary policy tightening. Some economists have said that the latest employment data won’t change expectations for a 75 basis point hike at the end of the month.
"The Fed wants to see some moderation in the labor market in order to cool wage pressure but there are no signs of it here," said Adam Button, chief currency strategist at Forexlive.com. "This increases the odds of a 75 bps hike at the end of the month and of the Fed continuing to hike beyond 3.5% early next year." Read More
Have complacent investors fled the gold market
Once again, the gold market is limping its way into the weekend after seeing a nearly 4% drop, its biggest selloff since May.
There is some hope among gold investors that this selloff has finally shaken out some of the complacent longs lingering in the marketplace. Many have been waiting for this shakeout and are looking to add to their long-term bullish bets.
However, there is also the view that this could be just the start of a bigger move as gold faces some significant headwinds. The biggest hurdle the precious metal faces is that the Federal Reserve will continue to aggressively raise interest rates.
Markets already expected the U.S. central bank to raise the Federal Funds rates by another 75 basis points later this month. These expectations have driven the U.S. dollar to a 20-year high and pushed bond yields back above 3%.
There is not much stopping the Federal Reserve's firm stance on inflation. Recession fears were eased Friday after the U.S. economy showed that 372,000 jobs were created in June, beating expectations.
Although fears have subsided slightly, they haven't completely vanished; that won't stop the central bank from trying to get inflation under control. This week the minutes of the Federal Reserve's June monetary policy meeting reveal that the Committee sees potential credibility issues on the horizon. Read More
The Metals, Money, and Markets Weekly: "D" is for the Dollar - By Mickey Fulp
Gold/silver/copper: every dog has its day
It was a "risk-on" week for U.S. Equities while commodities remain aggressively oversold. A mental shift is occurring, and investors have been rotating out of inflation (commodities) and into recessionary deflation-type assets. That push drove the U.S. Dollar back to 20-year highs and the Euro to 20-year lows. Year-to-date, Copper, has been the worst-performing metal, down 20%, followed by Silver, down 18%, and while they may be down, they are not out for the count. This week China announced that it is considering a $220 Billion infrastructure bill that would help support the world's second-largest economy, and that's the same playbook I believe the U.S. will use once the recession is here.
Friday's latest June employment data created 372,000 new jobs versus 265,000 expected. The reaffirmed strength in the labor market cements another 75 bps rate hike at the July 27th FOMC meeting. After that meeting, we should see a change in momentum where aggressive interest rate hikes begin to fall, and more consistent smaller hikes remain. The overtightening the Fed will conduct in the back half of the year will ultimately lead to rate cuts in 2023, with 75 bps of cuts already expected.
While precious metals have seen their largest weekly outflow in over a year, one must remember that the bigger the outflow, the bigger the inflow when the cycle turns. We expect Copper and Silver to make substantial recoveries once the Fed declares victory on inflation and pivots to stimulating the economy. Therefore, positioning in these metals needs to be considered long-term investments in extreme washouts like what we are seeing now. Any new positioning should be in December 2022 or into 2023 on futures contract purchases. Read More
Gold price could see '2000 flashback' as most commodities reverse in second half of 2022 – Bloomberg Intelligence
Despite gold kicking off the second half of the year with a drop below $1,800 an ounce, Bloomberg Intelligence sees the precious metal moving higher versus broader commodities, which are at risk of a reversal.
Crude oil is the commodity facing the biggest reversion risk in the second half of 2022, while gold is among the few that could benefit and see the $2,000 an ounce levels again, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.
"The great reversion of 2022 may gain momentum in 2H, and crude oil seems a top candidate to drop. We see 2H risks tilted toward accelerating retracement in the Bloomberg Commodity Index, with gold potentially a primary standout," McGlone said in his mid-year outlook.
Bloomberg Intelligence looked at whether gold got too cold while commodities got too hot during the year's first half. And after looking at all the data, McGlone noted gold is trend ready while the rest of the commodity market will be coming down from its peaks.
"Gold's moribund performance is clearly different from past high-velocity commodity rallies. But the metal looks poised to come out ahead … Juxtaposed on the chart is gold hovering around its 100-week mean for almost a year. Our take: Gold is trend ready, while broad commodities risk reversion to their historic mean," McGlone wrote. "The last similar period of sluggish gold vs. strong commodities was in 2000 as the internet bubble burst and the precious metal jumped into an extended bull market." Read More
'Tremendous' selling pressure in gold, prices 'vulnerable' to more selloffs as analysts watch this bottom
After shedding $60 this week, gold remains vulnerable to an even bigger selloff as markets get ready for another aggressive hike by the Federal Reserve at the July meeting. But analysts point to a potential price bottom that will trigger a momentum turnaround for the precious metal.
The gold market is getting hurt by a strong U.S. dollar index, which is taking on a lot of the safe-haven interest amid rising recession fears.
"Gold has tumbled to levels last seen in September 2021 and is technically trading in oversold territory," said Standard Chartered precious metals analyst Suki Cooper said Friday. "While gold is caught between elevated inflation risks and growing concerns over a recession, it has reverted to taking its cue from the USD, which has benefited from safe-haven flows over gold."
On top of that, Friday's jobs data beat expectations, with the U.S. economy adding 372,000 positions in June. The upbeat number has reassured the markets that the Fed will proceed with another 75-basis-point hike at the July meeting in just over two weeks. The CME FedWatch Tool shows a 95.4% chance of a 75bps and a 4.6% chance of a 100bps increase in July.
"Today's report simply means the Fed still has more work to do with regards to policy rates to cool demand in the economy, and a 75 basis point rate hike is almost a certainty at this point. What matters from here for investors is not how quickly the Fed hikes rates, but how high they have to go in order to slow the economy," said Allianz Investment Management senior investment strategist Charlie Ripley.
At the time of writing, gold was down around $60 on the week, with August futures trading at $1,740.90 an ounce. Read More
Gold prices may see a short-term bounce next week, but sentiment remains depressed
The gold market is seeing its worst weekly performance in two months as its 4% decline matches the same move seen in May.
Mixed sentiment in the precious metal markets doesn't point to a significant recovery anytime soon, even if market analysts see the price action as significantly oversold, according to the latest Kitco News Weekly Gold Survey.
Gold struggled this week as investors expect the Federal Reserve to continue to aggressively raise interest rates to cool down rising inflation pressures. According to the CME FedWatch Tool, markets have all but completely priced in a 75-basis point move later this month.
According to some analysts, the U.S. central bank's aggressive stance has propelled the U.S. dollar to a 20-year high, which single handily drove gold prices to test long-term support at $1,730 an ounce.
Although there is some significant bearish sentiment in the marketplace, some analysts have said they are looking for a bounce in the near term.
"Gold is overall bearish, but approaching significant possible exhaustion levels below, which could trigger a bullish correction/trend," said Michael Moor, founder of Moor Analytics. "We have broken below multiple bearish formations, but are likely in the last structural stretch down from the highs."
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that he also sees the potential for at least a short-term bounce in gold.
"The recent drawdown in the gold price has mainly been driven by a rally in the U.S. dollar, which has been getting overextended technically. With the RSI for XAUUSD getting oversold, gold could be due for a short-term trading bounce," he said. That being said, with so much capital moving into the U.S. looking for a defensive haven, gold could continue to struggle against the U.S. dollar." Read More
Gold trades flat ahead of the European open
Gold is trading pretty much flat ahead of the European open this morning. Silver is looking more subdued and is nearly half a percent in the red. In the rest of the commodities complex, both copper (-2.11%) and spot WTI (-1.64%) have moved lower overnight.
Equities were mostly lower overnight but the Nikkei 225 closed 1.11% higher. The ASX (-1.14%) and Shanghai Composite (-1.21%) both struggled. Futures markets are indicating negative cash open for the indices in Europe.
In FX markets, the dollar index climbed half a percent overnight. AUD and JPY were the biggest casualties. In the crypto space, BTC/USD is trading 2.10% lower at $20,418.
News from the weekend: Read More
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Disclaimer: These articles are provided for informational purposes only. They are not offered or intended to be used as legal, tax, investment, financial, or any other advice.
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