Powell Speech Pleases Investors of Both Risk-on and Safe-Haven Asset Classes

Traders and market participants have awaited his speech to glean more insight into the current sentiment of the Federal Reserve as it pertains to their highly accommodative monetary policy. The tone of his prepared remarks was construed as being more dovish than last month’s FOMC meeting.

gold August 27

Towards the end of his prepared speech, Chairman Powell said, “That brings me to a concluding word on the path ahead for monetary policy. The Committee remains steadfast in our oft-expressed commitment to support the economy for as long as is needed to achieve a full recovery. The changes we made last year to our Statement on Longer-Run Goals and Monetary Policy Strategy are well suited to address today’s challenges.”

The net effect on U.S. equities and the precious metals was strong upward moves in both asset classes. The NASDAQ composite closed at a new record high gaining 183 points and closing at 15,129.5011. The same is true for the S&P 500, which gained 39.37 points (+0.88%) and closed at an all-time high of 4509.37. Although the Dow Jones industrial average gained 242.68 points, a net gain of +0.69%, it did not break its record high which occurred earlier in August.

Gold basis the most active December 2021 Comex contract had a significant gain of 1.41%, a total of $25.30 and closed above the key psychological level of $1800 per ounce. Gold closed out the week at $1820.50, just off the intraday high achieved at $1821.90. Powell’s words contained the right tone and timbre to satisfy investors and market participants.

gold August 27

There were two main takeaways to Chairman Powell’s speech today. The first the Federal Reserve still considers recent spikes in inflation for the large part as transitory. The second major take away was that although he said that they are not far from tapering their $120 billion monthly asset purchases, he made a big distinction between the beginning of tapering and a timeline for the onset of interest rates hikes.

Distinguishing between the timeline to taper and timeline to raise rates was made exceedingly clear when Chairman Powell said “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test. We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.”

His speech cleared the way for both gold and silver prices to have substantial gains over the upcoming weeks. The next major data set that market participants will focus upon will be the U.S. Labor Department jobs reports for the month of August. This will be the key report that Federal Reserve members will look at when they convene at the September FOMC meeting.

silver August 27

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Wishing you, as always, good trading and good health.

Gary Wagner

 

Gold Remains Above the 50-day Moving Average as Traders Await Powell’s Speech

As of 6:01 PM EST gold futures basis the most active December 2021 Comex contract is fixed at $1794.50 which is approximately $0.70 below the effective close in New York as gold now trades in Australia. In New York gold traded to an intraday low of $1781.30 and a high of $1800.40.

gold August 26

Traders are hoping to get insight from Chairman Powell in regards to the timeline to taper their asset purchases of $120 billion monthly. Currently the Federal Reserve is allocating $80 billion each month for U.S. Treasuries, and $40 billion monthly to purchase mortgage-backed securities (MBS). The question is whether or not Chairman Powell indicates a timeline or onset of tapering and if he tempers the hawkish tone that was contained in the recently released minutes of last month’s FOMC meeting.

USDX August 26

The less than accommodative tone that came out of the last FOMC meeting was based upon good economic growth in the United States coupled with strong employment figures from the latest jobs report. The last jobs report by the Labor Department indicated that there were an additional 943,000 new jobs added in July. However, they did not take into account the Delta variant, which is ravishing parts of the United States. This is because the Covid-19 Delta variant was not as troublesome then as it is now.

Gold and silver will most likely react based upon what Chairman Powell says and how his statements are reflected dollar strength or weakness as well as yields in U.S. debt. If, as many analysts believe, the Federal Reserve is forced to take a step backwards because of the effect that the Delta variant is having on economic growth it would be an exceedingly bullish factor for gold and silver.

Chairman Powell mentioned during his last speech that each subsequent wave of Covid-19 infections seems to have less of an impact on the economy. Recent data indicates strong GDP growth, and a report showed that the second-quarter GDP rose to 6.6% from its initial reading of 6.5%.

These recent fundamental events showing real growth and the potential for a genuine economic slowdown due to the Delta variant are two opposing forces is something the Fed will have to look at. Traders will also look for him to address exceedingly hot inflation. The Federal Reserve will continue to have to walk a tight rope between both the positive economic data, and the potential for the rise in Covid 19 cases to have a genuine impact upon the economic recovery. Gold should trade in a narrow range up until Chairman Powell speaks tomorrow.

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Wishing you, as always, good trading and good health.

Gary Wagner

Gold Gives Up Recent Gains as the Nasdaq and S&P 500 Trade to New Record Highs

This might have prompted short-term traders to pull profits after Monday’s price surge, which took gold prices back above $1800 per ounce.

Gold August 25

On Monday, gold opened just above $1780 and closed at $1806 in brisk trading. This was followed by Tuesday’s price action, which included a higher high and a higher low than Monday. However, on Tuesday, gold futures were unable to close above the 100-day moving average (currently fixed at $1809.50) which on a technical basis has served as the first level of resistance, followed by major resistance, which occurs at the 200-day moving average, which is currently fixed at $1812.50.

This would have prompted short-term futures traders to pull any profits they obtained if they entered the market on Friday of last week or this Monday. This is being cited as one of the primary forces which took gold lower today. It is also important to note that market sentiment continues to favor the risk-on asset class as U.S. equities continued to rally into Wednesday’s trading session.

New record highs were achieved in the NASDAQ composite today, which gained 22 points (+0.15%), closing at 15,041.8585. The NASDAQ’s new record high occurred in conjunction with a new all-time high in the S&P 500 which gained 9.96 points (+0.22%) and is currently fixed at 4496.19. Although the Dow Jones industrial average gained roughly 1/10 of a percent in trading today it is still trading below the record high that was achieved on Monday, August 16.

As reported by CNBC, Bart Melek, head of commodity strategies at TD Securities said, “There has been a boost in risk appetite and the dollar has also climbed up resulting in some consolidation in the metal.” He also said that some investors were taking profits on positions in gold.

The U.S. dollar traded to a high of 93.14 before closing down by almost 1/10 of a percent and is currently fixed at 92.82.

A CNBC analysis wrote that “Investors remain divided over whether they will get a roadmap on when the U.S. central bank may start trimming its bond-buying program and if Powell would tone down the Fed’s hawkish tone, in turn helping gold.” The article also quoted Michael Matousek, head trader at U.S. Global Investors , “The longer-term (gold) holders are on the sidelines right now, until they get a little clarity out of the Jackson Hole (Symposium).”

While we acknowledge the division amongst investors regarding what Chairman Powell will say during his speech on Friday, if the Federal Reserve’s action continues to be based on the most recent data it would be hard to conceive that they would ignore the data involving the recent surge of the Delta variant as it spreads unevenly throughout the United States. The recent surge in new infections undoubtedly will have economic repercussions which should temper the more hawkish tone acknowledged in the minutes of the last FOMC meeting released last week.

As of 5:32 PM EST gold futures basis, the most active December 2021 Comex contract is down $15.60 and fixed at $1792.70, approximately $1.00 below gold’s 50-day moving average.

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Wishing you, as always, good trading and good health.

Gary Wagner

Gold Hovers Above $1800 as Investors Await Powell’s Speech on Friday

As of 4:53 PM EST gold futures basis, the most active December 2021 Comex contract is trading off by $1.10 and currently fixed at $1805.20. Gold traded to an intraday high today of $1812.20, just below gold’s 200-day moving average, fixed at $1813.30. Gold’s current price of $1805.20 puts it below the 100-day moving average currently set at $1808.90.

Gold August 24

In the interim, the long-term moving averages on a technical basis provide an area for resistance.

Monday’s price surge took gold from approximately $1780 to pricing above $1800 is signaling that many traders are positioning themselves for a more dovish tone from the Federal Reserve Chairman when he virtually addresses members of central banks worldwide at the Jackson Hole Economic Symposium. The release of July’s FOMC meeting indicated a more hawkish tone than perceived before the release of the minutes. That tone may have diminished as some of the more hawkish Federal Reserve members seemed to address the Delta variant as an event that might cause them to temper their stance.

As we mentioned in yesterday’s opening letter, at least two presidents of Federal Reserve banks seemed to temper their hawkish stance and statements last week. Rob Kaplan, President of the Dallas Federal Reserve bank, and Neel Kashkari, the Minneapolis Federal Reserve Bank president, made such statements. With Kaplan saying that he may “rethink his call for the Fed start to taper its 120 billion per month and bond purchases if it looks like the spread of coronavirus Delta variant is slowing economic growth.” And Kashkari saying that the “COVID-19 delta variant matters a lot” in the upcoming Federal Reserve debate about when to start to slow down the $120 billion in monthly bond purchases.

Since the onset of the pandemic, the Federal Reserve has stated that its decisions are data-dependent. This is what makes Chairman Powell’s job extremely difficult is conflicting data from the Labor Department’s July jobs report showed that the U.S. economy that was recovering and simultaneously data about the alarming uptick of Covid infection rates due to the Delta variant remains a potential wrench that could greatly undermine that economic recovery.

For that reason, it is highly likely that Chairman Powell will make no major announcement as to the timeline in which the Fed will begin to taper its monthly asset purchases. He will likely address both the economic recovery regarding additional jobs being added and the potential for the Delta variant to slow that recovery down. I believe this will cause Fed members to wait until the FOMC meeting in September to announce any tapering timeline because they will have the latest figures of the August 2021 jobs report and the current effect of the Delta variant in regards to the economic repercussions the variant has caused.

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Wishing you, as always, good trading and good health.

Gary Wagner

 

Future Uncertainties Are Supportive of Gold, but Dollar Strength Keeps Prices Muted

Market participants continue to be faced with uncertainties, uncertainty about the timeline for future Federal Reserve changes in their monetary policy, uncertainty about the length and damage the new Delta variant of Covid-19 has had on human lives and economic regrowth, and uncertainties surrounding the Taliban take over in Afghanistan.

daily gold

Although these uncertainties continue to weigh heavily on the minds of market participants and support gold prices, gold has not been able to break above $1800. After last week’s dramatic sell-off and recovery in gold pricing, investors and traders in the precious yellow metal were able to move gold to a higher high, a higher low than last week, and an extremely fractionally higher close when compared to Monday’s opening price. Gold futures basis the most active December 2021 Comex contract opened on Monday at roughly $1780.10 and is currently trading down $0.40 and fixed at $1782.70.

weekly gold

Today the dollar traded to the highest value intraday, hitting a high of 93.75. However, as of 5:00 PM EST, the dollar index is currently down approximately 11 points (-0.12%) and fixed at 93.475. The dollar index traded to its highest closing value yesterday and ended the week with significant gains of just under 1% to achieve the highest closing weekly value in 2021.

US dollar daily candlechart(3)

That being said, the current value of the dollar index is far below the highs witnessed in March 2020 when the dollar traded just above 103 during the week of March 16, 2020.

US dollar weekly candlechart(2)

Another factor in containing any major continuation of the last rally in gold is a reignited interest in cryptocurrencies such as bitcoin and Ethereum. Bitcoin futures gained $2042 in trading today, a net gain of 4.33%, with a single coin currently fixed at $48,720. Ethereum gained 3.49 % in value today, with a single coin currently fixed at $3265. Recent increases in the price of these major cryptocurrencies have resulted in investors moving some of their speculative dollars out of the safe-haven asset, gold, and into digital currency speculation.

As for now, traders await Federal Reserve Chairman Powell’s speech that will be given on Friday, August 27, to glean insight as to the most recent monetary policy changes planned by the Fed. These changes will most likely be addressed next week, but any concrete timeline to when the Fed begins to taper its monthly asset purchases will likely occur at the next FOMC meeting in September.

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Wishing you, as always, good trading,

Gary Wagner

The Markets Analyze FOMC Minutes and Await the Start of the Economic Symposium in Jackson Hole

As of 4:30 PM, EST gold futures basis’s most active December 2021 contract is currently trading off by two dollars and is fixed at $1782.40. Gold futures opened at $1789.50 and traded to a low of $1774.60 and a high of $1795.

gold August 19

An exceedingly strong U.S. dollar dwarfed gold’s drawdown of 0.11%. The dollar gained almost ½ a percent (0.47%), gaining a total of 0.436 points, and is currently fixed at 93.58. On a closing basis, the dollar index is at its highest trading value this year. The dollar index reached 93.48 at the end of March 2020 and from there traded sharply lower until it found support at 89.525.

USDX August 192021

In exactly one week, central banks members globally, including Federal Reserve members, will meet at Jackson Hole, Wyoming for the annual Economic Symposium. While it is widely anticipated that market participants will gain more insight into the current thought process of Federal Reserve members including when they will begin to taper their monthly asset purchases of $120 billion of Treasuries and MBS (mortgage-backed securities).

However, currently, the belief is that no concrete announcement will be forthcoming from the symposium as Federal Reserve members await the Labor Department’s jobs report from August 2020 to determine if their criteria of “substantial progress” of new jobs being created. For that reason, many analysts believe that any concrete announcement with timelines for the onset of tapering will occur at the September FOMC meeting.

The minutes from last month’s FOMC meeting conveyed that the majority of Fed officials believed it was time to begin to normalize their exceedingly accommodative monetary policy beginning with allocating less capital monthly to their asset purchases. At the same time, it is not widely believed that we will immediately see any interest rate hikes this year, and most likely remain where they are at least for the first three quarters of 2022.

The current “dot plot” indicates that there will be no interest rate hikes until 2023. However, the Fed has been adamant that the economic data will guide the Federal Reserve’s mandate and determine when it is time to begin to normalize their monetary policy to reflect the post-pandemic economy.

The only large caveat to the recent reports suggesting strong economic growth, such as the decline in U.S. jobless claims, as well as the last month’s report that showed that the leading economic index jumped by 0.9% last month is the unknown in regards to the new Delta variant of Covid-19. The new Delta variant has been ravishing parts of countries worldwide, including the United States. John Hopkins University of medicine reported that as of Friday, August 13, the number of Covid-19 cases had exceeded 205 million individuals, including 4.33 million people who have died from contracting the virus.

For those who would like more information, simply use this link.

Wishing you, as always, good trading,

Gary Wagner

 

Minutes of the Federal Reserve’s last FOMC Meeting Contain Multiple Insights

One of the most noteworthy takeaways from the minutes was that the majority of Federal Reserve officials thought it would be correct to begin to reduce their purchases equaling $120 billion each month.

Fed members who were in favor of beginning to reduce the amount of U.S. Treasuries and mortgage-backed securities each month believed that the Federal Reserve’s mandate which requires “substantial further progress” has for the most part been met.

Although the minutes indicated that the majority of the 19 top Federal Reserve officials believe that it is time to plan out the tapering process, by no means was it a unanimous consensus. There were also sharp differences in regards to the timeline as to when to begin the process.

While Chairman Jerome Powell may provide more insight as to when the Federal Reserve will begin the process of winding down their monthly purchases of treasuries and MBS at this month’s Economic Symposium at Jackson Hole, Wyoming, it is more likely that an official announcement of when tapering will begin to occur during the September FOMC meeting. This will enable the Federal Reserve to use the data provided from the August jobs report set to be released on September 3. It is believed that if the next jobs report shows continued strong growth it will pave the way for an official announcement as to when tapering will begin.

The minutes also indicated that there are still divisions among members as to when they should begin to taper. According to Ian Shepherdson, chief economist at Pantheon, “The “divergent views and uncertainty suggest tapering announcement will come no sooner than November.”

MarketWatch reported that “Several” Fed officials said they thought a reduction in the pace of purchases should not start until next year. Also, in the cautious camp. a “few” Fed officials cautioned that debate over tapering should consider that the spread of the delta variant could cause delays in returning to work and school and damp the economic recovery.

The delta variant of Covid-19 was mentioned six times in the minutes acknowledging a real concern for the lingering effects and the risks to the economy as a result of the delta variant. One concern was that the variant would prolong shortages and keep inflation high into 2022. The minutes also address the fact the variant would prolong the delays of a full reopening of the economy in the United States.

Jeffry Bartash, a reporter for MarketWatch in Washington said, “The economy is growing at an accelerated pace, but Fed VIPs also highlighted the fresh uncertainty posed by the delta variant and the possibility that it could exacerbate widespread shortages in the economy that are constraining growth. These shortages have also contributed to big price increases and the highest rate of inflation rate since 2008.

While gold did move off of its lows after the release of the Fed minutes, gold futures closed out the trading day with a fractional gain of $2.20. As of 5:45 PM, EST gold futures basis’s most active December contract is currently fixed at $1790. Our technical studies indicate that three levels of resistance occur at the 50-day moving average ($1801.50), the 100-day moving average ($1805.50), and major resistance at the 200-day moving average which is currently fixed at $1815.60.

gold August 18

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Wishing you, as always, good trading,

Gary Wagner

Gold Futures Traded to $1797.60 and then Closed Lower on the Day

As of 4:32 PM EST December, futures are currently trading off by $2.90 and fixed at $1786.90, a net decline of 0.16%.

gold August 17

Dollar strength was the largest contributing factor to today’s decline in gold prices. The dollar gained 0.526 points, or 0.57%, and is currently fixed at 93.145. Dollar strength negated any potential gains realized from buyers bidding the precious yellow metal higher. So the question becomes what underlying forces drove the dollar substantially higher today.

Dollar strength is still reacting to an exceedingly strong U.S. jobs report. Many analysts have cited the Labor Department’s jobs report as a significant underlying force prompting investors to buy the U.S. dollar. On Friday, August 13, the Labor Department reported that nonfarm payrolls increased by 943,000 jobs in July. This robust number exceeded economists’ expectations polled by Dow Jones, who projected that July’s additional jobs would come in at approximately 845,000.

Many market participants have adjusted their market sentiment on the Federal Reserve’s monetary policy, believing that their current accommodative stance will diminish and become more hawkish. According to CNBC, “The Federal Reserve is expected to dial back monetary easing and slow its stimulus efforts as the economy recovers from the pandemic. The U.S. central bank has held rates near zero, but officials have signaled that hikes could happen soon, especially with inflation running hot.”

More and more Federal Reserve members are voicing that it is time for the Fed to begin to normalize the highly aggressive and accommodative monetary policy necessary to aid growth in the U.S. economy after the pandemic had virtually shut down the country for over a year.

In an interview with the Associated Press, Eric Rosengren, President of the Federal Reserve Bank of Boston, said that “The central bank should announce in September that it will begin reducing its $120 billion in purchases of Treasury and mortgage bonds fall.”

Recently the Washington Post reported that “The Fed’s ultraloose monetary policy could hurt both the economy and Biden’s agenda.” The Post’s article mimics the opinion of both Mohamed A. El-Erian is president of Queens College at Cambridge University, a professor at the University of Pennsylvania’s Wharton School, and an adviser to Allianz and Gramercy.

In the Washington Post article, El-Erian said, “It would be understandable and conventional to assume that the ultra-dovish monetary policy that the Federal Reserve continues to pursue a year and a half after the onset of the pandemic is contributing to a strong, sustainable and inclusive recovery. This may no longer be the case. Instead, it is increasingly putting at risk, not just the recovery but also President Biden’s transformational economic agenda.”

The actions by the Federal Reserve have doubled their balance sheet, now totaling $8 trillion. Add to that fiscal stimulus by the United States government has caused our national debt to rise tremendously. As of September 2020, the national debt had risen to $26.95 trillion. That number most certainly has increased substantially and now raises the question about raising our current debt ceiling. Janet Yellen the Secretary of the Treasury has urged Congress that without raising the debt ceiling it is likely that the United States for the first time in history would be unable to service its debts.

Chairman Jerome Powell has acknowledged that the current path of expenditures is unsustainable. Given those facts, it will no longer be easy to kick the can down the road in regards to letting our national debt continue to grow without there being severe repercussions further down the road.

For those who would like more information, simply use this link.

Wishing you, as always, good trading,

Gary Wagner

 

What to Expect from the Federal Reserve during this Month’s Economic Symposium in Jackson Hole

However, it will be later this month at the Jackson Hole, Wyoming Economic Symposium, when we will gain the freshest insight into the current thinking of Federal Reserve members.

According to the Wall Street Journal, it is widely believed that Federal Reserve officials are coming closer to a consensus of the timeline they will implement to begin tapering their asset purchases. “Federal Reserve officials are nearing an agreement to begin scaling back their easy money policies in about three months if the economic recovery continues, with some pushing to end their asset-purchase program by the middle of next year.”

The Wall Street Journal article cited recent interviews coupled with public statements. Several Fed members have advocated the initiation of tapering their monthly purchases of $80 billion of U.S. debt and $40 billion of mortgage-backed securities. Fed members began to allude to a timetable to scale back their quantitative easing purchases, which were adopted at the start of the pandemic. At the end of July, the signal was that this process could start later this year.

The best current estimates anticipate that the Federal Reserve will begin to taper their monthly purchases by the middle of 2022. “In recent interviews and public statements, several have advocated for this timetable, which would enable them to raise interest rates sooner than currently anticipated if the economy makes rapid progress toward their goals.”

At a news conference on July 28 held by Federal Reserve Chairman Jerome Powell, he stated that the Fed was still “a ways away from considering raising interest rates. It’s not something that is on our radar screen right now.” However, with the most recent jobs report indicating an additional 900,000 new jobs were added, that could certainly strengthen the case for the Federal Reserve to make some concrete announcement at its next FOMC meeting on September 21 and 22.

Concurrently many Fed members believe their actions will be more aggressive. With Chicago Fed President Charles Evans said, “I do expect we are going to be at the point where we’ve seen substantial further progress…probably later this year,” in a virtual roundtable with reporters last week. In an interview, Boston Fed President Eric Rosengren said that he anticipates meeting enough job growth to meet the criteria for reducing bond purchases by the September 21 – 22 FOMC meeting.

However, other Fed officials have argued for more patients. The Wall Street Journal reported that, “Fed governor Lael Brainard indicated last month she wanted to see September hiring data, which won’t be available until early October, before deciding. That would hold off any tapering until no sooner than the Fed’s Nov. 2-3 meeting.”

This was in line with the thoughts of San Francisco Fed President Mary Daly, who said in an interview last week that she thinks the economy should support “beginning to taper later this year, or maybe next.” Labor markets are “really strong—getting stronger,” she also said it was too soon to say how the Fed should reduce the purchases. “Those things haven’t been decided,”

With such a diversity of opinions and mixed messages by Fed members, the economic symposium will certainly give market participants the latest insight into the potential timetable when the Federal Reserve begins to taper its asset purchases. Because of the diverse opinions of Fed members, market participants could gain insight into the nuances of what members are thinking and how they plan to move forward.

gold August 16

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Wishing you, as always, good trading,

Gary Wagner

Gold Continues to Rally Now Just $19 Shy of $1800

Today we saw another 29 dollars taking gold prices substantially higher. As of 5:34 PM EST, Gold futures basis the most active December 2021. Comex contract is currently fixed at $1781.50, after factoring in today’s net gain of $29.70.

gold chartwww

Today’s continuation to the upside is a result of dollar weakness, as well as data released by the University of Michigan consumer sentiment index, which fell to 70.2 in August. This is the lowest level since the most difficult period of the pandemic in April 2020. In July, the consumer sentiment index was at 81.2.

According to Brian Lundin, editor of the gold newsletter and reported by MarketWatch, “Gold futures had become “oversold” following sharp losses last Friday and on Monday. The rebound in prices seen since then is “largely due to investor recognition that the crash was simply short-term market manipulation and no real reflection on the supply/demand dynamics for the metal.” He also told MarketWatch that, “the market has also seen “growing concerns over the delta variant and the economic repercussions from its spread, as evidenced by the dramatic fall in consumer sentiment” reported Friday. It’s all contributing to a general view that gold is undervalued at these levels.”

Unquestionably gold pricing has been more volatile than we have seen in recent months as a result of two opposing forces. The strength of the global economic rebound which is occurring concurrently with a rebound of the infection rates of the delta variant of the Covid 19 virus. Add to that the current uncertainty as to when the Federal Reserve will begin to taper and return to a pre-pandemic monetary policy in terms of asset accumulations. Currently the belief is interest rates will remain between zero and 25 basis points most likely until the beginning of 2023. However, many analysts believe that the Federal Reserve will begin to taper its quantitative easing monetary policy early next year. While not much is expected to come out of the Jackson Hole Economic Symposium scheduled to begin on the 26th of this month. However, it is widely believed that real timelines for the beginning of tapering will be presented at one of the two remaining FOMC meetings this year.

According to Jeff Klearman, portfolio manager at Granite shares, Most of the move higher more recently for gold this week is due to increasing inflation concerns in light of the Fed “maintaining its ultra-accommodative monetary policy in the belief current high inflation is transitory,”

speaking to MarketWatch, he said that, “Extremely low and negative real yields, reflecting expectations of continued accommodative monetary policy, support gold prices because they eliminate the opportunity cost of holding gold while increasing gold’s safe-haven desirability due to possible upside.”

Unquestionably this has been one of the greatest tests of the global economy’s ability to recover from a severe and devastating pandemic. There has never been a time in history when central banks worldwide provided such a tremendous amount of capital to support the economies of their countries. Only time will tell what repercussions the increased expenditures and mounting debt will have on the global economy.

For those who would like more information, simply use this link.

Wishing you, as always, good trading,

Gary Wagner

Could We See Gold Enter a Corrective Upside Bounce?

First and foremost are fundamental events. In the case of equities events such as earning reports, share prices versus forward earnings, and forward guidance are critical components of the necessary information the astute investor uses to guide his or her investments. For the financial market, participants use economic indicators to gain insight to gauge the overall state of the economy. Some of the most important indicators are GDP (gross domestic product), employment figures, consumer spending, inflation, and interest rates.

The second essential method to the use of technical indicators such as moving averages, candlesticks, retracements, Bollinger bands…

gold EW bear count August 12

The third method used by an investor is market sentiment. Investopedia says “Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.”

bear c

It was the “crowd psychology” that market technician R.N Elliott attempted to mathematically quantify when he created “the wave principle” in 1938. His theory relies on the assumption that price changes occur in a cycle that is repeated and can be identified through pattern recognition. This technique is used whether a market is in a bullish or bearish trend. Simply put, the theory expounds that the trend of a stock or commodity will unfold as a total of eight waves. The first five waves will move in the prevailing trend is called the impulse phase. This will be followed by a corrective phase (typically three waves) that will move in the opposite direction of the current trend.

EW Bear count

In the case of gold, our current technical studies indicate that a bullish cycle concluded at the beginning of March 2020 after completing an A, B, C correction. The first part of the bearish cycle or bearish Elliott wave count began as a corrective upside move (A, B, C) taking gold from $1670 to $1920 in June 2020. What would follow is an impulse phase which is composed of five waves with waves 1,3,5 moving in the primary trend, and to counter waves in the opposite direction of the primary trend, waves 2 and 4.

Our studies indicate that the major drop that occurred following the release of last month’s jobs report completed the fifth and final wave of the impulse phase. If correct, that would mean we are about to enter a corrective period in gold which could take pricing higher.

There are two major caveats to the Elliott wave principle, first, it is not accepted by many prominent market analysts. Many analysts use and implement this theory as a key component used to forecast markets, and many analysts remain skeptical and favor a more traditional technical approach to market forecasting.

Secondly, it is a technical study that is both an art and science in that there is room for interpretation. This technical study is not as black-and-white as a moving average or a stochastic indicator which have defined parameters that will allow all market technicians to obtain the same conclusions.

That being said, after working with this technique for over 25 years and combining it with Fibonacci ratios and Japanese candlestick pattern recognition I found it to be an extremely insightful tool in my technical toolbox.

For those who would like more information, simply use this link.

Wishing you as always, good trading,

Gary Wagner

Thegoldforecast.com

Sentiment for Gold, Is the Glass Half Empty or Half Full?

Recently an extremely robust jobs report shifted market sentiment, not to half-empty but almost empty. Market sentiment is once again slowly shifting back to a glass-half-full. Two major fundamental events have precipitated this shift in market sentiment from extremely bearish to cautiously bullish.

Reuters reported today that the United States continues to allocate huge amounts of capital that resulted in a budget deficit for July of $302 billion. That is a record deficit for July. It is largely based upon continued spending to provide relief for those affected by the Covid-19 pandemic, coupled with reduced receipts (tax income). Only $262 billion (a 54% decline) were received in taxes in July. This is down 10% from the same period last year…

Although the current deficit in the United States is down 10% when compared to a year earlier, the U.S. spent $2.54 trillion in the first ten months of 2021. During the first ten months of 2020, the deficit grew by $2.807 trillion.

Statements from the U.S. treasury remain guarded when asked about the effects of the July budget deficit. Reuters reported that “The Treasury official declined to comment when asked whether the July budget results would alter the department’s forecasts on when the federal government would exhaust extraordinary measures to continue borrowing under the statutory debt limit of $28.4 trillion.”

The second issue that has seemed to favor a more bullish market sentiment in regards to gold pricing is recent data on consumer pricing. MarketWatch reported that “Data on consumer prices showed that inflation in July remained at up 5.4% for the second straight month, marking a 20-year high, the Labor Department said Tuesday. Meanwhile, the consumer-price index climbed 0.5% in July from June, a slower pace than its 0.9% increase in June from May.

On Tuesday, the Labor Department said that the PCE inflation index rose 0.3%, slightly below expectations taking the 12-month rate from 4.5% (a 29-year high) to 4.3%. Yields on the 10-year Treasury note declined slightly from 1.34% to 1.32%.

Lastly, there seems Federal Reserve members are split as to the best time to begin tapering their asset purchases. On Wednesday, Dallas Federal Reserve President Rob Kaplan said that he would press his colleagues at the central bank to announce a plan to taper bond purchases at its next meeting in late September. Also, Kansas City Federal Reserve President Esther George said that “the time had come to end the central bank’s bond-buying program.”

This differs from the opinion of Charles Evans, President of the Chicago Fed, who said that although the economy has made substantial progress, he was not ready to support announcing a tapering of purchases in September. Speaking to reporters on Tuesday, he said that, “I’d like to see a few more employment reports.”

MarketWatch reported that on Monday, “Boston Fed President Eric Rosengren became the latest official to back a September announcement of a plan to reduce its $120 billion in monthly purchases of Treasury- and mortgage-backed securities later in the fall.”

As of 4:51 PM EST gold futures basis, the most active December 2021 Comex contract is up solidly with gains of $21.40 (+1,25) and currently fixed at $1753.30. At least for today, it seems as though market participants are viewing their current sentiment for gold as a glass-half-full.

gold august 11

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Gold- The Big Bang

This was the first day when gold traded on an intraday basis below its 100-day moving average, which is currently fixed at $1803. On Wednesday, August 4, gold futures traded to an intraday high of $1836.10 before settling, in essence, unchanged near the lows of the day.

gold daily

The immediate uptick in prices was a knee-jerk reaction to the ADP jobs report, which came in exceedingly under forecasts by economists polled by Dow Jones. While it was anticipated that ADP’s report would indicate over an additional 600,000 were added in July.

However, the actual numbers revealed that only 330,000 private-sector jobs were added. The highs achieved early in trading were certainly not sustainable and were a precursor to the carnage that would follow over the next few days.

The Big Bang, as gold prices plunged, began on Friday, August 6, the day the U.S. Labor Department released its nonfarm payrolls jobs report for July. Dow Jones polled economists resulting in a forecast that over 800,000 new jobs would be added to payrolls last month. The actual number came in well above estimates and over 900,000.

gold weekly

The net result for gold was that it opened at $1806 and closed substantially lower by the end of trading on Friday at $1763. But it was the activity that occurred overseas that took gold prices to a low not seen since the double bottom that occurred at the beginning and end of March 2021. On Monday in Australia and Hong Kong (Sunday in Hawaii and the mainland ), gold futures plummeted to an intraday low of $1677.20. However, just as the high that occurred on August 4 was unsustainable, so was the extreme low created on August 9. Gold recovered $68 from the lows and settled at $1725. Today’s trading activity was truly an inside trading day with gold prices basis the most active December 2021 futures contract gaining $3.30 (+0.19%) and fixed at $1729.80, a fractional gain at best. It also closed within $0.10 of its opening price which was $1729.70.

One takeaway from the recent deep price decline, according to Craig Erlam, senior market analyst at Oanda was that he believes that “Gold has stabilized after a turbulent start to the week.” But it was his comment about this recent decline limiting more downside once tapering begins saying that, “One thing that may limit downside is that a taper” of the Federal Reserve’s asset-purchase program “is so heavily priced in now, that we could see diminishing effects from the ongoing hawkish commentary from Fed figures.”

However you want to spin the recent dramatic price decline in gold, it is clear that this is the most important economic report that the Federal Reserve will have as a basis to discuss any changes in their monetary policy at the Jackson Hole economic symposium in Wyoming at the end of August. While one extremely strong jobs report might not be enough for the Federal Reserve to immediately begin to taper, strong jobs report in August could certainly seal the deal. We could have more concrete information about a timeline begin tapering at the end of August after the Jackson Hole economic symposium. At the same time, gold sold off so dramatically, it seems highly likely that any announcement of tapering is at least partially baked into current pricing if not completely factored into current pricing.

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Gary Wagner

Gold Continues to Fall but Recovers from Extreme Lows Overseas

Oh my mama told me there’ll be days like this – Van Morrison

Friday’s article was titled “Both gold and silver sustained major technical chart damage in trading today”. The major selloff that began on Friday continued as gold trading reopened on Monday morning (Sunday in Hawaii and the mainland) trading to a low of $1677.90, before slightly recovering from that dramatic low closing $68 off of the low. As of 5:04 PM EST gold futures basis, the most active December 2021 Comex contract is currently off by $31.50 and fixed at $1731.60.

Gold opened just $0.70 from the high of the day which was $1765 and had a virtual meltdown trading down $88 when it hit the low of $1677.90. Gold opened at $1805 on Friday and closed near its low of $1763.40 (Friday’s low was $1760) gold dropped $127.10 from Friday’s open to a low today.

gold daily august 9

The major damage created today occurred in Asia and as MarketWatch put it, “There was a “flash crash” in gold as prices briefly sank to as low as $1,684 an ounce in early Asian trading before recovering to about $1,732.30 down nearly 3% from last week’s price.”

gold 10 minute chart August 9

The Dow Jones estimate was that July would bring an additional 845,000 new jobs last month, with the actual number coming in at a robust 943,000 jobs added. Economists also forecasted that the unemployment rate would move from 5.7% to 5.5%, with the actual numbers coming in at 5.4%. The economic recovery in the United States has come a long way considering that the unemployment rate at the high of the pandemic was at 14.8%. Although the current unemployment rate of 5.4% is still above the pre-pandemic number of 3.5%, these numbers most certainly indicate a rapid economic recovery.

CNBC reported on Friday that, “Hiring rose in July at its fastest pace in nearly a year despite fears over Covid-19′s delta variant and as companies struggled with a tight labor supply, the Labor Department reported Friday. Nonfarm payrolls increased by 943,000 for the month while the unemployment rate dropped to 5.4%, according to the department’s Bureau of Labor Statistics. The payroll increase was the best since August 2020.”

Add to these stellar numbers average hourly earnings also increased more than expected and rose 0.4% for the month and are up 4% from the same period a year ago. While gold sold off steeply on Friday U.S. equities reacted extremely positively to the report and both the Dow Jones industrial average and the S&P 500 getting new record highs at the open of trading on Friday.

Almost every metric relating to employment in the United States showed strong gains with the labor force participation rate ticking up to 61.7%. This is the highest level since March 2020, the official beginning of the global pandemic. According to Robert Frick, corporate economist at Navy Federal Credit Union, “This not only was the jobs report strong by nearly every measure, but it also signals more good things to come,”.

One of the major differences between the tepid ADP report released on Wednesday, August 4, and the Labor Department’s nonfarm payroll report released on Friday was an extremely strong gain in new education hires of 261,000 new hires. Since the ADP report does not cover government employees this partially accounted for the huge differences in the numbers reported by ADP and the Labor Department.

Although the low in gold today matched the double bottom that occurred at the beginning and end of March 2021, and the $68 recovery off of the intraday low is respectable, many analysts are under the impression that there could be more downside ahead. This was reported by a regular contributor to MarketWatch, Mark Hulbert who reported that there is still not enough gloom to even trigger a contrary and by signal. The reason there is no contrary buy signal is that current market sentiment is not sufficiently pessimistic. And drawn from an average, “of gold market timers’ average recommended gold exposure level (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at minus 4.8%, which means that the average timer is allocating a small portion of his gold trading portfolio to going short. Past contrarian gold signals have come when the HGNSI was even lower.”

Lastly, one interesting component of today’s dynamic range is although the low matched the double bottom in March 2021 it closed at the 78% Fibonacci retracement which was created from a data set beginning at the double bottom at $1677, up to the recent highs at $1920. Whether it was short covering or traders buying the dip which move gold off of its lows is an unknown although it would seem more likely a direct component of traders taking profits on short positions.

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Gary Wagner

Both Gold and Silver Sustained Major Technical Chart Damage in Trading Today

Initial estimates by economists polled by Dow Jones were forecasting that July’s additional jobs would total above 800,000 individuals. While the vast majority believed that we would see a major uptick in the number of new jobs added last month, there were quite a few analysts that had the contrary approach believing that the actual numbers would come in well under expectation. Unquestionably, the majority of economists polled by Dow Jones were spot on in their forecast.

The net result of today’s selloff took gold pricing to the worst daily weekly slide over the last seven weeks. Aided by dollar strength and 10-year U.S. Treasury. Today’s extremely strong jobs report month certainly diminished the demand for precious metals and safe-haven assets as a whole.

gold august 6

Gold prices had been in a slow and methodical decline although trading in a narrow range it undoubtedly had a bias to the downside today’s action topped even the tepid declines witnessed this week in both gold and silver. The U.S. Labor Department reported that new jobs added in July showed a re-economy in recovery with an additional 943,000 nonfarm payroll jobs added last month. This came in well above expectations as analysts had predicted that 845,000 jobs would be the total number of jobs added last month. Economists also called for a downtick in the unemployment rate from 5.9% to an estimated 5.7%. Economists underestimated the actual number indicating that the unemployment rate had dropped to 5.4%.

Chart_21-08-06_12-21-29 silver August 5

With a solid indication that the U.S. economy is improving dramatically even though there are major issues such as a recent surge in the Delta variant of the Covid-19 virus which has plagued certain states in the country. This coupled with recent surges in inflationary pressure also could be highly supportive of the precious metal with one major caveat, that the Federal Reserve is not 100% correct in believing the vast majority of these recent inflationary pressures are transitory and will subside over time. While it is logical to understand while supply chain bottlenecks and many businesses lacking the proper staffing to fully operate their businesses, there are items such as energy and to a great degree food costs that could most certainly last longer than the Federal Reserve anticipates. In an interview with Kitco news Anna Golubova, RJO Futures senior commodities broker Daniel Pavilonis said that “This job number is bullish for the U.S. dollar and is pushing rates higher, which has an inverse reaction for gold.”

This will certainly cause many precious metal analysts to rethink their current assessment and models as to the future price of gold. If the next jobs report is as robust as July’s report came in we could expect a real potential for the Federal Reserve to revamp and modify not only their timeline for tapering but their timeline for normalizing interest rates.

However, this could have an unexpected effect. If the Federal Reserve begins to taper much sooner than expected, and or raises rates in a timeline much more rapid than they have recently stated it could cause dynamic pressure on U.S. equities taking them lower and possibly even being the impetus that would cause the major indices would experience one of the first deep corrections in years. A correction is when an index or stock loses 10% of the value from the most recent highs. This could create a new incentive for market participants to reevaluate adding safe-haven assets to their portfolios to protect their capital.

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Analysts Differ on their Forecast for Tomorrow’s Jobs Report

The Fed has underscored that their decisions in terms of when they will begin to taper, as well as normalizing interest rates, are tied directly to the state of the economy. More so, they have adjusted their dual mandate which was to facilitate full employment and maintain a target inflationary rate of 2% to focus upon full employment while letting inflationary rates run hot. Their rationale is that much of the current upticks in inflationary pressures are transitory and will be alleviated as the country continues to rebound returning to a much more robust economy.

While there are many analysts that question whether or not a majority of the higher inflationary rates might be sticky (sustainable) rather than transitory. The vast majority of analysts are in agreement that the supply chain bottlenecks created by the reopening of the economy will not be sustained and will likely abate as the economy strengthens.

However, even the Federal Reserve has acknowledged that inflationary pressures are much larger than they anticipated and may be present for a longer time than they originally predicted. They have also acknowledged that the current path of fiscal stimulus coupled with quantitative easing as well as interest rates near zero is unsustainable.

Currently, the CPI (Consumer Price Index) shows that currently, inflationary pressures have grown by approximately 5.5%. However, the Federal Reserve prefers to use the PCE index (Personal Consumption Expenditures Price Index). This inflationary index strips out changes in inflation in energy and food costs. That being said, according to the Bureau of Economic Analysis the PCE for June 2021 came in at 4% (Change year over year). Even though the Federal Reserve has said that they will let inflationary rates run hot, even Chairman Powell acknowledged that they did not expect the PCE to rise to double their current mandate.

This brings us to tomorrow’s jobs report by the U.S. Labor Department. Initial estimates by economists polled by Dow Jones are anticipating that tomorrow’s report will show an improved payroll growth as the unemployment rate falls. Currently, they are forecasting that the report will show that 865,000 new jobs were added in July versus the 850,000 new jobs added in June. They’re also forecasting a downtick of 0.02% in the unemployment rate from 5.9% in June to 5.7% in July.

According to Yahoo Finance, “U.S. employers likely added back the most jobs last month since August 2020, with payroll gains moving up in tandem with improving economic activity and consumer mobility during the recovery. Downside risks remain, however, especially as employers work through lingering labor shortages and the Delta variant tears across the country.” If these estimates are correct it would mark the largest employment numbers in nearly a year with the unemployment level falling to the lowest level since the onset of the Covid-19 pandemic in March 2020.

However, other economists greatly differ in their estimates for tomorrow’s report. Yahoo Finance reported that “though job growth will likely still be well above pre-pandemic trends, some economists warned that the consensus estimate for July’s payroll gains may be excessively upbeat. Since the June jobs report, the Delta variant has swept across the country, exacerbating many workers’ concerns over becoming infected in the workplace. Plus, difficulties finding childcare over the summer and the ongoing support of federal unemployment enhanced benefits have lingered, generating a confluence of factors that may have kept more individuals sidelined from the labor market.”

Alex Pella, a U.S. economist for Mizuho Securities USA, wrote in a note on Wednesday that, “Our view is that the street is overly optimistic and that both payrolls and the unemployment rate are likely to disappoint.” He also said that, “At a high level, trend is a powerful force. The three-month average of job growth is running near 570k per month, and 870k would represent a meaningful acceleration from that trend. Moreover, this would be occurring in the context of clear deceleration in growth momentum, especially for the U.S. consumer, which makes the prospect of such a marked acceleration even less likely.”

Brad McMillan, chief investment officer for Commonwealth Financial Network, wrote in a note that, “Beyond the rising medical risks, the job market also faces the question of whether the labor shortage is starting to get better…Medical risks make workers less likely to move back into the labor force, which is a headwind. But there were expectations that the expiration of federal supplemental employment benefits would start to force workers back, which would be an offsetting factor. One of the key takeaways from this report will be whether that shift is happening — as preliminary data suggests it is not.”

Lastly, although ADP’s private-sector report typically does not have a strong correlation to the Labor Department report which is released two days after the release of ADP’s report, over this last year there is been a much higher correlation between the two reports than in previous years. If that trend continues the disappointing numbers of ADP’s report yesterday which came in at a disappointing addition of just 330,000 private sector jobs being added compared to the initial forecast of an additional 690,000 jobs being added could spill over into July’s jobs report from the US Labor Department.

Paul Ashworth, the chief U.S. economist for Capital Economics, wrote in a note that, “If the ADP is to be believed and employment growth has slowed again, then that would support the doves who appear to want to wait until early next year to begin the taper.”

The importance of tomorrow’s jobs report cannot be underestimated in that it is the last employment data that the Federal Reserve will have ahead of the Jackson Hole symposium which will run from August 26 through August 28. Regardless of the Labor Department’s jobs report tomorrow it is clear that if the numbers come in at current forecasts it would create additional bearish market sentiment for the safe-haven class, gold. At the same time if it comes in well under forecasts as some analysts are anticipating it would provide strong bullish tailwinds for gold to move higher as it would force the hand of the Fed to expand their time frame as to when they will begin tapering their monthly asset purchases and raise interest rates.

Final gold Chart August 5

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ADP Jobs Report Comes in Well Below Expectations

Considering that private-sector jobs saw an additional 680,000 individuals added to the workforce in June, July’s number is the lowest number of jobs added since February 2021.

Estimates by Dow Jones anticipated an additional 653,000 private-sector jobs were added in July. According to ADP chief economist Nela Richardson, “The labor market recovery continues to exhibit uneven progress, but progress nonetheless July payroll data reports a marked slowdown from the second quarter pace in jobs growth.”

According to today’s report, the largest gains in private-sector jobs were in leisure and hospitality, which added 139,000 employees. Education and health services added 64,000, and professional business services increased by only 36,000.

The ADP private sectors jobs report collated in conjunction with Moody’s Analytics is always released two days before the U.S. Labor Department’s nonfarm payrolls jobs report. Historically the two reports do not always have a strong correlation. It has been noted by many analysts that numbers obtained in the ADP report can vastly differ from the numbers that are released by the U.S. Labor Department. However, in the case of this year, the two reports have had a much greater correlation than in past years.

The key difference between the U.S. Labor Department’s report and the ADP report is that the Labor Department includes U.S. government jobs added. Currently, forecasts for Friday’s jobs report are anticipating a gain of 845,000 new jobs added in July. If this forecast is accurate when added to June’s 850,000 jobs added, it would mean an additional 1.6 million jobs were added in the last two months.

However, according to Reuters, “That offset the ADP report showing private payrolls rose by 330,000 jobs last month, less than half of the 695,000 that had been anticipated by a Reuters survey of economists.”

According to CNBC, one explanation for the tepid ADP numbers is that new jobs added in July come, “amid concerns that the spreading delta variant could contribute to an overall climate that indicates the post-recession economic boom is slowing. Though the variant’s spread is largely concentrated among a handful of states where vaccinations are low, the total case count has eclipsed the peak of the original Covid spread and is sparking worries that it will slow activity.”

As of 5:24 PM EST gold futures basis, the most active December 2021 Comex contract was trading up $0.20 and fixed at $1814.30. With only fractional gains today, it is the intraday high that is most interesting. Upon the release of the ADP report, gold prices surged to $1835.90 intraday before giving up almost all of its gains to close, in essence unchanged. Since the Federal Reserve uses the data from the Labor Department’s jobs report as a key data set used to shape monetary policy, market participants will focus intently on Friday’s numbers. With expectations anticipating an extremely strong jobs report if the report comes in as weak as today’s ADP report as we could expect the Federal Reserve to continue to maintain its extremely accommodative and dovish monetary policy, which would be bullish for gold prices.

Gold August 4 2021

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This Week’s Jobs Report Will Set the Tone for the Next Steps from the Fed

However, recent action has been muted at best with small price changes from day to day, as well as from open to close. It seems as though market participants are waiting for the next big fundamental event which will be the U.S. Labor Department’s jobs report released this Friday.

Because the current monetary policy of the Federal Reserve is data-dependent, it is the jobs report that voting members will look at intently to get a sense of how the economy is rebounding. Therefore, traders and investors will look intently at the upcoming jobs report for July 2021, to get a sense of what the future actions and timeline of the Federal Reserve might look like.

According to Dow Jones, the jobs report for nonfarm payroll is currently forecasted to show that an additional 788,000 nonfarm payrolls were added last month. This would be a decline from last month’s jobs report for June 2021 which indicated that 850,000 new jobs were added in June. Furthermore, the unemployment rate is expected to decline by 0.2%, from 5.9% to 5.7%. It is also expected that average hourly wages will rise 3.9% year-over-year.

As reported by CNBC, Barry Knapp, Ironside’s macroeconomics director of research, expects that the next two monthly jobs report will come in strong, which would mean that the Federal Reserve would have the necessary data to announce that they are ready to start tapering on their asset accumulation of mortgage-backed securities and U.S. debt in September.

The CNBC article also stated, “That is an important step since it would be the first real move away from the central bank’s easy policies that were put in place in the pandemic. It would also mean the Fed would be open to raising interest rates once the tapering is completed.”

Barry Knapp believes that if the next two jobs report come in with strong numbers as far as U.S. equities are concerned, he is “in the camp where I think we’re going to have our first major correction. What we’re likely to get is at least 10% or more. It could really happen when they [Fed officials] make the announcement in September.”

A 10% correction in U.S. equities should have the opposite effect on gold pricing which would take the precious yellow metal substantially higher. It could propel gold prices back above $1900 per ounce.

As of 5:20 PM EST gold futures basis, the most active December 2021 contract is currently fixed at $1813.40 which is a net decline of $8.80 from the close on Monday. While anything is possible, we will likely see muted action in both U.S. equities, as well as the safe-haven asset class as market participants, await the next important fundamental events that will shape the future actions of the Federal Reserve.

Chart_21-08-03_12-01-39

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Gold’s First Trading Day of August Begins with a Whimper

As of 4:50 PM EST gold futures basis, the most active December 2021 Comex contract is trading in a lackluster manner, down $0.70, and currently fixed at $1816.50. Today’s range was also muted, with gold trading to a high of $1823.20 and a low of $1808.20.

december gold on August 2

According to Reuters, “Traders sent U.S. Treasury yields lower on Monday on a soft manufacturing report and as they positioned ahead of government funding plans. The benchmark 10-year yield was down 5.3 basis points at 1.1856% in morning trading, continuing a pattern of declines playing out since the spring. It touched as low as 1.184%, its lowest since July 20, shortly after a report from the Institute for Supply Management showed U.S. manufacturing continued to grow in July, but at a slower pace for the second straight month.”

The U.S. dollar is currently off by just over 1/10 of a percent basis the dollar index which is currently fixed at 92.08 after factoring in today’s moderate decline of approximately 11 points.

MarketWatch reported that Pierre Veyret, technical analyst at ActivTrades, in a daily research note wrote, “In fact, this appetite for bullion comes from investors cautiously monitoring the situation in China with the price further supported by a decreasing U.S. dollar.”

Last week gold experienced a dramatic price increase on Thursday following Wednesday’s conclusion of last month’s FOMC meeting. This pushed the precious yellow metal’s price strongly higher, above its 200-day moving average last Thursday, and then traded to an intraday high above its 50-day moving average on Friday. However, Friday’s trading activity gave back roughly half of its almost $30 gain from Thursday.

Globally the Delta variant of Covid-19 continues to be troublesome, with many countries experiencing major upticks in new cases being reported. Last week new cases of Covid-19 in the United States broke above 100,000 cases per day. The state of Louisiana today reported that it expects Covid 19 hospitalizations to reach their highest level in the pandemic on Tuesday, with close to 2,000 patients hospitalized today.

According to CNN News, “The Delta variant is wreaking havoc through much of the U.S., and an internal CDC document shows it spreads as easily as chickenpox.” On Sunday, Dr. Anthony Fauci, the top infectious disease expert in the United States, warned that more “pain-and-suffering” is on the horizon as the Delta variant of Covid-19 climbs.

This concern over the rising number of new infections from the Delta variant that Chairman Powell addressed during his press conference last week supported the current extremely accommodative and dovish monetary policy of the Federal Reserve. The Fed continues to keep interest rates between zero and 25 basis points (1/4%), as well as their monthly purchases of mortgage-backed securities and U.S. debt, adding $120 billion in assets each month to their balance sheet.

Although you would not know what from today’s trading activity and price movement in gold, the continued accommodative monetary policy of the Fed could pressure yields on U.S. debt instruments lower as well as the U.S. dollar. These factors should continue to create bullish undertones for gold prices.

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Inflation Climbs Higher, but Gold Closes Sharply Lower

However, it came in under analyst expectations and forecasts, which was one factor that took gold prices lower on the last trading day of July 2021.

The PCE price index rose 0.5% in June taking the one-year inflationary change to 4% according to the United States Bureau of Economic Analysis (BEA). It took a combination of four concurrent monthly major upticks in inflation to raise inflation to 4% over the past 12 months. The last time the PCE price index was at this level was in 2008.

pce july

The Federal Reserve’s target has been to maintain an inflationary rate of approximately 2%, this year the fed adjusted its mandate to focus on maximum employment and let inflation run hot. But the fact that inflation based on the CPI is at 5.4%, and now the PCE price index which strips out food costs in energy is double the Federal Reserve’s target it must be running hotter than the Fed expected.

During the press conference held by Chairman Powell this week, he acknowledged that inflation has risen much faster this year than he and other senior Federal Reserve members predicted. He also acknowledged that is possible that inflation “could turn out to be higher and more persistent than we expected.”

The Fed continues to maintain that the current inflationary rate is transitory because rising prices are almost entirely the result of the reopening of the U.S. economy. He blames much of the inflationary pressure is due to supply bottlenecks saying, “Supply bottlenecks have been larger than anticipated.” He also added that “Once these bottlenecks abate and the economy returns to normal.”

While some analysts agree with the Federal Reserve’s assumption that inflation is for the large part a transitory scenario, many analysts believe that the current uptick in inflation is not all transitory citing recent dramatic rises in food cost and energy.

Regardless of the statements by Chairman Powell inflation even using their preferred index which strips out food and energy costs, inflationary pressures are at a dramatic and alarming high. More importantly, because the Fed is assuming that inflation will likely slip back to a number closer to the Federal Reserve’s 2% target next year, if they are wrong, the implications would be alarming.

As of 5:51 PM EST gold futures basis, the most active December 2021 Comex contract is currently down $18.90 and fixed at $1816.90. On a technical basis, we saw a resistance enter the market as gold broke through both its 200-day moving average yesterday, but stalled just below the 50-day moving average. Today gold prices opened just above the 50-day moving average at $$1831.10. Today gold opened at $1832.50. Therefore, the 50-0day moving average is a critical price point that must be breached on a closing basis next week if we are to see the strong price increases witness yesterday marks the continuation of a rally next week.

July Gold July 29

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