Back To The Basics; Strong Dollar And Stable Treasury Yields Take Gold Lower

A strong U.S. equities markets which hit numerous all-time highs over the last six months and Bitcoin’s rising value being prevalent as causes for both gold and silver pricing to trade under pressure. However, it has been dollar strength, coupled with the recent rise in yields of U.S. Treasury 10-year notes that have been the most recent factors pressuring the safe-haven asset class.

According to Reuters, “Gold fell on Thursday as U.S. Treasury yields nudged up and the dollar hit a four-month high, denting the non-yielding metal’s appeal.”

As of 5 PM EST, the dollar is trading approximately 0.4% higher, with the dollar index currently up 0.355 points and fixed at 92.885. The last time the U.S. dollar traded at this value was the last week of October 2020, before dropping in November 2020. The dollar fell until the beginning of 2021, when it hit an intro week low just above 89.20.

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The 10-year Treasury notes have been rising since the first week of March when yields were just above 1.4%. Currently, the yield on the 10-year notes is fixed at 1.614%. Both a strong dollar and higher yields are occurring concurrently with stronger U.S. equities markets which had modest gains in trading today. The Dow Jones industrial average gained 199.42 points, or +0.62%, and is currently fixed at 32,619.48. Both the NASDAQ Composite and S&P 500 closed fractionally higher on the day. Collectively these three factors, dollar strength, higher yields, and strong U.S. equities, have contributed to pressuring both gold and silver pricing lower.

Today’s price action in gold certainly contained some intrinsic volatility. After opening at $1733.20, it sank to a low of $1720.30 and then quickly moved to its intraday high today of $1744.80 before once again trading under pressure. As of 5 PM EST, the most active April 2021 Comex contract was trading down by $7.80 (-0.45%) and fixed at $1725.40. Silver also closed in New York with a loss of approximately 0.4%. The most active May 2021 Comex contract is currently fixed at $25.14.

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On a technical basis, gold remains bearish. After hitting a low during the second week of March at approximately $1670, gold prices climbed to $1750 before consolidating and moving sideways and slightly lower. The three major moving averages are in complete bearish alignment.

This means that the 200-day moving average is at the highest value currently at $1859.70. The 100-day moving average comes in just below that price point at $1827.20, with the short-term 50-day moving average currently fixed at $1785.20. More alarming is they are once again beginning to show signs of divergence as the respective moving averages move farther away from each other in price. Currently, our technical studies indicate that there is major resistance in gold at $1768.80, which corresponds to a 50% retracement of the rally that began in mid-March 2020 when gold was trading at $1450 to the new record high achieved in August at $2088. Gold prices would have to move above $1768 before we had solid technical confirmation that the bulls have begun to regain control of price action. There is solid support for gold at $1680 to $1700.

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

Gary S. Wagner

 

Powell And Yellen Conclude Their Two-Day Congressional Testimony

In short, their testimony resulted in dollar strength as it did yesterday. Also, unlike yesterday, yields in 10-year U.S. Treasury notes declined slightly. The 10-year note is currently fixed at 1.617%, after being fixed at 1.629% yesterday.

However, the key difference between the two days of testimony was that gold was able to overcome market forces creating strong headwinds and close higher on the day, which did not occur on the first day of testimony by Powell and Yellin.

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As of 5:42 PM EST, gold futures basis, the most active April 2021 contract, is currently fixed at $1733.40, after factoring in today’s gain of $8.30 (+0.48%). Gains in gold pricing did not erase the 0.74% decline that occurred in trading yesterday. However, what was remarkable is that these gains occurred in conjunction with a stronger dollar.

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The dollar gained +0.30%, which is a total of 27 points and is currently fixed at 92.62. This was the second consecutive day in which the dollar closed higher. Yesterday the U.S. dollar closed higher as the dollar index gained 62 points or 0.68% in trading.

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The easiest way to illustrate the strong demand, which is the outcome of bullish market sentiment in gold against the tide of dollar strength, is to look at the KGX (Kitco Gold Index). According to the KGX, spot gold is currently fixed at $1734.60. This is a net gain in trading today of $6.90. However, dollar strength actually took $5 per ounce away from its value, but strong bullish market sentiment moved the precious yellow metal higher to the tune of $11.90, which is how gold ended up closing higher by $6.90 on the day when there was moderate dollar strength.

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Silver continued to spiral to lower pricing, although in percentage gains, there was not the strong selling pressure which resulted in a 2.63% decline yesterday. Today the most active May 2021 contract currently is fixed at $25.19, which is a decline of only 0.18%. Spot silver actually gained $0.05 in trading today and is currently fixed at $25.07. Just as in gold fractional or moderate buying took silver pricing $0.12 higher, with dollar strength taking away $0.07 of those gains resulting in a net gain in spot silver today of $0.05.

One of the primary topics that are at the forefront of the minds of market participants shaping their market sentiment is that although the United States is showing some economic growth, Europe continues to be plagued with continued issues from the pandemic. Germany, as well as Poland, are currently back in lockdown stages as they try to get a handle on the pandemic. America is not an island, and although we are showing some economic recovery, a global economic recovery will be absolutely necessary for the American economy to thrive. We live in a global trading economy in which all countries, to some degree, are dependent upon other countries to continue economic growth and expansion. America’s economy can only recover to a certain degree without the rest of the world being able to accomplish the same.

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

Gary S. Wagner

 

Powell And Yellen Begin Their Two-Day Congressional Testimony

In short, their testimony resulted in dollar strength which was the primary factor taking gold prices lower. As of 5 PM EST gold futures basis, the most active April 2021 contract is currently fixed at $1725.50, after factoring in today’s decline of $12.50 (-0.72%). Simple math determines that only 0.10% was attributable to market participants selling the precious yellow metal, with the remaining decline directly attributable to a strong dollar. The U.S. dollar closed higher as the dollar index gained 62 points, or 0.68%, and is currently fixed at 92.365.

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Silver pricing was hit much harder today, with the most active May 2021 contract currently fixed at $25.095, which is a decline of 2.63%. This means that the vast majority of today’s decline in silver can be directly attributed to market participants actively selling the precious white metal.

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This also can be clearly illustrated when we view the KGX (Kitco Gold Index). In the case of spot gold, the KGX is currently fixing the price at $1727.20, which is a net decline of $12.10 on the day. Of the $12.10 decline, dollar strength contributed $10.40, with the remaining decline of $1.70 attributable to selling pressure. Silver’s loss, however, was mainly due to selling pressure which resulted in today’s 2.60 % decline. The KGX is currently fixing spot silver at $25.01, which is a net decline of $0.73 per ounce. Selling pressure accounted for 2.24% or $0.58, with the remaining $0.15 decline directly attributable to dollar strength.

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One of the primary topics that were discussed during the first day of testimony was the health of the U.S. economy, which has seen a tremendous contraction due to the

Covid-19 global pandemic.

The disparity between current market sentiment by market participants, the Fed, and Treasury is the optimism regarding how quickly the United States will recover from the pandemic as well as the real possibility of rising inflation which has led to skepticism regarding the Federal Reserve’s current monetary policy of keeping interest rates (Fed funds) between zero and 25 basis points (1/4%). This optimism has led to rising yields in U.S. treasury 10-year notes, which are currently fixed at 1.627%

According to MarketWatch, Michael Armbruster, managing partner at Altavest, told the publication, “Even though we have seen a reprieve in Treasury yields over the last few days, we remain in a rising interest rate environment, and that is negative for gold and silver. We probably need to see the equity markets break before we get a policy change from the Fed…that could change the price trajectory for precious metals.”

He also added that “For gold bugs, it is likely to remain a tough market for the next three to six months.”

On a bullish note, he spoke about the long-term prospects of gold pricing, citing that he is “still bullish on gold rebound over the longer term if a mega $3 trillion bill gets through Congress but in immediate term, gold is being influenced by 10-year bond yields.” He believes that this could cause a rise in interest rates sooner than most people expected.

We have seen gold and silver both being subjected to selling pressure created by a number of factors. These include dollar strength, rising yields in Treasury notes, as well as recent rebalancing to favor U.S equities over safe-haven assets.

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The real question becomes as to whether or not market participants are correct in their more optimistic view of a recovery than the Federal Reserve.

If, in fact, they have correctly predicted a much faster recovery than the Federal Reserve believes, then we could see both gold and silver continue to trade under pressure. However, if the market sentiment is ahead of itself and overly optimistic, we would see a return to a bullish demeanor in both gold and silver

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

Gary S. Wagner

 

It’s The Risk-On Market Sentiment Taking Gold Fractionally Lower

Currently, the dollar is down 0.17% and fixed at 91.77. The 10-year note also declined from the highs witnessed last week and is currently fixed at 1.679%. Bitcoin futures are currently trading down by 5.13% and fixed at $55,910. It seems that the dollar, Bitcoin, and 10-year notes, which have been the primary reasons that the precious metals downside pressure, have subsided at least for the moment.

Rather it seems to be portfolio balancing as market participants moved back into the tech-heavy NASDAQ composite with specific companies rebounding after trading under pressure for the last two weeks. The NASDAQ composite showed gains head and shoulders above the S&P 500 as well as the Dow, gaining 1.26% in trading today. The composite index is currently at 13,374.94, up approximately 160 points.

Tesla, for example, is currently up to $22.84 and fixed at $677.50 per share. Amazon is up to $44 and is currently fixed at $3119. Shopify is up to $35.72 and fixed at $1156.98, And Nvidia is up to $13.28 and fixed at $526.94.

Another reason cited for today’s decline in precious metals was Turkey. Both their currency and equities markets tumbled after President Erdogan fired the head of their central bank. MarketWatch reported that “Turkey’s currency and stocks collapsed after the abrupt termination of its central bank head, a move that led investors to take a cautious stance toward risky assets on Monday.”

gold 2 march 22

In an article penned by Steve Goldstein, he quoted Phoenix Kalen, a strategist at the French bank Societe Generale, “With Naci Agbal’s removal from the CBRT, Turkey loses one of its last remaining anchors of institutional credibility. During his short tenure, Agbal had succeeded where various predecessors had not – in cultivating trust in the central bank’s inflation-targeting framework, in restoring monetary policy independence, in encouraging international investors to re-engage with the crisis-prone Turkish narrative, in driving an 18.0% rally in the lira against the dollar, and most crucially – in arresting and even reversing the damaging trend of dollarization in the economy.”

gold march 22

Market sentiment shifting towards equities and the issues reported in Turkey have been the primary causes taking gold fractionally lower, with the most active April 2021 Comex contract down $2.90 and fixed at $1738.80. However, silver is experiencing a much sharper decline, currently down 1.77%, taking the most active May 2021 Comex contract to $25.85 an ounce, after factoring in today’s decline of $0.47.

silver march 22

Government spending has already allocated four trillion last year, in addition to the most recent aid package costing $1.9 trillion. Now the Biden administration is considering adding an additional $3 trillion worth of debt as it looks at two additional recovery packages. The $3 trillion would be spent to improve infrastructure, climate change, and reducing economic inequities, according to the New York Times. CNBC reported that “The White House is going to propose splitting the mammoth initiative into two bills, though Republican support for either plank could be hard to secure as Biden aims to increase taxes on corporations and the wealthiest Americans.”

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

Gary S. Wagner

Read My Lips, “No More Interest Rate Hikes For The Next Couple Of Years.”

However, the sad truth is he made a pledge that he was not able to keep. In fact, the New York Post published a similar headline the following day that said, “Read my lips; I lied.”

This phrase, spoken by George H. W. Bush, is a perfect example of a politician’s broken promise and will forever remain a landmark example of broken promises made by politicians.

However, in the case of Chairman Jerome Powell, his statement about not raising interest rates in 2021, 2022, and maybe even into 2023 seems to be a pledge that he will steadfastly honor given the nature of the recession created by the pandemic.

What is interesting is that in contrast to Bush’s statement, which was actually accepted as a believable pledge and quickly broken, the probability that we will not see an interest rate hike this year is almost an absolute certainty. As for 2022, there were only four dissenting members at the most recent FOMC meeting, signaling that the majority of Federal Reserve members are in agreement as to their future monetary policy in regards to Fed funds rates.

In the case of the Federal Reserve’s pledge, it seems that market sentiment does not agree or see this as a feasible possibility. The fact that 10-year treasury notes have been moving up substantially over the last week is an example of market participants voting with their investment capital.

Immediately following the conclusion of the FOMC meeting on Wednesday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. More importantly, the rally that continued to take gold higher on Wednesday has continued to be a guiding force taking gold pricing higher. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

This time Chairman Powell made it clear that it is the Federal Reserve’s intent to keep interest rates where they are for a long time. The statement is being made as new data suggests that the economy is rebounding, which even Chairman Powell agrees with. The fact that he is forecasting a GDP of 6.5% by the end of the year is more than extremely optimistic, and some even believe it is just wishful thinking.

Chart_21-03-19_12-05-29dollar

Today gold continued its upward climb gaining $11.40, with the most active April 2021 Comex contract currently bid at $1743.90, which is a net increase of.66%. Just as impressive is the fact that the rally in gold has occurred concurrently with dollar strength and treasury yields staying above 1.5%. In other words, against the headwinds provided by a strong U.S. dollar and stronger yields, as shown the determination of gold bulls to take the precious yellow metal higher. These recent gains are even occurring in the light of bitcoin once again challenging its all-time record high. Bitcoin futures today closed up 1.88%, or $1080 per coin taking bitcoin futures to $58,445 per coin.

gold march 19

Whether your current market sentiment is bullish or bearish in regards to gold pricing, one must acknowledge the absolute strength and determination to move higher against market forces that would typically result in a price decline.

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In the words of Chairman Powell, it will be the pandemic that dictates action by the Federal Reserve, and they will not act in a way that could hinder a full recovery in the fastest period of time. It might just be that the current monetary policy of the Federal Reserve is not just words alone, but it has been followed with action and a steadfast commitment doing what they said they would.

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

Gary S. Wagner

 

Traders Continue To Bid Yields Higher In Spite Of The Federal Reserve Statement

Immediately following the conclusion of the FOMC meeting yesterday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

However, in trading overseas, gold continued to climb higher as it opened in Australia on Thursday morning but then began selling under pressure as it moved into Hong Kong and London. The primary events that caused gold prices to weaken were dollar strength and higher yields in U.S, Treasury notes. In fact, the 10-year Treasury yield gained in excess of nine basis points, moving the current return to 1.73%. An absolute negative factor for gold placing bearish pressure on the metal.

This signals that even with the definitive tone of Chairman Powell once again conveying the Federal Reserve’s intent to keep interest rates where they are for a long time. While market participants looking at good economic data nonetheless continued to bid yields higher in anticipation of a rate hike disregarding the dot plot produced by the Federal Reserve as well as Jerome Powell statements during the press conference yesterday.

However, by the close of trading in New York gold basis, the most active April 2021 Comex contract gained significant ground. And although it closed well off of its high, which was $1754, it did gain $7.50, or 0.43%, and is currently fixed at $1734.60. Concurrently the uptick in gold occurred with extreme dollar strength, which was also up approximately .045%. That means if the dollar had been neutral today, we would have seen a gold rise by approximately $15.

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Another interesting aspect was the negative correlation in terms of price change between spot or Forex gold and gold futures. Although spot gold is still slightly above the price of April’s futures contract, the net change on the day was a decline of nine dollars in spot compared to a positive gain of $7.50 in gold futures. According to the KGX (Kitco Gold Index), today’s decline of $9.00 is a combination of dollar strength and selling pressure. The vast majority of today’s change occurred because of dollar strength which accounted for $7.85 of the decline, with the remaining $1.15 resulting in spot gold at $1736.50.

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At least for today, gold futures were able to overcome both dollar strength and higher yields on U.S. treasuries which rose to a 14-month high. Many analysts believe that unless the Fed intervenes to address the differential between short-term and long-term bonds and notes that the yield in the 10-year note could trade as high as 2%. That is only 0.02% off of the pre-pandemic yield, which was at 2.2%.

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There is no doubt that analysts, market participants as well as traders are still gleaming through the statement released yesterday and working through the statements made by Chairman Powell, not only focusing on the words but the demeanor. Although he has been emphatic about keeping interest rates near zero for at least two years, it seems market sentiment does not agree with that assessment. There are those analysts that believe that if solid economic data continues to be forthcoming, it will force the hand of the Fed to raise rates sooner than they had anticipated.

This is contrary to the statements and determination of the Federal Reserve to not make the same mistakes that didn’t 2008 by raising rates too quickly. In the words of Chairman Powell, it will be the pandemic that dictates action by the Federal Reserve, and they will not act in a way that could hinder a full recovery in the fastest period of time.

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

Gary S. Wagner

 

Chairman Powell Sets The Record Straight, No Rate Hike For At Least Two Years

In the words of ‘Hans and Franz,’ characters from a Saturday Night Live skit by Dana Carvey and Kevin Nealon, Fed Chairman Jerome Powell wants to pump … you up, America.”

Today this month’s FOMC meeting concluded, in both the statement as well as the words spoken by Chairman Powell made it emphatically clear that the Fed has no intention whatsoever to raise interest rates until 2022, or 2023.

This was made crystal clear by releasing their latest “dot plot,” which showed a unanimous decision to leave rates between zero and 25 basis points throughout 2021. It showed that the majority vote also believes the best course of action is to keep interest rates where they are in 2022 and 2023. There were only four dissenters who believe that they should raise rates in 2022 and seven dissenters who believe they should raise rates in 2023.

Chairman Powell acknowledged some positive news on the economy as he forecast that GDP will move from 4.2% to 6.5% by the end of the year. He stated that they would continue their quantitative easing by purchasing $120 billion worth of assets each month and will continue this process for the next couple of years.

He did not speak about any action the Fed might take due to the rising yields in U.S. Treasury notes. Many analysts had hoped he would address this in a similar manner to QE 3, which was also called operation twist, in which they bought and sold bonds with different maturity timelines.

The main takeaway was the commitment by the Federal Reserve that the actions by the Fed in regards to the economy will be solely based upon the pandemic rather than solid economic data. He also made it clear that the dual mandate of maximum employment and an inflation rate of 2% has been adjusted so that their dual mandate is more a single mandate of full employment as he acknowledged that he expected inflation to run as high as 2.5% this year.

His statements were much stronger than his last public appearance during a Wall Street Journal webinar, continuing to underscore the Federal Reserve’s commitment to be patient and to maintain the current policy even though the economic outlook has absolutely improved over the last 4 to 6 months.

The fact that he is projecting the economy to grow and unemployment to lessen, coupled with the fact that he has no intent on changing the monetary policy, signaled that the Fed would continue to be extremely dovish over the next few years, even as economic data improves. He stated that that they will continue their current policy until the economy not only rebounds but returns to pre-pandemic days.

Gold basis, the most active April 2021 contract, gained $13.10 today, a 0.76% gain taking current pricing to $1744. Silver also gained 1.57% and is currently trading at $26.41. All of the major indexes were also higher. The rally in both risk-on and safe-haven assets is signaling that a combination of massive fiscal stimulus coupled with an extremely accommodative Federal Reserve will move both of those asset classes in tandem to higher prices.

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

Gary S. Wagner

FOMC Begins, and Traders Await Fed Statement and Powell’s Press Conference

The FOMC is composed of 12 members, seven of which comprise the board of governors, with the remaining five being presidents of Federal Reserve banks. The eight yearly meetings are roughly six weeks apart, issuing the most current monetary policy by means of a written statement released immediately following the conclusion. This statement summarizes the Fed member’s current economic outlook and any relevant policy decisions that were made over the two-day meeting. Following the statement, Federal Reserve Chairman, Jerome Powell, holds a press conference so that he can discuss any decisions made during the meeting but, more importantly, provide context regarding any decisions they made.

The last time Chairman Powell spoke publicly was at a Wall Street Journal webinar in which he did not push back when asked about rising yields in Treasuries and how they reflect the current monetary policy to keep interest rates where they are at least till the end of 2021, and most likely 2022.

According to the Economic Times, “The Federal Reserve’s monetary policy meeting this week is a chance for the central bank to get back on the same page with the bond market. The challenge will be pushing back market expectations that an interest rate increase could come as soon as the end of next year. How it delivers that message convincingly will be key.”

Although the chairman has made it emphatically clear that the reasons that would justify changing their current monetary course will be much different than in the past, he has gone to great lengths to explain that the Fed has a new basis which is to wait for economic outcomes to be fully achieved before implementing a rate increase, unlike the actions during the financial crisis in 2008. During that period, many economists believed that the Federal Reserve acted too early, thereby lengthening the timeline for economic recovery.

One way that the Federal Reserve will reiterate their commitment to keeping rates low is the release of a summary of economic projections, which will be included in the statement released tomorrow.

However, Chairman Powell must continue to walk a tight rope between the optimistic outlook on economic growth that has been coming from Wall Street as opposed to their monetary policy, which is to raise the bar necessary to implement an interest rate hike. To that end, their former dual mandate of maximum employment and to keep inflation at 2% or lower has been modified. The Federal Reserve is on record stating that they will let inflation run hot to 2 ½% or higher to achieve their primary goal of maximum employment.

Analysts and market participants will listen not only to the words spoken by Chairman Powell during the press conference but how his statements are delivered and how they are perceived.

The major issue right now is that the top members of the Federal Reserve have been reluctant to push back against the recent jump in treasury yields. They will also want to know if the central bank its monthly asset purchases of $120 billion to buy long-dated debt or increase their monthly expenditure.

The bottom line is that more Americans are returning to work. However, that is tempered by the fact that there are still over 9 million Americans unemployed. Although many analysts polled, believe that it is highly possible that there will be some revisions to the outlook, specifically revising of the GDP projections higher.

Gold Correction

Recent events had taken gold off of the lows, which occurred on March 8 when gold futures touched briefly below $1680. Currently, gold futures basis, the most active April 2021 contract was trading up $1.10 and fixed at $1730.30. The fact that the Federal Reserve is willing to let inflation run hotter than its former mandate provides a bullish tailwind for the precious yellow metal. When you add the most recent fiscal stimulus aid package passed last week, there is a case to be made for increased bullish tailwinds for the safe-haven asset; gold.

gold projection

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

Gary S. Wagner

Waiting on the Federal Reserve’s Press Conference

Of all these factors, there are two intertwined factors that seem to have the greatest impact on creating negative market sentiment towards gold and silver. These are dollar strength, which is a direct result of rising yields for U.S. government bonds and notes the other factor.

One perplexing aspect has been market sentiment as it pertains to interest rate yields on the U.S. Treasuries’ 10-year note. The Federal Reserve has been on record stating that they have a line in the sand in which they will not raise their Fed funds rate throughout this year and most likely into 2022. Concurrently we have seen real signs of an economic recovery which is resulted in market participants believing that interest rates will rise much sooner than the current timeline presented by the Federal Reserve. This dichotomy is the result of market participants possibly be more optimistic about the timeline than reality predicates. Chairman Powell has stated on multiple occasions that although recovery has begun, the timeline to return to pre-pandemic economic growth in years, not months away.

During Chairman Powell’s press conference set to begin on Wednesday, it is highly anticipated that he will underscore the Federal Reserve’s commitment to be patient and to maintain the current policy even though the economic outlook has absolutely improved over the last 4 to 6 months.

However, it seems as though market participants are yielding to the mandate by the Federal Reserve with the net result of yields lessening which occurred after a dramatic rise in the ten-year note to 1.610%. The yield was off by approximately 2.1 basis points at 1.614% as bonds moved in the opposite direction.

As reported in MarketWatch, analysts at Sevens Report Research wrote in their latest newsletter that, “Gold is attempting to stabilize after the recent pullback, but if Treasury’s bonds continue to fall sharply, prompting yields, which trade inversely to bonds, to spike higher, then it will be effectively impossible for gold to hold recent lows.”

One thing is absolutely clear, and that is that the Federal Reserve’s current mandate has stayed rock-solid, providing liquidity through the purchase of $120 billion worth of treasuries and mortgage-backed debt through their quantitative easing, which they have stated will remain in play for quite some time. They have committed to focus on their primary mandate, which is maximum employment, and let inflation run hot over 2% if needed to accomplish that goal.

In an article penned by Greg Robb, he said that, “Economists stressed investors must understand the U.S. central bank has a new policy framework that is tied to economic data, not forecasts. So, the central bank will want to see where the economy is later this year before even beginning to ‘think about thinking about changing policy. It is also the author’s belief that Powell may repeat that investors shouldn’t get fooled by the rapid decline in the official unemployment rate. He will continue to highlight 9.5 million jobs have been destroyed by the pandemic.”

This recent pivot in market sentiment has had the net effect of moving gold and silver prices off the recent lows and a return to both precious metals rallying to a higher value.

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Gold futures basis, the most active April 2021 Comex contract, is currently trading in Australia on Tuesday morning and is fixed at $1729.70. Silver also closed higher on the day with fractional gains of approximately 3%, with the most active May contract currently fixed at $26.325.

silver march 15

We have certainly seen both gold and silver become extremely oversold and then pivot from the overall bearish market sentiment to a bullish demeanor. We would expect this trend to grow in strength, taking both precious metals higher over the next few months.

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

Gary S. Wagner

Gold Prices Hold Steadfast in Light of Dollar Strength and Higher U.S. Treasury yields

Of all these factors, there are two that seem to have the greatest impact on creating a negative market sentiment towards the safe-haven assets, gold, and silver. These are dollar strength, a direct result of rising yields for U.S. Treasury bonds and notes. From March 9 to March 11 both metals firmed as they gained value. After trading to an intraday low on Monday, March 8 of $1672, the following three trading days would take the precious yellow metal to an intraday high of $1739. Those gains witnessed over three trading days were the result of Dollar weakness helped lower by falling Treasury yields, as well as market participants actively buying the dip.

This is why today’s activity in both gold and silver is not reacting as severely to today’s dollar strength and rising yields. It is 180° pivot from the reaction, and in some cases, overreaction seen recently as the dollar gained, leading to declining prices of ten-year notes selling for less and returning a higher yield.

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As of 2:47 PM EST, gold futures basis the most active April 2021 Comex contract trading in essence unchanged. Gold futures are currently fixed at $1723, after factoring in today’s gain of $0.50, which is a 0.03% advance. Concurrently the U.S. dollar index is up just over ¼ of a percent and currently fixed at 91.66. This means that the dollar creates headwinds which were overcome by market participants actively buying the precious metal.

gold march 12

This can be clearly illustrated when we look at spot or physical gold pricing through the eyes of the KGX (Kitco Gold Index). According to the index, spot gold is currently fixed at $1725 after factoring in today’s gain of $1.90. On closer inspection, we can see that market participants bid spot gold pricing higher by $6.70 (+39%); however, in the case of spot or forex silver, which lost $0.19 in trading. Today’s price decline had the same catalyst driving it, a combination of dollar strength which contributed seven cents of today’s decline, with the remaining decline of $0.12 directly attributable to market participants bidding that precious metal lower.

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As reported in MarketWatch, Ross Norman, chief executive officer at metals daily, said, “It’s all about U.S. Treasury yields again, with a firm dollar compounding the problem for gold.” He also tempered his bearish sentiment when he said, “Encouragingly, physical demand in Europe is fantastically good with supply chains challenged and there’s much of the same in China where gold is now trading at a $10-an-ounce premium over London prices, though exchange-traded fund demand is comparatively lackluster.”

All things being equal, gold did manage to end the week with fractional gains. April gold futures gained approximately 1.3% in trading this week, with silver gaining approximately two ½%. For the last three consecutive weeks, both gold and silver pricing had closed below its opening price on the start of the week.

kgx march 12

The greatest headwind currently keeping in check both gold and silver is the continued rise in Treasury yields. Currently, the ten-year note is trading at approximately 1.62%, just a few ticks away from its recent price of 1.624%.

The bearish market sentiment that has been so pronounced recently as it pertains to gold and silver seems to be consolidating, which could be indicating a short-term bottom. The fact that gold pricing held above $1700 as it trades $25 above that price point is impressive considering the uphill battle that bullish market sentiment has been climbing. One issue that is quite perplexing is gold’s timid to an almost absent reaction to the passage of President Biden’s “American Rescue Act,” which he signed into law yesterday.

On a technical basis, there are more bearish indicators than bullish ones. Possibly one of the most alarming technical indicators is that the three major moving averages used by market analysts to determine whether the short-term, interim term, and long-term market sentiment is, either, bullish bearish or neutral. In the case of all three moving averages, they are currently well above current pricing, which is a strong indication that we are in corrective period. With much less weight is the fact that this recent correction took gold and silver pricing very close to their 61.8% Fibonacci retracement. The data set used to create the retracement began in the middle of March when gold prices traded to a low of $1450 and then began a dynamic rally which concluded in August, resulting in the highest price point for gold in history $2088.

On a technical basis silver futures have not sustained the same type of damage in regards to its moving averages, with the most active May 2021 contract currently trading above both the 200- and 100-day moving averages. The 50-day moving average which is currently fixed at $26.50 seems to be where current resistance resides. Silver’s performance which is far exceeded that of gold in terms of percentage gains, could very well be due to the fact that this metal has an industrial component and demand, which has been supportive of silver pricing as the U.S. equities markets continue to trade substantially higher.

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

Gary S. Wagner

Gold and Silver Had Mixed Results in Trading Today

This factor bodes well for the assumption that both precious metals, after sustaining an approximately 61.8% Fibonacci retracement from the highs achieved in August of last year, as potentially an area to find support and form a bottom.

gold march 11

Even with the muted price change from yesterday, if the recent gains were a so-called “one and done” scenario, we most likely would have seen a retracement from the gains achieved on Tuesday and Wednesday.

Gold pricing was definitely influenced by a weaker U.S. dollar and fractionally lower yields on U.S. bonds. While this also benefited silver pricing, it was the industrial component that added more fuel to the fire, with U.S. equities once again in rally mode.

silver march 11

However, I believe the recent round of government spending both in the United States and abroad will devalue the currencies of the eurozone and the United States. On Wednesday, Congress approved President Biden’s $1.9 trillion fiscal stimulus aid package. In a vote of 220 to 211 the House passed the president’s “American Rescue Act.” The Senate passed the same resolution in a vote of 50 to 49, with a vote that followed party lines making it a genuinely partisan bill.

According to the New York Times, this financial aid package is “one of the largest injections of federal aid since the Great Depression. It would provide another round of direct payments for Americans, an extension of federal jobless benefits and billions of dollars to distribute coronavirus vaccines and provide relief for schools, states, tribal governments and small businesses struggling during the pandemic.”

President Biden has already signed the bill into law this afternoon. Originally it was announced that he would sign the aid package on Friday. However, the president, along with his advisers acutely aware that those who most need this injection of fiscal stimulus (low and middle-income Americans) are living week to week, meaning that the next round of fiscal stimulus checks cannot come soon enough. In the case of those unemployed, those benefits are set to run out this weekend. In other words, time is of the essence, and the White House is aware of this.

Just before signing the bill in the oval office, the president said, “This historic legislation is about rebuilding the backbone of this country and giving people in this nation, working people, middle-class folks, people who built the country, a fighting chance. That’s what the essence of it is.”

The president will address the nation tonight in which he will educate the public as to the benefits which will be forthcoming through the relief package. Addressing the nation, he said this conference would “talk about what we been through as a nation this past year. But more importantly, I’m going to talk about what comes next. I’m going to launch the next phase of the Covid response and explain what we will do as a government and what we will ask of the American people.”

While there may be a partisan divide as to how this $1.9 trillion has been allocated, there is a bipartisan acknowledgment that there are still nearly 9 million individuals that are unemployed and millions of Americans that cannot pay their rent or financially function in any solvent manner.

That being said, with the acknowledgment that aid is greatly needed, the undeniable fact is that

it increases our national that by almost $2 trillion. When this capital expenditure is added to the $4 trillion spent last year, one has to recognize that there will be some level of economic fallout. Never since the Great Depression have we allocated such a large amount of capital to reignite the economy and aid those Americans in need. While it most certainly will pressure the U.S. dollar lower, the real question becomes how many years will it take to overcome the increased national debt.

It is for that reason, on a fundamental basis, that many investors and major institutional players will take a fresh look at the safe-haven asset class. The only caveat to that would be rising yields that would compete with those investment dollars. Also, besides these safe-havens, Bitcoin is also in direct competition with both not as a risk-off but rather as a way to overcome the inflationary pressures all of this spending will certainly provide.

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

Gary S. Wagner

Congress Passes $1.9 Trillion Covid-19 Relief Bill

A few key things that will be included are a $1,400 check to all Americans making less than $80,000 a year and extending the jobless claims benefits to more people until September 6th.

“Help is on the way,” said Chuck Schumer today. The Senate Majority leader went on to say, “This is one of the most consequential pieces of legislation we have passed in decades, and you know what we can show America, that we can get things done to make their lives better, and we will continue to do that through the rest of this session. Help is on the way”.

Gold reacted timidly to this news, trading up on the day but only moderately. Currently, April Comex futures are trading up around half a percent or $8.10 on the day to close at $1,725 per ounce. This was only a mild reaction to the passing of the new stimulus bill that will likely be signed into law by President Biden by the end of this week shows that relief might be largely already factored into pricing. Nonetheless, gold has the real potential for a bounce higher from these prices.

March 10 gold

Whether or not gold pricing will continue to rise will really be contingent on three factors. As we mentioned above, the mild uptick in gold pricing occurred immediately following the announcement that the fiscal stimulus bill presented by President Biden had passed in the Senate by a vote of 50 to 49. The question becomes, has this been completely factored into current gold pricing? My current assessment is that it has only been partially factored into current pricing.

silver march 10

That takes us to the second factor, and that is whether the U.S. dollar will begin to weaken based upon the news that the government has just added an additional $2 trillion to the national debt. Currently, the dollar index is fixed at 91.77, after factoring in today’s decline of 0.21%. The fact that gold futures gained 0.47% indicates that today’s gain of $8.10 was the result of both dollar weakness and market participants bidding the precious metal higher.

march 10 dollar

Lastly is where yields will go to in U.S. Treasuries. Although yields backed off of the recent highs and are now just above 1.5%, it is certainly not in alignment with the current mandate of the Federal Reserve. Statements from Chairman Jerome Powell, as well as other voting Fed members, have stated that they plan to keep interest rates extremely low, fixing their Fed’s fund rates between 0 and ¼%. Additionally, they are willing to let inflation run hotter than their previous benchmark of 2% so that they could focus on their primary mandate of maximum employment. In addition to letting inflation run hot and maintaining an extremely low-interest rate, they continue to purchase assets to the tune of $120 billion per month.

How the three factors mentioned above shape market sentiment will be a huge determining factor on how high gold can trade if it continues to rally and a true bottom was formed.

For more information on our service, simply use this link.

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

Gary S. Wagner

Gold Stages a Dynamic Recovery Taking Prices Back Above $1700

Almost like the proverbial salmon swimming upstream, it is a difficult and grueling task; however, it is a task that can be accomplished.

I ended the article by saying; Recent gains in U.S. fixed income bonds and notes when coupled with a stronger U.S. dollar, a rising U.S. equities markets, and lastly, the strong gains in Bitcoin, have created a shift in market sentiment away from gold and into the above-mentioned investment vehicles. Gold will remain under pressure until there is a shift in market sentiment for one or more of these vehicles.

Gold March 9

That is exactly what we saw occur in the financial markets today, a dramatic shift in both the value of the U.S. dollar and concurrently a drop in yields from the U.S. Treasuries’ 10-year note. As of 4 PM, EST gold basis its most active April 2021 Comex contract is currently trading up $35.20, a gain of 2.09%, and fixed at $1712.90. Dollar weakness did contribute some tailwinds in today’s dramatic $35 rise in gold futures. However, dollar weakness only accounted for approximately 25% of today’s move. The dollar index gave up a little over 38 points, a net decline of 0.42%, and is currently fixed at 91.95. With gold gaining just over 2%, simple math reveals that dollar weakness was only partially responsible for today’s gains. The vast majority of today’s strong price increase can be directly attributed to a shift in market sentiment.

silver march 9

According to the KGX (Kitco Gold Index), spot gold gained $33.10 in trading. Of today’s gains, a total of 0.47%, or $7.90, is directly attributable to dollar weakness. The remaining gains of $25.20, or 1.50%, is the result of a shift in market sentiment resulting in traders bidding the precious yellow metal higher.

final KDX march 9

Today’s decline in U.S. treasury yields might be signaling that market participants are heeding to the Federal Reserve’s current monetary policy. This policy includes keeping interest rates between zero and 25 basis points (1/4 of a percent) for the remainder of this year and most likely into 2022. The recent activity taking yields higher while correct in reflecting optimism that we are closer to the end of the pandemic could be the result of realizing that the timeline to achieve economic recovery will not be short. Many economists predict that a full-scale recovery in the United States could take a minimum of two years. While we are seeing the first real signs of recovery, we must acknowledge that a recession created by the pandemic is much more severe than a recession created by the banking crisis in 2008. The recovery of the 2008 financial crisis took well over two years before we saw the light at the end of the tunnel.

It will take much longer than that to begin to tackle the increased budget deficit and national debt after spending $4 trillion in fiscal stimulus last year and at least an additional $1.9 trillion if the president’s proposal is approved in Congress. As such, the road to recovery will not occur overnight, and the economic hardship that will follow due to our vast expenditures will take even longer.

For more information on our service, simply use this link.

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

Gary S. Wagner

A Strong Dollar and Selling Pressure Take Gold Lower

As of 4:07 PM EST, gold futures basis, the most active April 2021 Comex contract is currently fixed at $1677.70 after factoring in today’s decline of $20.90 (1.23%). Spot gold prices also sold off with the same strong decline. According to the KGX (Kitco Gold Index), physical gold is currently fixed at $1680.60 after factoring in today’s decline of $19.50. On closer inspection, it was dollar strength that took away $8.50 of value, with the remaining $11 decline directly attributable to market participants actively selling gold.

kgx march 8

gold march 8

With the recent rise in yields on U.S. bonds coupled with a strong performance in the U.S. equity market that market participants are reluctant to put large capital expenditures into the safe-haven asset, gold. U.S. Treasuries continued to offer higher yields, with the ten-year note trading above 1.6%.

The Dow Jones industrial average gained 306 points (+0.97%) in trading today. However, the tech-heavy NASDAQ composite did lose 2.24% as the apparent rotation out of tech-related companies into financial and retail-based companies continues.

dow Jones March 8

There is also a distinct correlation between the rising value of the cryptocurrency Bitcoin, which has greatly influenced the market sentiment for gold. Bitcoin has gained approximately 30% in value over the last month. This dramatic return has most definitely resulted in market participants rebalancing their portfolio in regards to the safe-haven asset class, moving the capital from their holdings in gold into a more lucrative (and volatile) asset class.

bitcoin futures march 8

Collectively these alternative investment assets offering higher yields in the case of U.S. bonds and solid gains in many sectors of U.S. equities; when coupled with Bitcoin, it has offered market participants solid alternatives resulting in a rotation out of precious metals into these other assets. Considering that ten-year note offered by the U.S. Treasury ten-year note has very little to no downside risk, it has become a favored safe-haven asset class of choice, at least for the moment.

The U.S. dollar continues to gain strength with today’s gain of .48% took the dollar index two 92.43. Considering that it was trading just below 90.00 at the end of February, it has gained well over 2 ½% in the last nine trading days.

dollar march 8

While the Federal Reserve continues to maintain its monetary policy, which includes keeping interest rates between zero and 25 basis points (1/4 of a percent), market participants are optimistically looking forward, anticipating that a revived economic scenario in the United States will inevitably lead to higher interest rates. This continues to be in contrast to statements made by Chairman Powell that they in no way have changed their monetary policy and are committed to keeping interest rates at their current Fed funds rate through the end of this year as well as 2022.

However, recent gains in U.S. fixed income bonds and notes, when coupled with a stronger U.S. dollar, a rising U.S. equities markets, and lastly, the strong gains in Bitcoin, have created a shift in market sentiment away from gold and into the above-mentioned investment vehicles. Gold will remain under pressure until there is a shift in market sentiment for one or more of these vehicles.

For more information on our service, simply use this link.

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

Gary S. Wagner

 

Jobs Report Comes In Well Above Estimates But …

The Covid-19 pandemic, which has now been with us for about a year, has left every economy worldwide in upheaval sparing no country on earth. Unlike the Spanish flu, science was able to quickly identify and create multiple vaccines which are just starting to allow the world to heal, which will be followed by a period of economic rebuilding.

The New York Times reported that over the past week, there had been a decrease in new cases by 14% from the average two weeks earlier. Hospitalizations have declined by 29%, deaths have remained flat to lower.

This brings us to today’s release of the jobs report from the U.S. Labor Department. According to the U.S. Labor Department, employers added 379,000 new jobs in February. This was the largest increase at the fastest pace since October. The new jobs created brought the unemployment rate down to 6.2% from 6.3% in January. More so, the jobs report came in well above estimates which predicted that only 182,000 jobs would be created last month.

That being said, the road to recovery, like the pandemic, will be a slow recovery. Considering that there are still approximately 9 million unemployed in America, the largest economy in the world, it will take time before the United States reaches a normalized economy.

According to the Washington Post, “While February’s faster job growth represented progress, it’s still not good enough. If employment were to continue growing at February’s pace — so, 379,000 new jobs per month — it would take two more years to reach the level of jobs that existed pre-pandemic. And that still undershoots the goal, because the working-age population has continued growing. So we really want more jobs than existed when the pandemic began, rather than merely a recovery of jobs lost.”

These numbers continued to weigh heavily on gold futures pricing, with the most active April 2021 Comex contract still trading just below $1700 per ounce. As of 5 PM EST, gold futures are currently trading at $1698.20, which is a net decline of $2.50 (-0.15%). Concurrently spot or physical gold is trading very close to the futures price at $1698.64. In fact, over this last week, we have seen an inversion where spot pricing is close to or just above futures prices. The main factor in the recent decline of gold has been dollar strength which has been the byproduct of rising yields in U.S. Treasuries, with the 10-year note currently trading right around 1.5%.

The KGX or Kitco Gold Index is currently fixing the price of spot gold at $1700.10 per ounce, which is a per ounce which is a net increase of $3.20 on the day. On closer inspection, it was dollar strength that actually caused gold to decline $7.50 in price; however, traders buying the dip moved gold back above the key psychological level of $1700 by bidding at higher to the tune of $10.70.

gold march 5

In light of today’s gains in the U.S. dollar index, which traded up by approximately ½ a percent and closing today at 92.025, gold’s performance fared quite well. Whether or not gold will find support again at $1700 or whether this will be a resistance area that pressures gold prices lower is something we will have to wait to see. In the meantime, we have to recognize that gold prices are still in a full bearish formation given recent price declines.

dollar March 5

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

Gary S. Wagner

Powell’s Speech Leads to Dollar Strength and Helped to Take Precious Metals Lower

Currently, spot or physical gold is fixed at $1697.70, which is a $13 decline. Of that $13 decline, dollar strength accounted for $12.30, with the remaining $0.70 attributable to selling.

gold march 4

Gold futures sustained a much greater loss than spot pricing, with the most active April 2021 Comex contract giving up $18 in trading today. As of 4:30 PM EST, gold futures are currently fixed at $1697.80. However, it was platinum and silver which sustained the greatest losses in the futures markets today. Silver futures gave up 3.55%, a decline of $0.93, and are currently fixed at $25.45. Platinum futures gave up $50.80, a 4.30% decline, and is currently fixed at $1131.

kgx marchg 4

In a speech today, the chairman of the Federal Reserve, Jerome Powell, did not announce any change in the Federal Reserve’s current monetary policy. However, market participants interpreted the statements lacking any real resistance from the real rise in U.S. bonds and treasury notes. Today U.S. Treasuries traded sharply higher, taking the yield on the 10-year note to 1.533%.

According to MarketWatch, Scott Brown, chief economist at Raymond James, said, “The market has been worried about the rise in long-term interest rates and the Fed chairman in his commentary didn’t really push back towards this increase in rates and the market took it as a signal that yields could rise further which is what has happened.”

Chairman Powell’s comments or lack of any strong signal that the Fed will react to the sharp rise in interest rates caused a huge spike in the U.S. dollar and concurrently took all of the precious metals as well as U.S. equities sharply lower. The U.S. dollar gained +0.77% (0.69 points) and is currently fixed at 91.63.

DX march 4

According to Reuters, “The benchmark 10-year Treasury yield spiked to 1.533% as Powell did not comment on any changes in Fed’s asset purchases to tackle the jump. It still held below last week’s one-year high of 1.614%. Investors were expecting that the Fed might introduce Operation Twist in which the central bank shifts its bond purchases to the long end of the yield curve from the shorter end.”

While chairman Jerome Powell’s statements did not soothe market sentiment, nor did he announce any actions such as implementing a “twist” program, it presents a unique opportunity in both stocks as well as the precious metals. Any stock or commodity which contains an intrinsic value and is falling in price will at some point hit a bottom in which market participants can obtain these assets at a much lower price. In the case of gold, traders have not seen gold as inexpensive since May 2020. As such, when the market does bottom, which at some point it will, there is a real opportunity to buy the precious metals at a much greater value.

For more information on our service, simply use this link.

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

Gary S. Wagner

Gold Futures Trades to an Intra-day Low of $1699.40 before Recovering

Gold futures got hammered today as they traded to a low of $1699.40 before recovering off the low and, as of 4 PM EST, is trading at $1713.50. Spot or physical gold is currently fixed at $1714.10, according to the KGX (Kitco Gold Index). On closer inspection, we can see today’s $24.20 selloff was almost totally due to selling pressure. While a strong dollar took gold down $3.50, it was selling pressure that resulted in a decline of $20.70 per ounce, the vast majority of today’s decline.

si 33

It seems two primary factors were the major contributors to gold’s sharp decline today. First, rising yields in U.S. government bonds. Today the 10-year Treasury note traded to an intraday high of 1.498% and settled at 1.470%. The second factor that most likely contributed to today’s decline was higher prices in cryptocurrencies. Bitcoin is trading back above $50,000 per coin after factoring in today’s 7.39% gain and is currently fixed at $50,977.29.

btc 33

According to MarketWatch, analysts at UBS cited higher yields as a primary factor pressuring gold prices lower. “Higher nominal and real U.S. bond yields have hurt gold recently, while ongoing ETF outflows should remain the key challenge for this year.”

In fact, the analysts at UBS made a dire prediction for the future long-term direction of gold, saying, “But we anticipate recent headwinds to intensify again into 2H, particularly as greater U.S. stimulus raises the prospect of an earlier-than-planned Fed rate hike.”

It is for this reason that UBS analysts have lowered their forecast for gold prices this year, anticipating a $150 drop. With the analysts looking for $1700 gold by the end of September and another drop from the end of December 2021 to March 2022, taking gold to $1650 per ounce.

Gold ignored data released today by ADP, which would normally be a bullish factor and supportive of gold prices. ADP reported that private payrolls increased by 117,000 last month, more so these numbers came in well below expectations by Dow Jones, which estimated that there would be an additional 225,000 jobs added in February. According to Nela Richardson, chief economist at ADP, “The labor market continues to post a sluggish recovery across the board. We’re seeing large-sized companies increasingly feeling the effects of COVID-19, while job growth in the goods-producing sector pauses.”

This report will be followed by Friday’s jobs report of nonfarm payroll by the U.S. Labor Department. Currently, Dow Jones is estimating that Friday’s jobs report will show a net gain of 210,000 new jobs.

It seems clear that recent events that would typically be bullish for gold have been overlooked, and the fiscal stimulus package which is being currently debated in the Senate which will cost the U.S. taxpayers an additional $1.9 trillion has for the most part been factored into current pricing with little effect.

For more information on our service, simply use this link.

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

Gary S. Wagner

Precious Metals Gain on the Back of Dollar Weakness and Lower Treasury Yields

Platinum futures gained a respectable $19.20 and are currently fixed at $1210.50. Gold bounced off an eight-month low to gain +0.78%, with the most active April 2021 Comex contract currently fixed at $1736.40, which is a net gain of $13.40 on the day.

plat march 2

Silver futures gained +0.68%, with the most active contract currently fixed at $26.88 after factoring in today’s gain of $0.20. Although it is the highest-priced precious metal traded on the futures exchange, palladium gained only +0.15%, and after factoring in today’s gain of $3.50, it is currently fixed at $2352.50 per ounce.

silver march 2

The rise in the precious metals across the board can be attributed to U.S. dollar weakness and lower yields in U.S. Treasury notes.

According to Reuters, Tai Wong, a trader at investment bank BMO in New York, “Gold’s $30 rally from the lows in Asia suggests that investors and short-term speculators are bargain-hunting and triggering short-covering as well. A close above $1,725 per ounce would be considered by many a key reversal day.”

gold march 2

The dollar index is currently trading off by -0.28% (25 points) and is currently fixed at 90.785. Concurrently, U.S. Treasury yields retraced from their one-year high, which was reached last week. Both dollar weakness coupled with falling U.S. Treasury yields were highly supportive of gold pricing, which led to today’s respectable gains.

Reuters also reported that Bob Haberkorn, senior market strategist at RJO Futures, said, “The main dilemma right now for the gold bulls is the rising short-term U.S. Treasury yields. Despite the U.S. Federal Reserve being very accommodative with stimulus, with low rates for the extended period of time, in the short term, we have to deal with these rising short-term rates.”

The question that remains is whether or not gold’s pricing has already factored in the high probability that the president’s proposal of a $1.9 trillion stimulus package will pass in the Senate. It is currently being debated this week in the Senate after Congress passed the resolution to enact president Biden’s fiscal stimulus aid proposal. Considering that last year the government spent $4 trillion to provide COVID-19 aid, this additional debt of almost $2 trillion will be directly reflected onto our national debt.

According to Statista, “Federal revenue amounted to 3.42 trillion U.S. dollars in 2020, which was about 16.3 percent of the U.S. GDP. The forecast predicts an increase in federal revenue up to 5.77 trillion U.S. dollars in 2031, which would be about 17.5 percent of the respective U.S. GDP.”

The pandemic has ravaged global economies around the world, and the United States in no way escaped the need for massive fiscal stimulus along with an extremely accommodative monetary policy by the Federal Reserve. As such, we could easily see inflationary pressure as a byproduct of these fiscal policies.

For more information on our service, simply use this link.

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

Gary S. Wagner

Gold Futures Lag Far Behind the Other Three Precious Metals in Trading Today

However, at the same time, the three other precious metals that trade on the futures exchange gained value. Silver futures gained $0.19 (+0.70%) in trading today and are currently fixed at $26.625. Platinum futures gained $6.20 (+0.52%) and are currently fixed at $1191.50. Lastly, palladium futures gained $33 (+1.43%) and remained the most expensive of the precious metals complex at $2346.50.

gld 31

si 31

pl 31

pa march 1

The most reasonable explanation for why gold continues to underperform when valued against the other three precious metals that are traded on the futures complex is that gold has the least industrial usage when compared to platinum, palladium, and silver. That fact, coupled with the strong rally in U.S. equities markets today, is at the root of why three precious white metals have been consistently outperforming gold recently. It was another strong showing in all three major indexes, with the Dow Jones industrial average gaining 603 points (+1.95%), the Standard & Poor’s gained 90.67 points (+2.38%), and the NASDAQ composite gaining 398 points (+3.010%).

While it has been recent gains in Treasury yields that led to the strong selling pressure witnessed in gold last week, the primary factor moving equities higher and gold pricing lower is data that suggests that the economy in the United States is gaining momentum that is resulting in a rally in stocks on the first trading day of March.

As reported in MarketWatch, Jim Baird, chief investment officer at Plante Moran Financial Advisors, said, “Increasingly, it appears that the economy sidestepped a feared hard-landing despite a period of soft consumer spending that contributed to negative conditions for parts of the service sector and a surge in layoffs. If anything, it appears that manufacturers may have benefited from consumer spending habits that favored goods over services in recent months.”

One recent development has been the emergency use approval by the CDC of the Johnson & Johnson one shot coronavirus vaccine, which was greenlighted by the FDA last week. In fact, J&J began shipping their vaccine today, beginning with four 4 million doses. While not as effective as the other two primary vaccines granted emergency use (Pfizer-BioNTech and Moderna), the J&J vaccine is stable when stored in a refrigerator for three months and requires only one shot. Many medical professionals believe that this potentially could be key to the rural areas of the United States, which makes it difficult to ship and store the other vaccines at subzero temperatures.

These developments, when coupled with the passage in the Congress last week of President Biden’s $1.9 trillion aid package, have has shifted market sentiment towards the risk-on asset class rather than the safe-haven assets.

For more information on our service, simply use this link.

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

Gary S. Wagner

 

The Big Picture – Where Could Gold Head From Here?

Since the beginning of time, rhythmic regularity has been the law of creation. Gradually man has acquired knowledge and power from studying the various manifestations of this law. The effects of the law are discernible in the behavior of tides, the heavenly bodies, cyclones, day and night, even life and death. This rhythmic regularity is called a cycle. — Ralph Nelson Elliott

Historically market analysts were divided into two camps. The first camp looks strictly at fundamental data and events to forecast future pricing. A second camp exists that utilizes technical indicators to determine future prices. There is a third camp, however, that some analysts, including myself, fit into, which can be loosely called a hybrid market technician. The hybrid market technician will utilize both fundamental data and technical indicators to create models that define where a market could go.

R. N. Elliott was a market technician who lived from 1871 to 1948 and was professionally trained as an accountant. He is, however, more well-known as the author of Elliott wave theory, who believed that there was a natural cycle or discernible pattern that could be found not only in nature but also in the price movement of stocks. Of all the market technicians, he is probably the most controversial, and as such, there are many technicians that look at his work in a negative light. However, there are also market technicians that have found his techniques, when properly implemented, to be extremely accurate in projecting future direction and cycles that exist in the financial markets.

In essence, Elliott wave theory believes that whether a market is in a bullish trend or a bearish trend, these trends exist with an identifiable structure that is labeled as a wave count. A wave count consists of a total of eight waves, with wave one through wave five constructing the impulse phase. What will follow will be a correction that can unfold in multiple ways but is typically looked at as an A, B, C wave count.

Chart 1

chart 1

The following charts will look at the long-term cycle of gold as it traded from 2002 to 2021. Chart 1 looks at the longest wave, wave three as beginning in the middle of 2002 when gold was trading at approximately $250 per ounce up until its former record high at $1920, which occurred in the middle of 2011. It then looks at the correction from $1920-$1020 that occurred at the end of 2015 and labels that a corrective fourth wave.

Chart 2

chart 2

Chart 2 uses the data created from wave three and wave four to forecast where the fifth wave will conclude. The basic premise of this model is that the fifth wave will typically be a Fibonacci extension of .618 of wave three to calculate the price move in the fifth wave. It begins at the conclusion of the fourth wave and, as you can see from this chart, projected a top for gold prices in 2020 of $2076. This was not too far off of the actual number that came in, which was $2088. The most difficult waves to forecast are the benchmark waves. Both wave one and corrective wave A are the benchmark waves and much harder to predict.

Chart 3

chart 3

The last chart, chart 3, looks at a Fibonacci retracement of the fifth wave, which began at $1020 and concluded at the all-time record high of $2088, which occurred in August of last year. A typical correction consists of a 38.2% Fibonacci retracement or a Fibonacci retracement of .618%. In its most simplistic form, the correction will unfold as a series of three waves. The first wave of a correction will move in the opposite direction of the trend. The second wave of a correction will move in the direction of the trend and is labeled as a B wave. Lastly, there is typically a C wave which will usually trade below the A wave.

Our technical studies indicate that currently, we are in a long-term A wave which I believe could conclude at approximately $1682. This would be followed by a rally (wave B) that would trade roughly between 50% and 75% of the decline witnessed in the first corrective wave, wave A.

Chart 4

chart 4

Chart four creates a model assuming that the first leg of this correction will take gold pricing to $1690, the 32.8% Fibonacci retracement of the fifth wave. Furthermore, it projects that wave B will unfold as a rally, taking gold from just below $1700 to between $1890 and $1990.

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

Gary S. Wagner