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

For more information on our service, simply use this link.
Wishing you, as always, good trading and good health,

Gary Wagner

 

Federal Reserve’s Monetary Policy Moves Gold Substantially Higher

Yesterday’s release of the Federal Reserve’s current monetary policy, coupled with statements made during the press conference by Chairman Powell, signaled a continuation of the extremely accommodative stance. By keeping interest rates (Fed funds) near zero, and their ongoing purchases of mortgage-backed securities and U.S. debt. The Federal Reserve has had the enormous task of reigniting a $20 trillion economy that was brought to its knees as a direct result of the global pandemic which caused a global recession.

Chairman Powell made it clear that they will continue to support the economy until their goal of maximum employment is reached. He added that the jobs market in the United States still had “ground to cover” before they would begin to normalize rates and begin to taper their asset purchases. He also maintained the assumption that the vast majority of the current inflation rate is transitory.

gold july 29

However, the CPI (Consumer Price Index) is currently at 5.4%, and that high of an inflation level has not been seen since 2008. The Federal Reserve’s go-to inflation index the PCE (Personal Consumption Expenditures), is now at 3.4%. This is well above what the Federal Reserve anticipated when they decided to focus on the labor market, and let inflationary pressures run hot.

The economy in the United States is growing rapidly as businesses reopen. The U.S. economy is bigger now than it was before Covid, according to the Commerce Department through the St. Louis Federal Reserve. GDP is currently at 6.5% at an annual pace in the second quarter of 2021. This follows the GDP of the first quarter which came in at 6.3%. However, economists polled by the Wall Street Journal had estimated that there would be a 9.1% growth rate in the GDP.

What is alarming is the steps that were necessary to take the battered economy in the United States to its current strong GDP numbers. Fiscal stimulus in 2019 was approximately $1 trillion. This was followed by an additional $4 trillion allocated for fiscal stimulus in 2020. In the first quarter, the new administration added $1.2 trillion in fiscal stimulus. Collectively the programs created by the United States government have raised our national debt, which is now hovering close to $30 trillion. In February 2020 the national debt was at $23.3 trillion. Even Chairman Powell acknowledge last month our current spending and debt level is not sustainable.

The Federal Reserve’s balance sheet of assets has now swelled over $8 trillion. During the 2009 recession, the Federal Reserve’s balance sheet swelled to approximately $4.5 trillion, which was reduced by tapering to $3.7 trillion. The Fed balance sheet has more than doubled in the last two years.

Simply put, the enormous debt that the United States has to carry has a tremendous cost in terms of interest payments even at the current extremely low rates. The ramifications of the United States servicing of higher interest rates is that it will put tremendous pressure on the ability of the U.S. treasury to service that debt.

The extreme level of debt could easily continue to pressure the U.S. dollar lower and that in turn would move gold higher as investors turn to the safe-haven asset class which has protected investors against inflation for hundreds of years and most likely will continue to do that for many years to come…

For more information on our service, simply use this link.
Wishing you, as always, good trading and good health,

Gary Wagner

Federal Reserve Concludes FOMC Meeting

As many analysts predicted the Federal Reserve did not fast-forward the timeline to raise their Fed funds rate (the interest rate that banks and other depository institutions lend money to each other). The current Fed funds rate will remain between zero and 25 basis points (1/4%).

Although they discussed their current asset purchases of $120 billion monthly, the Federal Reserve statement and Chairman Powell announced that they will likely reduce their monthly purchases of mortgage-backed securities and U.S. debt instruments simultaneously when data shows substantial progress in the economy. During the press conference Fed Chairman Jerome Powell said, “There really is little support for the idea of tapering MBS earlier than Treasuries. I think we will taper them at the same time,” although he added that, “The idea of reducing MBS purchases at a somewhat faster pace than Treasuries does have some attraction for some people – others not so much. I think it’s something that we’ll be continuing to discuss.”

According to Forbes Advisor, “The Fed did not, as expected, lift interest rates from their near-zero level, nor did it announce when it planned to let up on its $120 billion in monthly bond purchases. Nevertheless, with inflation soaring quickly and some employment measurements finally starting to show sustained improvement, it did hint at considering such a move in the future.”

Yesterday Citibank’s U.S. economists correctly reported that they “expect the July 28 FOMC meeting to be broadly neutral, with the Fed acknowledging the possibility of a new Covid wave while remaining optimistic about the outlook and watchful for upside inflation risks.” They also suggested that investors should “expect the Fed to have detailed discussions about tapering, and likely make some decisions about the nature of tapering and policy sequencing, but without disclosing full details or timing.” ‘

They were also 100% correct on their takeaway that they were biased to fade U.S. dollar strength. As of 5:52 PM EST the dollar index is down 14 points and fixed at 92.295.

As of 5:58 PM EST gold futures basis, the August 2021 Comex contract is fixed at $1806 which is a net advance of just over six dollars per ounce. As the most active August 2021 Comex contract is coming up for the first notice day, traders are rolling over to the next most active contract which will be the December 2021 contract month. Currently, the December contract is trading up $6.90 and is fixed at $1811.50 as trading begins in Australia.

gold July 28

With today’s conclusion of the FOMC meeting, we can expect further dollar weakness and gold to firm up from their recent lows and begin to trade higher once again.

For more information on our service, simply use this link.
Wishing you, as always, good trading and good health,

Gary Wagner

Federal Reserve Begins this Month’s FOMC Meeting

The Federal Reserve holds eight regularly scheduled meetings during the year along with any other meetings which are needed. It is during these meetings when voting members of the Federal Reserve will solidify its monetary policy and announce it to the public through a written statement as well as Chairman Powell’s press conference which follows the conclusion of the meeting.

While it is fairly certain that the Federal Reserve will not fast-forward the timeline to raise their Fed funds rate (the interest rate that banks and other depository institutions lend money to each other), they will be discussing their current asset purchases of $120 billion monthly. Many analysts believe that to continue to purchase mortgage-backed securities in an already extremely heated housing market is unneeded. According to GlobalPropertyGuide despite the pandemic, new home sales were up 43.2% on the year, and U.S. homebuilder sentiment is now at its highest for 35 years. Demand continues to exceed supply with existing home sales rising by 10.5% year over year.

Citibank’s U.S. economists “expect the July 28 FOMC meeting to be broadly neutral, with the Fed acknowledging the possibility of a new Covid wave while remaining optimistic about the outlook and watchful for upside inflation risks.”

They also “expect the Fed to have detailed discussions about tapering, and likely make some decisions about the nature of tapering and policy sequencing, but without disclosing full details or timing.” Their net takeaway is that they are biased to fade U.S. dollar strength. That being said the U.S. dollar is still near its strongest level since early April. Currently, the dollar index is fixed at 92.50 which is a net decline of 15 points, or -0.16%. In April the dollar index traded to a high near 93.50.

As of 5:08 PM EST gold futures basis, the August 2021 Comex contract is fixed at $1798.80 which is a net decline of $0.40. Gold futures traded to a high today of $1805.40 and a low of $1792.80. This extremely subdued trading range can be attributed to market participants awaiting the conclusion of the FOMC meeting tomorrow.

gold daily July 27

This is because the C.D.C has just revised its decision made two months ago once again suggesting that vaccinated individuals resume wearing masks in public indoor spaces in parts of the country where the virus is surging. This most recent surge in new Covid cases is a direct result of the Delta variant which is a much more contagious variant affecting even those individuals who are fully immunized. In a news briefing today Doctor Rochelle Walensky, director of the C.D.C said, The Delta variant is showing every day its willingness to outsmart us.”

With the recent uptick in new Covid-19 cases, it seems highly unlikely that the Federal Reserve will enact any strong modifications to their current monetary policy.

For more information on our service, simply use this link.
Wishing you, as always, good trading and good health,

Gary Wagner

Market Participants Await Forward Guidance from Federal Reserve

When central banks provide forward guidance, individuals and businesses will use this information in making decisions about spending and investments. Thus, forward guidance about future policy can influence financial and economic conditions today.”

The FOMC began issuing forward guidance in its post-meeting statements in the early 2000s. Since then, it has been a central component for corporations, as well as the investment public at large to determine any changes in the Fed’s monetary policy from the FOMC meeting to the FOMC meeting. While it is highly anticipated that the Federal Reserve will leave their Fed funds rate intact between 0 and ¼% and continue their monetary policy of purchasing mortgage-backed securities and U.S. debt allocating $120 billion per month, the exact timeline in which they will begin to implement tapering of quantitative easing and low-interest rates remains an uncertainty.

As of 4:15 PM EST gold futures basis, the most active August 2021 Comex contract is currently trading lower by $4.60 and fixed at $1797.20. It seems as though gold investors and traders are hoping for the best but preparing for the worst which has put gold pricing on the defense recently. This marks the first time since July 6, 2021, that gold futures have effectively closed below the key psychological level of $1800 an ounce.

gold July 26

In an interview with Neils Christensen, editor of Kitco News, Rob Haworth, senior investment strategist at U.S Bank Wealth Management, said that in the “near term, he expects gold prices to remain on the defensive as investors on the ongoing economic recovery in the U.S.”. During the interview, Rob Haworth also said, “near term, he expects gold prices to remain on the defensive as investors on the ongoing economic recovery in the U.S.”

However, the senior investment strategist at U.S Bank Wealth Management cautioned, “that investors might have to wait until September to see how the next recovery phase unfolds. A new wave of the COVID-19 virus is sweeping through the U.S.” Depending on how the new Delta variant is controllable and whether or not it leads to schools opening up or not is the main contingency as to whether or not the current recovery transitions into a longer expansion phase.

Beginning tomorrow the Federal Reserve will commence its two-day Federal Open Market Committee meeting in which it is highly expected that Fed members will deliberate the most likely and viable timeline begin to unwind the unprecedented purchases of $120 billion monthly of mostly United States debt purchases. They will lay out the specifics of their current monetary policy offering the public forward guidance. The forward guidance will be released in the statement immediately following the conclusion of this month’s FOMC meeting. This will be followed as always by a press conference held by Federal Reserve Chairman Jerome Powell.

On a technical basis, our studies indicate that there is still a strong level of support at gold’s 100 days moving average which is currently fixed at $1745.50, as well as the 50% retracement of the last major rally which began at the end of March 2021 when gold traded from a low of $1674 to the highs achieved on June 1, 2021, when gold traded as high as $1919 per ounce. Currently, we see major resistance at the 38.2% Fibonacci retracement using the same data set as mentioned above which is currently fixed at $1825.40.

For more information on our service, simply use this link.
Wishing you, as always, good trading and good health,

Gary Wagner

 

Higher Debt Yields, Equities, and the Dollar in the U.S. Continue to Pressure Gold

Gold July 23

As of 4:19 PM EST gold futures basis, the most active August 2021 Comex contract is fixed at $1802.30, which is a net decline of $3.20 (-0,18%). Silver is also trading under pressure, with the most active September 2021 Comex contract fixed at $25.26 after factoring in today’s decline of $0.12 (-0,49%).

Silver July 23

One of the primary asset classes which have recently been pressuring the precious metals to lower pricing is the U.S. equities market. The risk-on asset class continues to trade to achieve new all-time highs. Today, for the first time in history the Dow Jones Industrial Average closed above 35,000 After it closed at 35,061.55. The S&P 500 also hit an all-time high of 4411.79 after factoring in today’s gain of 1.01%. The NASDAQ composite had a gain of 1.04% that took the tech index to record highs as well, reaching 14,836.9911. With all three major indices closing at all-time highs, it is obvious that capital continues to flow into the U.S. equities markets.

Nasdaq Comp Area Chart July 23

SP 500 July 23

Dow Area Chart July 23

Another asset class that is pressured the precious metals lower is rising yields on U.S. debt. Today yields on the 10-year Treasury note moved fractionally higher after trading to an intraday high of 1.3%. By the close of the market today, the 10-year Treasury note closed at 1.28% which is a gain of 2.2 basis points when compared to yesterday’s close of 1.264%.

There has also been pressure on gold and silver pricing from the U.S. dollar. Today the dollar index gained fractional value closing at 92.885, a gain of 0.055 points or 0.06%. The dollar has moved from the lows of 88.50 which occurred in the middle of May 2021, to its current value close to 93. This rise over the last two months has certainly pressured gold pricing lower, as there is an intrinsic negative correlation between the dollar and gold because gold prices are paired against the U.S. dollar.

The combination of higher U.S. equities, rising yields on government debt, and U.S. dollar strength have pressured gold to trade in a consolidating range around $1800 per ounce. Although unquestionably we have seen a tremendous uptick in inflation, we are not seeing gold reacting by trading to higher prices. With the CPI currently at an annually adjusted rate of 5.4%, and the PCE (the preferred inflation index used by the Federal Reserve) is currently at 3.4%, gold’s tepid reaction to that is a quagmire. The only plausible explanation is the headwinds from the asset classes we spoke about above continuing to pressuring gold pricing.

Next Week’s FOMC Meeting

The key to the gold prices is going to be next week’s FOMC meeting when the Federal Reserve will announce its current monetary policy. Chairman Powell’s last statements came earlier this month when he spoke to Congress. During this discussion, he stated that he thinks “the sharp rise in inflation seen so far this year will fade away.” He also said that it would be a “mistake” for the Fed to act “prematurely” to address the high inflation that, in the end, should be transitory. He also stated that “While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue.”

That being said the expectation out of next week’s FOMC meeting should be that the Federal Reserve maintains its current monetary policy, which is extremely accommodative and dovish. If that is the case, we should see gold prices react in a bullish manner.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold Trades Lower to Critical Support and Recovers after the Release of U.S. Jobless Claims

Gold futures traded to a low today of $1791 which is a few dollars below this technical support level. This price point is also the 50% retracement from a data set that begins at the March lows of $1672, up to the highs achieved at the beginning of June when gold touched $1920.

However, gold scored modest gains on the day recovering from intraday lows below $1800, with the most active August 2021 Comex contract gaining $3.40 on the day and closing around $1806. Currently, we have gold futures trading in Australia up $2.20 and fixed at $1807.60.

gold July 22

The recovery was based upon two primary events, the first of which was a release by the U.S. Labor Department of jobless claims. According to CNBC, U.S. jobless claims showed a surprise gain, well above expectations. The weekly jobless claims totaled 419,000 for the week ending July 17. Estimates by Dow Jones anticipated that the weekly jobless claims would come in around 350,000 before upwardly revising that number two 368,000 from the previous period.

“The jobless total was the highest weekly count since May 15 and came amid expectations that the jobs picture will improve markedly as enhanced unemployment benefits end and companies get more aggressive about filling vacant positions.” Currently, the total of individuals receiving benefits under all government programs is 12.57 million.

According to Reuters, “The number of Americans filing new claims for unemployment benefits rose slightly last week but continuing claims dropped, another indication that the labor market recovery from the COVID-19 pandemic continues to be choppy.”

The second primary event was an announcement by the European Central Bank which was interpreted as dovish. According to MarketWatch, “Early Thursday, U.S. Treasury yields had continued to rebound from a five-month low and the dollar strengthened after the European Central Bank struck a dovish stance as it adjusted its rate guidance following its earlier adoption of a new inflation target.”

Carlo Alberto De Casa, market analyst for Kinesis, told MarketWatch that he still, “sees the current phase as a “consolidation, with decent chances of a new rebound in the next few days if the U.S. dollar slows down.”

What is key in recent trading activity is that gold continues to consolidate but holds the critical support level at approximately $1795. It is tested those lows on multiple occasions and recovered, closing well above $1800. This is truly consolidation.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold Fights Against the Currents of the Dollar, Rising Yields, Equities, and Crypto

Recently it has been struggling successfully to stay above $1800 per ounce. On Monday as well as today, gold prices came close to testing the 100-day moving average, which is currently at $1792.10, and on both occasions closed just above $1800.

gold July21

In the case of today’s intraday low of $1794.30 for gold futures, it was dollar strength in trading overseas last night that took prices to that low. However, the dollar closed lower in New York trading, which resulted in gold moving back above $1800. As of 5:30 PM EST gold futures basis, the most active August 2021 Comex contract is fixed at $1803.80, which is a net decline of $7.50. Concurrently the dollar index has come off of the highs of 93.19 achieved last night and is currently trading at 92.84, which is a net decline of -0.015%.

Yields on the 10-year Treasury Note gained 0.0710 or 5.87% and is currently fixed at 1.28%, creating another strong current that is curtailing any upside movement in gold.

There is also a case to be made that investment dollars today were flowing into U.S. equities markets. The S&P 500 gained 0.82%, the Dow gained 0.83%, and the NASDAQ composite gained 0.92% in trading today.

Cryptocurrencies also showed significant gains today, with Bitcoin Futures gaining 7.07% and Ethereum gaining 8.85%.

Investors always look to have their money in asset classes that will return the greatest results. With strong U.S. equities markets and the potential for cryptocurrencies to have found tentative support, it makes it more difficult for gold prices to rise.

Market participants await the FOMC conclusion meeting on July 28

The future direction of gold prices could certainly be influenced by the upcoming FOMC meeting, which begins on July 27 and concludes the following day when a statement is released, and Chairman Powell has a press conference. The statement, along with Chairman Powell’s press conference, will reveal any change in their current monetary policy.

Market participants are also waiting for any announcement by the European Central Bank on Thursday. According to an article by James Hyerczyk written in FX Empire said, “Gold futures are edging lower on Wednesday, pressured by a firmer U.S. Dollar ahead of the European Central Bank (ECB) announcements on Thursday, another rise in U.S. Treasury yields and increasing demand for riskier assets with U.S. equity markets hovering slightly below record highs. Despite having its gains capped, the market appears to be underpinned by some inflows into the safe-haven metal due to concerns over a surge in COVID-19 cases.”

The fact that gold remains above $1800 is bullish. Especially as we have seen the dollar move higher, yields in 10-year notes and U.S. equities markets both exhibiting gains.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold; Small Steps, as the Precious Yellow Metal Has Fractional Gains

What is most noteworthy on a technical basis over the last two trading days is that yesterday gold futures came close to testing support which occurs at $1791.40, the 100-day moving average.

Today gold futures tested the current resistance level which occurs at between $1826.30 and $1827.70. The lower resistance level is based upon a Fibonacci retracement of 38.2%. The data set used to create the retracement begins at $1677.20 which is the lows that occurred at the end of March 2021, up to the highs achieved during the first week of June 2021 at $1918.40. Gold futures traded to an intraday high of $1825.90, and a low of $1805.20.

daily gold july 20

This means that today’s trading activity included a higher high and a higher low than the previous day. However, the current level of resistance mentioned above was not broken and remains a critical price point that gold prices need to close above to go to the next level. Above that level, resistance occurs at $1837.50 this is based on the current
50-day moving average. The next level of resistance is based upon the 23.6% Fibonacci retracement at $1861.50.

Silver continues to trade under pressure with today representing the third consecutive day of moderate to strong price declines. Silver futures basis the most active September 2021 Comex contract declined by almost $0.18 per ounce, a .71% loss on the day, and is currently fixed at $24.965. Considering that silver futures opened at roughly $26.37 on Friday, silver is lost roughly 5.47% over the last three trading days. The current level of support occurs at $24.67 this is based upon the lows achieved at the beginning of April 2021. Resistance occurs at the 200-day moving average which is currently fixed at $25.88.

Silver july 20

According to MarketWatch, Craig Erlam, senior market analyst at Oanda in a market update said, “The yellow metal has been well supported in recent weeks and that could continue as long as policymakers hold their nerve in the face of higher inflation. The environment remains highly accommodative but challenges remain in the final months of the year, which may encourage patience and continue to be supportive for gold prices.”

MarketWatch also cited a market update by Victor Argonov, senior analyst and economist at EXANTE, “In recent days, we have seen bond yields come under renewed pressure as investors have rushed back to the perceived safety of government bonds, driving their prices higher.” He also cited concerns over the spread of the delta variant of COVID as the likely reason for the rise in bonds. “If the weakness for bond yields persists, the stage is set for gold to stage a [comeback] in the not-too-distant future.”

While it is unquestionable that gold prices have been rising since the end of June when gold futures were trading at $1750, it is also clear that this rally contains what could be described as “small steps “to higher prices.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Yields on 10-year U.S. Treasury Notes Drop as well as Gold

The higher the yield in the 10-year note (interest paid to the purchaser) has an inverse correlation to the price of gold. That means as yields rise in the U.S. debt instruments, it pressures gold to lower pricing. Inversely as yields drop in U.S. debt instruments it tends to create bullish undertones for gold pricing.

Today market participants witnessed the exact opposite with 10-year Treasury yields moving to a 10-year low, and gold prices also trading lower on the day. The 10-year note traded to a low of 1.179% the lowest yield in the last five years. The 10-year note closed at 1.193%, and gold futures recovered off of today’s intraday low of $1795.

What is most perplexing is that gold futures traded under tremendous pressure when the yield on the 10-year note fell to a low of 1.179%. However, it was dollar strength that accounted for all of today’s decline in gold futures. The U.S. dollar index is currently trading up 15 points, which is a net gain of +0.17%. When compared to today’s fractional decline in gold pricing which is currently -0.09%, it is clear that market participants were bidding the precious yellow metal higher and it was not all dollar strength that accounted for today’s decline.

Equities globally as well as the United States did all trade under pressure today with the Dow Jones industrial average losing -2.09%, the NASDAQ composite giving up -1.06%, and lastly the S&P 500 losing -1.59% in trading today.

Analysts across multiple platforms are attributing the decline in global equities to the uptick in infection rates of the Delta variant. Typically, this would also move US debt instruments higher as they have in other countries. So, the fact that we witnessed yields decline in the United States is a bit perplexing.

As reported by MarketWatch, “Gang Hu, a managing partner and TIPS trader at WinShore Capital Partners, says the once-popular reflation trade is already giving way to an entirely different trade as investors begin to factor in both slower-than-expected U.S. growth, along with the prospects of a prolonged period of higher inflation readings. What he calls “the tapering trade”—in which investors sell stocks and commodities while buying long-end Treasuries — has the potential to drive the 10-year rate to as low as 1% within the next two months, he says.”

As of 5:21 PM EST gold futures basis, the most active August 2021 Comex contract is currently fixed at $1813.30, which is a net decline of -$1.70 when compared to Friday’s close. However, when compared to today’s open of $1811.60 gold futures gained a couple of dollars from the opening price.

On a technical basis, the low that came in today was within four dollars of the 100-day moving average which is currently fixed at $1791.

gold July 19

For those who want more information, please use this link.

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

Gary S. Wagner

 

Equities Investors Focus on Inflation, While Gold Investors Seem to Ignore it

This is the polar opposite of what we have seen throughout the week, with equity investors largely ignoring the historically high CPI data (Consumer Price Index) that was released earlier this week by the U.S. Bureau of Labor Statistics. The report indicated that consumer prices in the United States had the greatest increase since 2008. It also came in well above forecasts from economists polled by the Wall Street Journal. The forecast had expectations that inflation for last month would raise approximately 0.5%, the actual numbers came in almost double the estimate at 0.9%. This took the annual inflation rate vis-à-vis the CPI to 5.4%.

The CPI differs from the PCE in that it includes food and energy costs. The PCE is the preferred index by the Federal Reserve. That index strips out food and energy costs. That being said, the PCE index is currently at an annual rate of 3.4%, which is well above the former target of the Federal Reserve at 2%. The Federal Reserve has long held a dual mandate of full employment and inflation at 2%. However, as the economy restarts in the United States, they have shifted their focus to full employment while letting inflation run hotter to achieve this goal.

In a statement made by Chairman Jerome Powell during his testimony before the House Financial Services panel this week, he acknowledged that not only is inflation running higher than the Federal Reserve anticipated but added that “Inflation …will likely remain elevated in coming months before moderating.”

Many market participants were concerned that the higher inflationary numbers would lead to action by the Federal Reserve to slow its dramatic rise. But during Chairman Powell’s testimony, he said that it would be a “mistake” for the Fed to “act prematurely” to combat inflation that, in the end, should be transitory.

His statements this week resulted in higher prices in gold but were largely ignored by equity investors who continue to bid stocks higher resulting in the Dow, the NASDAQ Composite, and the S&P 500 all hitting record highs earlier in the week. That seemed to reversed today with equity traders bidding all three major indexes lower with inflationary concerns cited as a primary catalyst.

Although gold closed higher on the week, it had a moderate to strong selloff today. As of 5:25 PM EST, the most active August 2021 Comex contract of gold gave up $16.50 (-0.90%) and is currently fixed at $1812.50.

july 16 Gold

Gold has been rallying ever since June 29, when market forces took the precious yellow metal to a low of $1750. Yesterday gold traded to a high of $1834 which was well above the 200-day moving average and just below gold’s 50-day moving average. On a technical basis, it is clear that the 50-day moving average, currently fixed at $1838, is the current level of resistance. However, today’s lower pricing was created with gold opening above its 200-day moving average and closing well below it.

Given the recent gains through July in gold, it is not surprising that we see some profit-taking enter the market. While this could mark the beginning of a correction, it is not likely that we will see gold trade below $1800, and we also see major price support at $1790.90, which is gold’s 100-day moving average.

For those who want more information, please use this link.

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

Gary S. Wagner

Gold Traders and Participants Continue to Focus upon Climbing Inflation

As of 5:55 PM EST, the most active August 2021 Comex contract is fixed at $1830.30 after factoring in today’s gain of $5.30. The market continues to factor in the rise in inflation that was reported yesterday by the government through its consumer price index.

Gold July 15

The other incredibly important factor was the testimony yesterday and today by Federal Reserve Chairman Jerome Powell in congressional testimony. His statements made it clear that they are willing to continue to let inflation run hotter than they had hoped for. According to the gauge used by the Fed which is the PCE (Personal Consumption Expenditure Price Index) the inflation rate on an annual basis is currently at 3.4%. This is well above their former target of 2% and surprisingly is well above what they expected inflation to move to which is below 3%.

Although the Federal Reserve has maintained that the vast majority of the upticks in inflation are transitory. That belief was put into question when Chairman Powell speaking before the house financial services panel, yesterday said, “Inflation has increased notably and will likely remain elevated in coming months before moderating.”

Over the last two days of testimony, the most important takeaway is that Chairman Powell said that it would be a “mistake” for the Fed to “act prematurely” to combat inflation that, in the end, should be transitory. This means that the Federal Reserve will continue its current dovish monetary policy with continued monthly purchases of U.S. debt and mortgage-backed securities totaling 120 billion per month. They will also keep their Fed funds rate between zero and 25 basis points (.25%).

With the PCE at 3.4% (this index does not account for increases in energy or food costs) and the CPI data which came out yesterday at 5.4%, it is clear to see that we have an inflation rate that is at its highest point since the recession of 2008.

More so, the Federal Reserve will not act to curtail the rise of inflation we should see gold continue to trade higher. On a technical basis, the major area of resistance that gold prices overcame today was $1826.30, which is the 38.2% Fibonacci retracement area. However, it closed just above its 200-day moving average which is currently fixed at $1828.70. Currently, Australia has begun to trade and gold is fixed again above both the 38.2% Fibonacci retracement, and its 200-day moving average and is trading at $1830.60. Real resistance does not occur until the 50-day moving average which is currently at $1838.30, with major resistance at $1861.50 which is based upon the 23.6% Fibonacci retracement of the last rally.

All things being equal it seems as though the Federal Reserve’s reluctance to curtail the rise of interest rates, and its belief that the vast majority of the rise of inflation is transitory we have a perfect storm scenario that could take gold dramatically higher.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold Investors Like What Chairman Powell Had to Say

In fact, Chairman Powell today acknowledged that inflation is above what the Federal Reserve is hoping to see. However, he tempered that statement by saying that this level of inflation will “moderate.”

Speaking before the house financial services panel, today Chairman Powell said, “Inflation has increased notably and will likely remain elevated in coming months before moderating.”

There are two primary indexes that are used to judge inflation rates and reported by the government: the CPI (consumer price index) and the PCE (Personal Consumption Expenditure Price Index). The Federal Reserve prefers to use the PCE index, which strips out energy and food costs. The monetary policy of the Federal Reserve prior to the pandemic and following recession was to keep inflation at a 2% target. However, the Fed has decided to let inflation run hot so that they can put their emphasis on maximum employment.

Currently, the PCE index is at 3.4%, well above the current target of the Federal Reserve. More alarming is that the government reported yesterday that the consumer price index (CPI) rose 0.9% last month, taking the inflation rate from an annualized 12-month basis in June to 5.4%. This is the highest-level inflation has been at since the 2008 recession.

Although the Federal Reserve admits it did not foresee how high inflation would rise, it is still insisting that much of the inflationary pressures are temporary. The Fed’s forecast is that the PCE index, which is at 3.4%, will fall to 2.1% in 2022 and 2.2% in 2023.

Because of these expectations, Chairman Powell said that it would be a “mistake” for the Fed to “act prematurely” to combat inflation that, in the end, should be transitory. This means that the Federal Reserve will continue its current dovish monetary policy with continued monthly purchases of U.S. debt and mortgage-backed securities totaling 120 billion per month. They will also keep their Fed funds rate between zero and 25 basis points (.25%).

The Fed has maintained the stance that it will continue its current interest rate policy and monthly asset purchases until there was “substantial” progress towards its goal of full employment and stable long-run 2% inflation.

What this means to gold traders and investors is that the Federal Reserve is likely to continue their current mandate letting inflation continue to run hot until they see substantial progress towards full employment. With the inflation rate already at record highs similar to those seen in 2008, if, in fact, they do not raise rates in attempts to curtail rising inflation, we could see those numbers actually move higher.

That is why gold reacted so strongly today, gaining $18.70. Gold futures basis, the most active Comex contract is currently fixed at $1828.60. Today’s move was substantial, but there is a caveat to current pricing. The caveat is the high of $1828.60 matches the 200-day moving average, which is a logical place where we could see resistance.

gold july 14

Gold pricing is certainly at a crossroads; if this resistance proves to be strong, we could see gold prices back off. More importantly, if we see a substantial break and close above current pricing, that would indicate a solid breakout. The 50-day moving average, which recently formed a “golden cross “when it moved above the 200-day moving average, is currently fixed at $1836.40, and the 23.6% Fibonacci retracement level occurs at $1861. Those will be our upside targets if gold pricing manages to trade and close above $1829.40, the current fix of the 200-day moving average.

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold Is Unable to Sustain Gains Even in Light of Higher Inflation and Dovish Fed

However, nothing seems further from the truth. Today the government released its CPI (Consumer Price Index) for the month of June, which showed that the current inflationary rate is the largest since 2008. Although economists polled by the Wall Street Journal estimated that the report would indicate a 0.5% increase, the actual numbers far exceeded economic forecasts. The CPI increased by 0.9% compared to last month, almost double the forecast by economists.

inflation cpi july 13

While some of these increases continue to be the net result of supply chain issues, as well as the inability to fill jobs, the majority of increases are the result of higher food and energy pricing. Added to that, additional costs related to travel such as airfare and hotel pricing contributed to this most recent uptick in inflation. The CPI was already at an alarming 5%, the current rate of inflation for the last 12 months ending in June is now at 5.4%. This marks the highest inflationary rate since 2008.

According to the U.S. Bureau of Labor Statistics, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June on a seasonally adjusted basis after rising 0.6 percent in May, the U.S. Bureau of Labor Statistics reported today. This was the largest 1-month change since June 2008 when the index rose 1.0 percent. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment; this was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008.”

The report noted that the index for used cars and trucks continues to rise sharply, increasing by 10.5% in June. This increase accounted for more than one-third of the seasonally adjusted increase. However, goods and services that could contain a systemic continuation, such as food, increased by 0.8% in June. That is double the 0.4% increase that was reported in May. The energy index increased 1.5% in June, with the gasoline index rising 2.5% over the month.

Higher inflationary pressures are certainly bullish market forces for gold prices, but with a caveat, higher inflations could force the Federal Reserve to raise interest rates sooner than expected, which would be bearish for gold. However, members of the Federal Reserve have continued to maintain a dovish demeanor and accommodative monetary policy. Federal Reserve Bank of New York President John Williams on Monday said that “conditions for scaling back its 120 billion a month bond-buying stimulus program have yet to be met. We set a very clear marker, I think, not a quantitative marker, but a very clear marker that we want substantial further progress [on job market improvement] relative to where we were.”

usdx 71329021

The president of the St. Louis Fed, James Bullard, said that the “Federal Reserve should not start reducing the stimulus it provides the U.S. economy, adding that the reduction didn’t need to start immediately.”

What is clear is that inflation continues to be persistent, and a large portion will be sustainable and not transitory. It is also clear that the Federal Reserve continues to maintain an extremely dovish demeanor. What is not clear is why gold did not react in a more bullish manner, currently trading at $1807.70, which is only a net gain of $1.80 on the day.

gold july 13

For those who want more information, please use this link.

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

Gary S. Wagner

 

Gold Holds Steady Above $1800 but Fails to Truly Break Out to Higher Prices

Gold hit an intraday low on June 29 of approximately $1750 and then traded higher for the next five consecutive trading days. This took gold futures above their 100-day moving average, which is currently fixed at $1789.80, before forming a base and trading sideways just above $1800 per ounce.

As of 4:50 PM EST gold futures basis, the most active Comex contract is currently down four dollars at $1806 per ounce. This is a net change of – 0.22%. Dollar strength was a partial contributor to today’s modest decline. The dollar index is currently up +0.13%, a gain of 12 points, and fixed at 92.235. This indicates that roughly half of today’s price decline in gold can be attributed to dollar strength. However, it was the continuation of an exceptionally strong U.S. equities market that pulled investment capital away from the safe-haven asset and into the risk-on asset class.

gold July 12

The NASDAQ composite gained 31 points in trading today and closed at 14,733.2397, which is a new record high. The S&P 500 also hit a new record high and, after gaining 15.08 points, closed at 4384.63. Lastly, the Dow Jones Industrial Average gained 126.02 points and closed at 34,996.18. This was the highest close on record, although it hit an intraday high on May 10, just above that price point.

Gold has traded from $1750 per ounce to an intraday high last Thursday of $1819. Some analysts believe that this most recent pullback is simply profit-taking following the most recent run-up in gold of approximately $70.

The key elements that market participants are focusing upon are the direction of interest rates as well as any potential retracement from recent gains in the U.S. equities markets. The U.S. 10-year notes have seen diminishing yields which are currently fixed at 1.373%, and the 30-year Treasury bond fixed at 2.002%. Current yields are at their lowest point since February of this year.

In an exclusive interview today with Bloomberg news, the European Central Bank President, Christine Lagarde, was asked if it was time to begin to look at rolling back some of the recent accommodative monetary policies, in which she quickly answered, “This is not the time to consider that.”

However, it was reported by Reuters today that the European Central Bank will chart a new policy path at its next meeting to reflect its change in strategy and how to show it is serious about reviving inflation. Last week the ECB announced a new strategy similar to that of the Federal Reserve to tolerate letting inflation run hotter above its 2% goal when interest rates are near zero as they are now.

Reuters reported that “This is meant to reassure investors that policy will not be tightened prematurely and cement their expectations about price growth, which has lagged below the ECB’s target for most of the past decade.”

The Federal Reserve Chairman Jerome Powell will speak to Congress this week with an update on the Fed’s current monetary policy. According to CNBC, a “part of his task will be selling the Fed’s still easy policies in the wake of a strong economy and surging inflation.” Powell continues to be steadfast that the current accommodative monetary policy will remain fully intact until “substantial further progress” is made towards the Fed employment and inflation goals.

Chairman Powell’s difficult task will be to convince Congress that it is necessary to maintain its current dovish monetary policy in light of the fact that U.S. equities continue to rise and GDP continues to strengthen. With inflationary pressures at the highest level they have been at in eight years and a surge in housing prices, this could be a hard sell at best.

The fact that both the ECB and the Federal Reserve have collectively continued to promote their accommodative stance could be the underlying impetus needed to move gold to higher pricing.

For those who want more information, please use this link.

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

Gary S. Wagner

What Distinguishes Japanese Technicians from Western Technicians

However, within years I realized that there were major shortcomings to the Western technical approach as they were based upon technical studies which used lagging indicators.

One of my mentors, Larry Williams expressed that sentiment in the best possible way. He said that as a Western technical analysts we are like individuals sitting at the back of a boat looking at the wake caused by the propellers. We are attempting to derive where the boat is headed by determining where it has been. Truly a lagging indicator. But he added one caveat, “only the captain knows when he will turn the wheel”.

However, it was a client of mine that first exposed me to the art of Japanese technical analysis. Within my first few years of trading, I noticed that the vast majority of first-time futures traders lost money. Within that pool of new traders, I noticed one gentleman who had the uncanny knack of selling market tops right before a key reversal, as well as buying market bottoms before a pivot occurred.

After witnessing him correctly predict and profit from 10 consecutive trades, I realize he was using a technique that was completely foreign and unfamiliar to me. I asked him what techniques he used to have such a stellar performance and he answered that it would be too complicated to explain, but he could send me a book that would detail this technique.

The book I’m referring to is the Japanese chart of charts written by Seiki Shimizu. It was the first book written by a famous Japanese trader and translated into English in 1986. It is one of the more difficult books I have ever tackled in that the Japanese language is composed of “Kanji”, or word pictures.

According to Seiki Shimizu, “A chart is like a cat’s whiskers” In his book, he writes “Standing on the corner we notice many things… in the case of a skipping rope, a child will always focus on the moving rope while jumping. However, this habit and instinct are not limited to human beings. A cat preying for a mouse will wait near a likely hiding hole. If a mouse does appear, the cat must decide which way it thinks the mouse will go and springs in that direction once the mouse begins to move. I don’t think the cat understands the mouse’s feelings and thought patterns. It’s the cat’s whiskers that are said to have the telepathic power of being able to interpret a mouse’s movement by smell, light, and wind. Therefore, I believe it is this power that moves a cat’s whiskers, whereupon the cat decides whether to wait or chase after the mouse.

It is said that “A market price is a living thing.”

Japanese Candlestick Charts and their patterns were conceived over three hundred years ago by a rice trader named Sokyu Honma (1716 -1803). Sokyu lived in Sakata, Japan, and was also known as Sokyu Honma and Munehisa Homma.

It was rumored that he made 100 consecutive profitable trades. His success was so great that he achieved the rank of honorary Samurai, as well as attaining the government rank of a financial advisor.

At first, his methods of trading were kept a secret as they were passed down when he compiled a book in 1755 called the ‘Fountain of Gold – the Three Monkey Record of Money’. This book detailed his findings and observations of market sentiment.

Simply put the Japanese technical approach can mathematically quantify market sentiment. Something that has alluded to Western traders.

This article has been written as an ancillary discussion to the interview that David Linda myself did this morning in which we spoke about my methodology. As it is too complex to be able to discuss the totality within a single opening letter I am providing links to articles that I have written for Kitco education at the end of this article.

I hope that the knowledge presented within these brief presentations will allow you as a trader to gain insight, and most importantly be a more effective trader.

For those who want more information, please use this link.

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

Gary S. Wagner

References on the Japanese candlestick technique found in the Kitco education section;

THE HISTORY OF JAPANESE TECHNICAL ANALYSIS

EAST VERSUS WEST (LESSON ONE)

EAST VERSUS WEST – CLASSIC NAMES AND EXPLANATIONS OF JAPANESE CANDLESTICKS (LESSON TWO)

THE SAKATA FIVE

AN INTRODUCTION TO HEIKIN-ASHI CHARTS

Falling Yields of the 10-Year Note Support Higher Gold Prices

They revealed that Federal Reserve members are now talking about the timeline to start reducing their asset purchases at a pace quicker than earlier anticipated. The net effect on U.S. debt instruments was a drop in the existing yields. Currently, the 10-year Treasury note is fixed at 1.315%, with the 30-year treasury at its lowest level since February at 1.936%. Declining yields increase the demand for the safe-haven asset gold as it lowers the cost of owning the precious yellow metal.

The Federal Reserve continues to look at current inflationary rates as transitory. At the same time, Federal Reserve participants, while believing that the current inflationary rate will dissipate over time, remarks were made that many members believe that the bottlenecks caused by supply-chain limitations and input shortages will continue to put major pressure on pricing into next year.

The minutes also revealed that Fed members believe that tapering their asset purchases which are currently set at $120 billion monthly, buying both mortgage-backed securities and federal debt instruments is a “matter of prudent planning.”

The current belief is that with the strength of the housing market, it is unnecessary to continue to allocate $40 billion each month to purchase mortgage-backed securities. This is one economic sector that is doing exceedingly well, showing substantial progress much sooner than anticipated.

As of 4:50 PM EST gold futures basis, the most active contract is currently trading up by $9.90 and fixed at $1804.10. This marks the fifth consecutive day in which the market closed above the prior close with a higher high and a higher low (with one exception) than the previous session. The last time gold traded above $1800 was on June 16.

gold july 7

Noteworthy is the fact that typically there is an inverse correlation between the U.S. dollar and gold. However recent action has proved to be the opposite. Both the dollar as well as gold have been moving to higher ground over this last week. The most recent rise in gold prices has occurred in conjunction with record levels in U.S. equities.

While the negative correlation is a common occurrence, there is an exception to that rule. When the Federal Reserve has an extremely accommodative monetary policy including extremely low-interest rates, coupled with quantitative easing, both equities and gold seem to move in tandem to higher pricing.

On a technical basis, there are multiple indicators that gold has once again become bullish in the eyes of market participants. The first of which is a golden cross which has recently been identified with the shorter-term 50-day moving average crossing above the longer-term 200-day moving average. The second technical indicator which strengthens the resolve of the bullish faction is that this most recent decline took gold prices to just below the 61.8% Fibonacci retracement and extremely acceptable price decline for a normal correction.

It seems as though market participants have come to terms with the fact that the Federal Reserve at some point will begin to taper their asset purchases and for the most part, has baked that into current pricing. The initial shock occurred immediately after the FOMC released its statement, and Chairman Jerome Powell addressed reporters during a press conference immediately following the statement’s release. Now that the shoe has dropped and market participants reacted to the inevitable reality that the Fed at some point will taper their asset purchases, the shock and awe are over.

For those who want more information, please use this link.

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

Gary S. Wagner

Market Participants Await Tomorrow’s U.S. Jobs Teport

The jobless claims report came in just below the Dow Jones estimate of 390,000. This was the lowest total since March 14, 2020.

However, according to CNBC, “Despite the drop in weekly claims, the level of continuing claims increased to 3.47 million, up 56,000 from the previous week. However, that data runs a week behind the headline number and likely represents the unexpected upswing in the previous week’s count.”

According to Reuters, “The number of Americans filing new claims for unemployment benefits fell more than expected last week.” But cautioned that, “a shortage of willing workers is hampering hiring, with other data on Thursday showing a measure of employment at factories contracting in June for the first time in seven months.”

They quoted Chris Rupkey, chief economist at FWDBONDS in New York as saying, “America’s back to work, and an important milestone was reached where new claims are back below the 400,000 barriers after a hiccup at the start of June. Summer is always the strongest season for hiring each year, and this year is no exception.”

Expectations for the U.S. Labor Department’s nonfarm payroll numbers, which will be released tomorrow will likely show nonfarm payrolls increasing by 700,000 jobs, according to a Reuters survey of economists. It would also be a huge uptick from the June jobs report which indicated that only 559,000 new jobs were added in May. The forecast for the unemployment rate is looking for a downtick from 5.8% to 5.6%. Considering that the unemployment rate in June 2020 was at 11.1%, a large part of our unemployed workforce has returned after finding gainful employment.

For the most part market participants, traders, and investors have baked this information into current pricing. It is partially fueled the continuing rally in the US. S equities. The Dow Jones industrial average gained 131 points closing at 34,633. The NASDAQ composite closed near its all-time highs gaining 18.422% and is currently fixed at 14,522.3755. Lastly, the S&P 500 gained ½ a percent in trading today and with the additional 22.44 points closed at a new record high of 4319.94.

Concurrently we saw dollar strength and gold futures trade higher. The U.S. dollar index gained 0.13% and is currently fixed at 92.555. Gold futures gained $5.70, and basis the most active August 2021 Comex contract is currently fixed at $1777.30.

July 1 Gold

However, traders and market participants continue to focus on how hot inflationary pressures get. The Federal Reserve continues to hold its belief that a large majority of the recent uptick in inflation is transitory. However, this goes against the government’s latest reports. The CPI index has grown to a 5%. The Federal Reserve has adjusted its primary mandate to allow inflation to run hot above its 2% target. However, The PCE index (the go-to index the Federal Reserve uses to gauge inflation) is now almost double of the Fed mandate at 3.9%. Many analysts continue to insist inflationary pressures could most certainly be sustained and not temporary as the Fed continues to believe.

For those who want more information, please use this link.

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

Gary S. Wagner

The Last Trading Day of the First Half of 2021 Concludes, and Gold Incurs Losses

Gold futures opened at $1954 on the first trading day in January and closed today at $1770.60, suffering a drawdown of $184. That means that gold lost 9.416% in value over the first half of 2021.

Gold as of June 30 2021

Headwinds from dollar strength, a flight into the cryptocurrencies during the first quarter of 2021, higher yields in U.S. debt instruments, and a strong U.S. equities markets all contributed to gold’s price demise during the first half of this year.

The U.S. dollar index traded at 89.85 on the first trading day of 2021 and is currently fixed at 92.345, gaining 2.495 points in the first half of 2021. This is an increase of approximately two ½% in the value of the U.S. dollar when compared to a basket of six major currencies.

Both the NASDAQ Composite and Standard & Poor’s 500 were extremely strong, closing at or near record levels by the close of trading today. The S&P 500 closed at a record high, with the NASDAQ composite closing slightly lower on the day after hitting a record high close earlier this week. According to Dow Jones data, the three major U.S. stock indexes recorded the best two-quarter performance since 2019.

ADP Report shows that 692,000 jobs were added in June

The precursor to Friday’s U.S. Labor Department’s jobs report is the ADP (Automatic Data Processing) private sector came in today, indicating that 690,000 private-sector jobs were added from May to June. Economists polled had forecasted that the ADP report would indicate between 550,000 and 600,000 new jobs created. Obviously, the actual numbers came in well above economic forecasts. Concurrently the May numbers were revised down to 886,000 jobs from the original number of 978,000. The service sector was the primary recipient of new jobs with gains of 624,000, with good producing jobs coming in at 68,000.

Change-in-Nonfarm-Private-Employment-June-2021

It is currently believed that the ADP numbers are quite in line with expectations for the U.S. Labor Department’s nonfarm payroll, which will be released on Friday. Currently, the forecast for Friday’s jobs report is an additional 706,000 new jobs added. If the jobs report comes in in line with economic forecasts, it would indicate an uptick from the 559,000 new jobs reported by the Labor Department in May 2021. The forecast for the unemployment rate is looking for a downtick from 5.8% to 5.6%. Considering that the unemployment rate in June 2020 was at 11.1%, a large part of our unemployed workforce has returned after finding gainful employment.

While the ADP jobs report is a precursor to Friday’s U.S. Labor Department report, it is not always a great indicator of the numbers that will be revealed on Friday. However, it has been more than just jobs filled in the United States that has pressured gold pricing lower over the first half of this year. As we spoke about at the beginning of this letter, it has been a combination of multiple fundamental factors that resulted in an almost 10% decline in gold pricing. What will occur over the second half of 2021 is hard to estimate. A main factor and focus will be how hot inflationary pressures get. Although the CPI has grown to a 5% inflationary rate, and the PCE is now almost double the mandate of the Federal Reserve at 3.9%, inflationary pressures could most certainly be sustained and not temporary as the Fed continues to insist they will.

For those who want more information, please use this link.

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

Gary S. Wagner

Gold Drops as the U.S. Central Bank’s Vagueness Continues

“Ball of confusion, oh yeah, that’s what the world is today”

The Temptations

Today MarketWatch reported that Ricardo Evangelista, senior analyst at ActivTrades, had written, “The markets appear increasingly unsettled by the Fed’s taboo on inflation, with a growing number of investors taking a net view that the central bank’s ambiguity, mixing a new hawkish stance with dovish declarations from some officials, will ultimately translate into higher interest rates sooner than previously expected.” Furthermore, he said, “Such a scenario will underpin the dollar and provide more turbulence for bullion, which could “therefore, generate more short-term losses for gold.”

The primary issue is whether or not the recent uptick in inflation is largely transitory or sustainable. The Fed maintains that a large percentage of the current hot (high) inflationary rate is transitory, citing supply chain issues and employment issues as businesses reopen in the United States. While it is obvious that upticks in inflation that have resulted supply chain shortages such as from higher new and used cars prices are due to microchips sortages are temporary, higher pricing in energy and food costs most certainly could be longer-lasting.

The PCE (Personal Consumption Expenditures Price Index) is currently at 3.9% (the Federal Reserve’s price index used to determine the current inflation rate) almost double the 2% target of the Federal Reserve. The Federal Reserve has said that they will let inflation run hot. However, it is well above their current acceptable (hot) levels of between 2% and 3% annually. It must be noted that this index strips out both energy and food costs.

A more realistic gauge of current inflation is the CPI (Consumer Price Index) which is now at 5%, as of last month. This index measures the average change over time in the price paid by urban consumers for a market basket of consumer goods and services which includes both energy and food costs.

That being said, gold prices remain under strong pressure as market participants are active sellers as yields for government debt instruments have seen an increase. Increased yields along with dollar strength were contributing factors to lower pricing in gold today.

Gold basis the most active August 2021 Comex contract loss $19.10 today and is currently fixed at $1761.60. There was no major chart damage as a result of today’s decline, most likely because major chart damage has already occurred.

Daily Gold Chart June 29

The key to the future direction of gold will be Friday’s jobs report by the U.S. labor department. Currently, economic forecasts run between 690,000 and 700,000 new jobs being added last month. If the actual numbers come in close or above the economic forecasts it could put continued pressure on gold. This could take gold to the next major support level which occurs at $1740. This support level is based upon a Fibonacci retracement which begins at the highs achieved in gold at the beginning of 2021 at $1963 down to the lows of March 2021 when gold traded to $1673 per ounce.

For those who want more information, please use this link.

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

Gary S. Wagner