Gold Rallies But At Least For Now Fails To Trade Above Resistance

As of 4:45 PM EST, the most active gold contract is trading up $25.50 and is currently fixed at $1793.20. After trading under pressure and closing lower last week, gold futures opened at $1768.10, which corresponds roughly to the close on Friday. Factors contributing to today’s strong upside move are U.S. dollar weakness as well as slightly lower yields on the U.S. 10-year Treasury note. It must be noted that today’s high of 1798.90 falls just shy of the current major resistance at $1800.

gold may 3

Currently, the dollar index is fixed at 90.95 after factoring in today’s decline of 32 points (-0.36). Today’s lower pricing gives back roughly half of the gains witnessed on Friday as the dollar index surged up approximately three-quarters of a percent.

Treasury yields had a slight fall losing approximately three basis points, and are currently trading at approximately 1.608. The higher 10-year note, which resulted in lower yields, was the result of the ISM manufacturing PMI report for April, which came in at 60.7. This was well below the economic forecast, which expected the number to be 65 or higher.

According to CNBC, “This compares to March’s level of 64.7. The index measures manufacturing activity via a survey of more than 300 manufacturing company purchasing managers conducted every month by the Institute for Supply Management. IHS Markit U.S. manufacturing activity grew at a record-high speed in April, data from a survey compiled by IHS Markit showed Monday. April’s Manufacturing Business Activity PMI Index came in at 60.5, above the 59.1 print in March.”

Silver, spot and futures rally

Silver had the strongest percentage gains of all for precious metals (gold, silver, platinum, and palladium), gaining over 4% in futures trading today. Traders have moved to June now the most active contract. June silver is currently fixed at $27.01 after factoring in today’s gain of $1.14. That amounts to a percentage gain of 4.43%. Spot or Forex silver is currently fixed at $26.87, which is the result of approximately $0.98, a net gain of 3.81%.

silver May 3

Copper futures continue their historic rally

Copper futures continued their historic price increase and are certainly within the range of taking out the all-time high that occurred during the first quarter of 2011. Although the all-time record high for copper futures is $4.65 per pound, the highest close on record of $4.4919 was taken out on a closing basis with today’s large gains. In fact, if copper holds the gains established today on a weekly basis, it would be the highest closing price ever recorded for the highly used industrial metal.

Copper May 3

According to MarketWatch, commodity strategists at Bank of America acknowledged that “The world risks “running out of copper” amid growing demand for the metal, paving the way for a spike in prices just as the global economic reopening gets under way.”

In fact, according to this report, current inventories, which are measured in metric tons, now stand at a level seen 15 years ago. This, according to the report, implies that current stocks will only cover 3.3 weeks of demand, and as such, Bank of America strategists believe that the price of copper could rise to 13,000 per metric ton, which amounts to $5.89 per pound in the upcoming months. They’re forecasting that the copper market’s deficits which are seen as drops in inventory, will continue through 2022.

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

Gary Wagner

 

Gold Pricing Continues to React to Higher Yields in U.S. Debt Instruments

Gold hit its highest price point this month last week, the week of April 19, with market participants taking gold futures just a couple of dollars short of $1800 per ounce. However, during the week of April 19, gold futures opened on Monday only to close on Friday roughly at the same price point; $1778. The first two weeks of April both resulted in gold closing higher on the week, with the largest weekly gain occurring during the week of April 12. During the second week of April, gold opened at $1745 and closed at $1780, gaining approximately $35 on the week. That was the largest single-week gain this month.

Gold with 21E MA April 30

Because gold is paired and traded against the U.S. dollar, one can see an inverse relationship between recent dollar weakness and gold strength over the first two weeks of April.

Monthly Gold April 30

During the last week of March, gold pricing hit a second double bottom, with market participants observing the precious yellow metal trading just below $1680. Concurrently the dollar index was at its highest value during the last week of March. The lowest value of the USD this year occurred during the first week of January 2020, breaking below 89.00 on the dollar index. Historically the dollar has not had this low of a value since the first few months of 2018.

The highs that were achieved during the last month of March took the dollar’s value to highs not witnessed since the first week of November 2020, in each occasion trading to a high value of 93.50. This was followed by a decline in dollar value for three consecutive weeks and ended this week with the dollar trading to a low of 90.40.

The dollar index surged in trading today, gaining three-quarters of a percent, a total of 0.682 points, and is currently fixed at 91.275.

LT Dollar Weekly chart

Dollar strength can also be deeply integrated into the rise or fall of U.S. Treasury bonds and 10-year notes. Higher yields in U.S. debt instruments can make that investment more attractive to investors seeking fixed income both in the United States and abroad. Higher yields in U.S. Debt instruments will also put downside pressure on gold, making the safe-haven asset class less attractive. It is this push and pulls of contrary market forces that have resulted in the recent price action in gold. Although gold closed lower on the day and week, it did result in a gain during the month of April.

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

Gary Wagner

 

Strong U.S. Equities, Bond Yields, and GDP Put Pressure on Gold

These events resulted in an extended trading range for gold. Gold traded to an intraday high of $1789.90 a low of $1756.60, and gold futures moved back to near on changed. As of 4:40 PM EST, the most active June 2021 Comex contract was fixed at $1772, which is the result of a $1.90 decline.

gold April 29

There were multiple factors that pressured gold today, the first of which was an exceedingly strong report on the gross domestic product of the United States. Today the Commerce Department released an advance estimate of the first quarter GDP for 2021. The official government website said that “Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2020, real GDP increased 4.3 percent. The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the first quarter, based on more complete data, will be released on May 27, 2021.”

The official website said that the real increase in GDP for the first quarter of 2021 was a reflection of increases in PCE (personal consumption expenditures), nonresidential fixed investment, government spending, residential fixed investment, and state and local government spending. These expenses were partially offset by decreases in private inventory investments and exports.

Investors today turned to U.S. equities favoring the risk-on asset class, which also pressured gold. The Standard & Poor’s 500 traded to a new all-time record high of 4211.47, a net gain of 28.29 points (+0.68%). Although the Dow Jones Industrial Average did not trade to a new record high, it gained almost 0.75%, which is a net gain of 239.98 points and closed at 34,060. The NASDAQ composite gained +0.22% today and is currently fixed at 14,082.5461.

Lastly, U.S. 10-year Treasury notes gained +0.18 today and currently have a yield of 1.638%. Today’s rise in the yield of 10-year notes followed the release of the first-quarter GDP estimates. The 30-year Treasury bond gained approximately two basis points, currently yielding 2.32%.

The latest numbers indicating strong growth, as reflected in the most current estimates of GDP, set the wheels in motion for both a strong finish in U.S. equities and rising yields in U.S. bonds. Concurrently they also pressured gold prices resulting in today’s low of $1754.60.

It seems as though market participants are disregarding the recent swelling of the national debt as well as the Federal Reserve’s balance sheet, which currently stands well in excess of $7 trillion. The economic fallout from these increasingly expensive burdens on the U.S. does not seem to affect the optimism for strong economic growth in the United States.

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

Gary Wagner

Fed Holds Policy Steady, Acknowledges ‘Strengthened’ Recovery, Gives No Signs of Tightening Plans

The U.S. Federal Reserve held its benchmark interest rate and its monthly bond-buying program steady on Wednesday, as widely expected, while acknowledging the strength in the U.S. economy but giving no signs it was ready to start reducing its support for the recovery.

Fed Credits Vaccinations, Policy for Strengthening Economy, Employment

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the U.S. central bank said in a unanimous policy statement at the end of a two-day meeting.

Fed Continues to See Risks

Despite the improvement, Fed policymakers still see risks to the economy. “The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the Fed said. “The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook remain.’

Fed Dampens View on Coronavirus

The Fed changed the language about the coronavirus in April’s statement, reflecting a slightly less negative view than the Fed’s description in March, when it said the health crisis “poses considerable risks to the economic outlook.”

Fed Reiterates Guidance

Despite acknowledging the gains in the economy, Fed policymakers reiterated the guidance it has followed since December, setting the list of conditions that must be achieved before it considers pulling back from the emergency support put in place to stem the economic fallout of the pandemic in 2020. That includes “substantial further progress” towards its inflation and employment goals before stepping back from its monthly bond purchases.

Mixed Market Reaction

Ahead of the release of the Fed’s monetary policy statement, investors and analysts weren’t expecting any major changes from the Federal Reserve, and the initial reaction in the financial markets was subdued. Stocks were flat, yields were slightly higher and the dollar was capped.

Time Will Tell

Since the last Fed meeting in March, U.S. job growth has surged and inflation has risen. Nonetheless, the economy remains more than 8 million jobs short of where it was before the pandemic forced whole industries to shut down in an effort to control the spread of the virus. Furthermore, policymakers will allow inflation to overshoot the 2% benchmark.

Overtime, conditions are expected to improve further which will offer the Fed the opportunity to begin trimming its $120 billion in monthly bond purchases. This will eventually lead to policymakers lifting overnight interest rates from the current historically low levels.

The Fed will maintain current levels of economic aid, but the economy’s prospects will also be contingent on continued progress in managing the pandemic.

For a look at all of today’s economic events, check out our economic calendar.

How Does the Fed Measure Inflation?

U.S. Federal Reserve policymakers are expected to stick with its current super-loose monetary policy at its next Federal Open Market Committee (FOMC) meeting on April 27-28, even as the economy strengthens and increasing COVID-19 vaccinations make a return to a more normal life in the United States likely in 2021.

This prediction was easy to make because that is what Federal Reserve Chairman Jerome Powell and his policymakers have told us several times since their last policy meeting in mid-March. In fact, the Fed also added the U.S. economy is going to temporarily see “a little higher” inflation this year as the recovery strengthens and supply constraints push up prices in some sectors. Nonetheless, the Fed is committed to limiting any overshoot.

“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” Powell said.

Those modifiers – “substantially” exceeding 2% inflation or above that level for a “prolonged” period – help to more sharply define the upper bounds of the Fed’s comfort zone as prices rise.

“I would emphasize, though, that we are fully committed to both legs of out dual mandate – maximum employment and stable prices,” Powell said.

Inflation is Rising

Consumer prices shot higher in March, given a boost by a strong economic recovery and year-over-year comparisons. The consumer price index (CPI) rose 0.6% from the previous month but 2.6% from the same period a year ago. The year-over-year gain is the highest since August 2018 and was well above the 1.7% recorded in February. Core CPI, which excludes volatile food and energy costs, increased 0.3% monthly and 1.6% year-over-year.

Later in April, the government will release another report on inflation. It’s called the Personal Consumption Expenditures (PCE) price index and is often referred to as the Federal Reserve’s preferred price index. This report is also expected to rise, but it begs the questions, which inflation report offers a more accurate depiction of price growth and why does the Fed prefer to use the PCE figures?

What’s the Difference between the CPI and the PCE?

The FOMC, which sets the Federal Reserve’s monetary policy, judge’s inflation by the Personal Consumption Expenditure (PCE) price index. While the Consumer Price Index (CPI) looks at what people are buying, PCE looks at what businesses are selling.

The PCE tends to capture a broader picture of spending and contemplates substitution among goods when something gets more expensive – so if the price of bananas goes up, it takes into account that some people will start buying apples instead. PCE doesn’t just measure people’s out-of-pocket costs for health care, it also contemplates what Medicare is paying.

Inflation versus Core Inflation

Another term that gets mentioned a lot is “core inflation”. Both the CPI and PCE are calculated taking overall inflation minus food and energy into account. The government and the Federal Reserve prefer a measurement of inflation that takes out food and energy prices because they are quite volatile, and they can swing based on factors such as oil supply and severe weather. Economists and Fed policymakers prefer to take them out of the inflation equation to get a better sense of what’s going on in the economy.

Example:  March 2021 Consumer Price Index (CPI) Numbers

Earlier this month, March CPI was up 0.6 percent for the month – more than the 0.4 percent increase in February. But Core-CPI was up 0.3 percent. Over the past year, the Consumer Price Index was up 2.6 percent, but the core index increased by 1.6 percent.

Conclusion

Depending on which segment of the economy you’re looking at, you can tell different stories about what’s happening with inflation. But that’s where the Fed comes in. Inflation should not be a concern that keeps you up at night, that’s sort of the goal, from the Fed’s standpoint.

Below, say 2%, consumers generally don’t have to worry about it. Some prices will rise, some prices will fall: on balance, your wages keep going up with your overall cost of living, and you don’t have to think about it. That’s the Fed’s objective:  maintain control of inflation so people don’t have to worry about it in their daily lives. In order to do this, it focuses on the Personal Consumption Expenditure (PCE) price index.

The economy has started to get warmer and at times, we will see inflationary spikes as sectors reopen and consumers spend their stimulus money. Volatile food and energy prices will jump when compared to last year’s levels, but then conditions are expected to flatten out. At least that’s what the Fed is expecting. So at this time, expect higher inflation, but don’t worry about it spiraling out of control.

For a look at all of today’s economic events, check out our economic calendar.

Gold Closes The Week In-Essence Unchanged

While gold had just under a $50 trading range during the week, by Friday’s close, gold futures lost only $2.20. The June contract traded to a high this week of $1798.80 and a low of $1764.40.

Gold Weekly Candle Chart

In the case of today’s fractional decline, it was an uptick in the yields of the U.S. 10-year Treasury note, as well as robust data regarding strong new home sales, which was credited as responsible for the decline.

Yesterday the U.S. Census Bureau reported that new home sales as viewed through a seasonally adjusted annual rate came in at 1,021,000 in March. This is the fastest growth of new home sales since 2006.

As reported by Markets Insider, “In the bond market, treasuries once again showed a lack of direction before ending the day in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inch up by 1.3 basis points to 1.567 percent.”

According to Reuters, “Ten-year yields have stabilized and the inflation rebound to 2.6%, well above target, is likely to be short-lived. Still, swaps show that market expectations of future inflation are rising, and that means Treasury volatility may not be over yet.”

Even with strong tailwinds from dollar weakness today, gold prices were still unable to close positively on the day. The dollar index lost 52 points in trading on Friday, closing at 90.80, a net decline of -0.57%. The U.S. dollar has now closed lower on a weekly basis for the last three consecutive weeks. Four weeks ago, on the week of March 29, the dollar index closed at approximately 92.90. Since the last week of March to current pricing the dollar index has lost roughly 2.1%.

Dollar weekly candle chart April 23

Concurrently gold prices over the last four trading weeks had risen from the second of a double bottom which occurred during the week of March 29 when gold traded to a low of $1677, to the high this week of $1798.80. In the last four trading weeks, gold has had a range of over $100, and even with this week’s fractional decline has had a significant gain throughout the month of April.

The week in review

When we look at the price changes that occurred this week in gold, it is obvious that a number of fundamental events had an opposing influence on pricing. At the beginning of the week, gains were the result of a renewed concern of recent upticks in Covid-19 infections, pointing to a contraction in the growth of the global economy. India experienced the highest surge in new infections, surpassing 300,000 daily reported cases on Thursday. During the latter part of the week, gold prices declined as a result of higher yields in 10-year notes and solid economic data in the United States.

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

Gary Wagner

Traders Continue to Focus on the Recent Double Bottom in Gold

The June contract did trade to a lower low than yesterday, hitting $1763.50 on an intraday basis. Gold also traded to a lower high when compared to yesterday; however, it closed solidly above Monday’s settlement price.

It was buying by market participants that resulted in today’s price advance. It can be clearly seen when we look at current spot or forex gold prices through the Kitco Gold Index (KGX). Spot gold is currently fixed at $1778.80, after factoring in today’s price advance of $6.80. However, dollar strength resulted in a decline of $2.35, with market participants bidding the precious yellow metal higher by $10.10.

kgx april 20

A major factor that definitely influenced market participants buying was a slight down-tic in the yield of 10-year notes, which are currently fixed at 1.56%. The ten-year note was fixed at 1.59% yesterday, so today’s fractional decline in yield certainly got the attention of gold traders.

Market participants are reacting to fundamental news as well as a strong technical identification of a double bottom. As we had spoken about on many occasions, lows that occurred on March 8, when traders took gold pricing to a low of approximately $1674, tested the fortitude of the bullish faction’s belief that gold pricing was oversold. This resulted in a rally that was short-lived. The first attempt of a rally failed at approximately $1742. On March 31, the lows of March 8 were retested, creating a double bottom as gold prices declined from $1742 to a low of $1678 at the end of March.

April 20 Gold double bottom

On April 1, traders moved gold pricing above the bottom that occurred on March 30 and 31st, taking gold futures to approximately $1730. Gold continued to make higher highs throughout the first week of April before consolidating and trading sideways with resistance between $1750 and $1760 up until the end of last week. On Thursday, April 15, gold scored dynamic gains of approximately $28, which broke above the consolidation that occurred during the first two weeks of April. This was followed by a $10 gain on Friday, April 16.

Gold closed lower yesterday; however, it did trade to the highest intraday high of $1790 since the lows of the double bottom before settling at $1770. Today’s additional gain took gold pricing to $1779.20. Our technical studies indicate that there is minor resistance at $1784 based upon the 38.2% Fibonacci retracement. There could be major resistance at $1802, which is based upon the 100-day moving average.

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

Gary Wagner

 

Gold And Silver Continue To Gain Value As Multiple Events Support Safe-Haven Assets

Rising geopolitical tensions, recent drops in the yield of 10-year Treasury notes, dollar weakness, a highly accommodative Federal Reserve and concern about the rising national debt all collectively moved gold and silver to multiweek highs.

The last time gold traded to $1784 occurred on February 25. On that date, gold opened above $1800 and closed at $1775. The last time gold closed above today’s highs occurred on February 22. This week gold opened at $1745 and gained approximately $30 based on today’s close.

june gold april 16

As of 4:30 PM EST, gold futures basis the most active June 2021 Comex contract is currently trading up $9.80 (+0.55%) and is fixed at $1776.60. Silver basis, the most active May 2021 Comex contract, is currently trading up $0.061 (+0.23%) and fixed at $26.025. This follows yesterday’s strong gains in both precious metals. Seeing as on Thursday, gold futures gained $28.10, and silver futures gained $0.40.

silver April 16

Dollar weakness provided mild tailwinds as the dollar index is currently fixed at 91.54. The dollar traded at 92.21 on Monday and lost 67 points on the week. The result is that the dollar index was devalued by -0.067% this week.

The U.S. 10-year Treasury note traded lower this week and is now yielding approximately 1.56%. This week’s decline also provided solid tailwinds aiding the safe-haven asset class.

On Wednesday, April 14, Chairman Jerome Powell spoke virtually at the Economic Club of Washington DC. He addressed the concern that many economists have about the ever-growing national debt that has been created from fiscal stimulus as well as the monetary policy of the Federal Reserve.

In response to these concerns, Chairman Powell said that “The U.S. federal budget is on an unsustainable path, meaning simply that the debt is growing meaningfully faster than the economy. The current level of debt is very sustainable. And there’s no question of our ability to service and issue that debt for the foreseeable future.”

In addition to that there is rising tension between the United States and Russia. Yesterday President Joe Biden signed an executive order imposing new sanctions on Russia based on information suggesting that they had interfered with our election as well as an increased amount of Internet hacking and other “malign activities,” which include sending additional troops to Ukraine as well as the continuation of persecution of Russian dissidents in specifics to Alexei Navalny.

In response to these issues, the White House issued an “Executive Order on Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation.” The full Executive Order can be read by following this link.

There is also increased tension with China. Today President Joe Biden met with the Japanese Prime Minister, Yoshihide Suga. According to CNBC, “The two leaders will gather in Washington in what will be the U.S. president’s first in-person summit with a foreign leader since his January inauguration. The meeting comes as the U.S. seeks to challenge China on issues ranging from human rights to unfair trade practices.”

These events collectively have been the driving force moving both gold and silver to gain value this week. All things being equal, they could continue to drive gold back above $1800 per ounce and silver above $28 per ounce.

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

Gary Wagner

 

Gold and Silver Surge As Yields Drop And Geopolitical Tensions Rise

As of 4:40 PM EST gold futures basis the most active June 2021 Comex contract is currently trading up $28.10 (+1.62%) and is fixed at $1764.40. Silver basis the most active May 2021 Comex contract, is currently trading up $0.40 (+1.57%) and fixed at $25.925.

gold april 15

The economy in the United States is exhibiting solid economic recovery which has raised genuine concerns that inflation will continue to rise. However, the largest force moving both gold and silver higher is yields dropping in 10-year notes, which fell today to yield 1.56%.

silver april 15

In addition to that, there is rising tension between the United States and China, as well as between the United States and Russia. In regards to the increased tension with China, it seems that Taiwan is once again a major concern to the current administration.

In addition, President Joe Biden today signed an executive order imposing new sanctions on Russia based on information suggesting that they had interfered with our election as well as an increased amount of internet hacking and other “malign activities” which include sending additional troops to Ukraine as well as the continuation of persecution of Russian dissidents in specifics to Alexei Navalny.

On April 15, the White House issued an “Executive Order on Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation.” The full Executive Order can be read by following this link.

The Executive Order is sanctioning Russia with financial sanctions, including a ban on U.S. financial institutions from participating in the primary market for the ruble as well as non-ruble denominated bonds. It also designates six technology companies run by Russia, accusing them of supporting the country’s intelligence services and block the property that they or their affiliates might detain in the United States, among other sanctions.

This Executive Order is certainly indicating that the administration is willing to impose rigid and far-reaching new sanctions against Russia.

Lastly, there is the issue of growing debt based upon the expenditures over the last two years in regards to reigniting the economy in the United States, which has been so severely affected by the pandemic. These events collectively could certainly be the impetus for both gold and silver to continue to rise higher as they have in trading today.

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

Gary Wagner

 

The Consumer Price Index Indicates Growing Inflation

Inflation via the CPI came in above expectations by economists. The numbers showed that the CPI gained +0.6%, which was 10 points above consensus and the highest single month tally since June 2009. When compared to year over year which is considered a more modest inflation metric the CPI is +2.61%.

According to the U.S. Bureau of Labor Statistics, “The gasoline index continued to increase, rising 9.1 percent in March and accounting for nearly half of the seasonally adjusted increase in the all-items index. The natural gas index also rose, contributing to a 5.0-percent increase in the energy index over the month. The food index rose 0.1 percent in March, with the food at home index and the food away from home index both also rising 0.1 percent.”

According to Reuters, “The gasoline index continued to increase, rising 9.1 percent in March and accounting for nearly half of the seasonally adjusted increase in the all-items index. The natural gas index also rose, contributing to a 5.0-percent increase in the energy index over the month. The food index rose 0.1 percent in March, with the food at home index and the food away from home index both also rising 0.1 percent.”

The CPI, along with dollar weakness were both major factors in taking gold and silver futures higher. As of 5:36 PM EST gold futures basis, the most active June 2021 Comex contract is fixed at $1746.20, after factoring in today’s $13.50 (+0.78%) gain. Silver futures basis, the most active May contract gained almost $0.54 (+2.16%) and is currently fixed at $25.405. The dollar lost 0.314 points in trading today and is currently fixed at 91.83. Also, the U.S. 10-year Treasury note was down by 3.9 basis points and currently has a yield of approximately 1.62%, declining after the release of today’s CPI data.

gold April 13

Spot or forex gold, according to the Kitco Gold Index, gained $13.10 in trading today. On closer inspection, dollar weakness accounted for $4.85, with the remaining $8.25 gain directly attributable to traders bidding the precious metal higher. Spot or forex silver is currently fixed at $25.33. Only $0.07 can be attributed to dollar weakness with the remaining $0.47 a direct result of trading activity.

silver April 13

The question with the most recent CPI numbers is whether or not the inflation pressure is temporary or a sign that inflation will continue to rise. Fawad Razaqzada, a market analyst at ThinkMarkets, said, “Inflation will probably pick up further and the numbers for the next few months may appear abnormally large as base effects from the 2020 lockdowns skew the data,”

The Federal Reserve’s revised mandate has indicated that they will let inflation run hot above its former 2% benchmark in lieu of focusing on their mandate of maximum employment. This will undoubtedly continue to have a bullish affect gold and silver.

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

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

Gary Wagner

 

Traders Wait for U.S. Consumer Price Index Numbers

According to Wikipedia, “A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households. A CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.”

Bloomberg today reported that CPI inflation has risen to 5.5% in March. According to the report, “retail inflation rose further in March as fuel and transportation costs increased alongside some categories within the food basket.”

A poll by Bloomberg is forecasting March retail inflation at 5.4%. They also reported that consumer price index inflation stood at 5.52%, which is almost ½ a percent increase from February’s numbers which came in at 5.03%. In January 2021, the CPI data came in at 4.06%. Their pre-release numbers were created by the Ministry of statistics and program implementation today.

According to Aditi Nayar, core inflation computed by ICRA ltd. rose to 6% in March, chief economist at the rating agency.

With inflation moving higher, we have gold futures reacting in a tepid manner selling off today by a total of $12.60 (-0.73%) and is currently fixed at $1732 per ounce. The primary force taking gold lower today was rising yields in the U.S. 10-year Treasury note. Today, the yield moved up to 1.671% in trading today with the 30 year treasury bond moving lower, yielding 2.337%.

gold April 12

As reported by CNBC, “Treasury yields rose slightly on Monday after Federal Reserve Chairman Jerome Powell on Sunday reiterated the central bank’s commitment to maintaining loose monetary policy.”

The Federal Reserve could undoubtedly come under pressure with strong economic forecasts regarding the second quarter of this year. Recent projections indicate that economists are forecasting the second quarter of this year to grow by more than 9%. In addition to strong growth, the March jobs report’s expectations are extremely strong, indicating a hiring surge.

CNBC projects that are unemployed Americans will return to the workforce in large numbers. Economists polled by Dow Jones expect to see 675,000 jobs added in March as the economy reopened more broadly and the number of vaccinated people increased. The unemployment rate is forecast to fall to 6% from 6.2% in February.”

There is no question that there has been a tremendous uptick in economic growth in the United States. Concurrently we also see inflation beginning to heat up as it has risen month over month since January. If the projections are correct, this could have an extremely bullish undertone for gold. It will have to overcome the recent rising yields of 10 year treasury notes that have put gold under pressure.

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

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

Gary Wagner

US Non-Farm Payrolls Up 916K in March; Hospitality, Construction Contribute to the Surge

U.S. job growth surpassed expectations as employers hired more workers than expected in March, spurred by stronger economic growth and an aggressive vaccination effort that contributed to a surge in growth in the hospitality and construction sectors of the economy, the Labor Department revealed Friday.

Additionally, more pandemic relief money from the government, cemented expectations that an economic boom was underway. Quite possibly putting the U.S. on a path toward the greatest economic growth spurt since 1984.

Raw Data

Nonfarm payrolls surged by 916,000 jobs last month, according to the government. That was the biggest gain since last August. Data for February was revised higher to show 468,000 jobs created instead of the previously reported 379,000. Economists polled by Reuters had forecast payrolls increasing by 647,000 jobs in March. The unemployment rate fell to 6.0% last month from 6.2% in February.

Broad-Based Employment Gains

Employment gains were broad-based, but were especially strong in areas hit worst by the pandemic. A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped to 10.7% from 11.1% in February.

The labor force continued to grow after losing more than 6 million Americans at one point last year. Another 347,000 workers came back, bringing the labor force participation rate to 61.5%, compared to 63.3% in February 2020.

There are still nearly 7.9 million fewer Americans counted as employed than in February 2020, while the labor force is down 3.9 million.

What Sectors Contributed to the Gains?

Leisure and hospitality, a sector critical to restoring the jobs market to its former strength, showed the strongest gains for the month with 280,000 new hires. Bars and restaurants added 176,000, while arts, entertainment and recreation contributed 64,000 to the total.

Even with the continued gains, the sector remains 3.1 million below its pre-pandemic total in February 2020.

With students heading back into schools, education hiring boomed during the month as well. Local, state and private education institutions combined to hire 190,000 more employees for the month.

Construction also saw a healthy gain of 110,000 new jobs, while professional and business services added 66,000 and manufacturing increased by 53,000. For construction, it was the strongest month of hiring since June 2020.

February’s Gain Revised Higher

In addition to the powerful gains for March, previous months also were revised considerably higher. The January total increased 67,000 to 233,000, while February’s revisions brought the total up by 89,000 to 468,000.

For a look at all of today’s economic events, check out our economic calendar.

The Tale Of Two Americas Regarding The Pandemic And Its End

There is a dichotomy between the optimism expressed by market participants that the pandemic and recession have run their course and we will soon return to a new normal, versus the reality of the recent uptick in new Covid cases across the United States.

This dichotomy has had a profound impact on not only individuals but also the financial markets. As yields moved higher, the dollar gained strength resulting in the precious metals trading lower. Gold basis the most active April 2021 Comex contract lost $30.90 (- 1.8%) today, and silver basis the most active May 2021 Comex contract gave up $0.77, a total decline of (-3.11%), and is currently fixed at $24 per ounce.

daily gold

The higher yields for U.S. Treasury notes and the sharp decline in both gold and silver pricing is a reflection of optimism that the rollout of the vaccine has created hopefulness which can be seen in the consumer confidence index for March, which came in at 109.7. That is up over 20 points from February’s revised numbers, which came in at 90.4.

At the same time, there has been an alarming uptick in the number of Covid 19 cases in the United States as reported by the CDC. According to CNN, new cases of the virus have spiked up by 22% when compared to the numbers of the prior week. According to Rochelle Walensky, Director at the CDC, “I know that travel is up, and I just worry that we will see the surges that we saw over the summer and over the winter again.”

Add to that the new variants, in particular the B.1.1.7 variance that is spreading rapidly throughout the United States. It appears that not only is this variant more contagious but deadlier as well.

Another major difference in this recent uptick of Covid infections is the age group. Now that many Americans over 65 years old have received their vaccinations, the age group for most new cases reported is in the age of 20 to 45-year-old Americans.

The question becomes, while there has been real and genuine progress are market participants getting ahead of themselves in regards to their optimism? As more and more states relax their safety mandates, the question of whether or not they are acting too soon despite warnings by health experts.

In regards to the recent and strong decline in gold and silver pricing, dollar strength has absolutely played a defined role. However, the vast majority of the decline seen over the last couple of weeks was a direct result of market participants actively selling both gold and silver. When we look at a monthly chart of gold futures in the last eight months, there was only one month that resulted in gold closing higher, which was December 2020.

gold monthly chart

As long as yields in U.S. Treasury notes continue to climb, not only will we see the dollar gain strength but also increased pressure on both gold and silver pricing.

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

Gary S. Wagner

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.

dx 325

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.

chart 1 gold

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.

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

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

Gary S. Wagner

 

Fed Members Agree Economy is Long Way from Reaching Full Strength

Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen spoke about the economic response to the coronavirus in front of the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs on Wednesday. Both reiterated their belief that, thanks in large part to fiscal and monetary stimulus, the U.S. economy will see marked growth in 2021.

“There’s going to be a very, very strong year in the most likely case,” Powell said. “There are of course risks to the upside and downside, but it should be a very strong year from a growth standpoint…Longer run we do not have to raise revenue to support permanent spending that we want to do.”

Yellen said banks have improved their capital positions and should be allowed to continue to buy back their own shares.

“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said. “But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”

NY Fed’s Williams Says Time Frame for Raising Rates Will Depend on Economy

The timeline for when the Federal Reserve will start to raise rates will depend on what is happening with the economy, which may not return to full strength for some time, New York Federal Reserve Bank President John Williams said on Wednesday.

The U.S. economy could recover more rapidly later this year as coronavirus cases drop and more people are vaccinated, Williams said during a virtual conversation, organized by Syracuse University. But Williams declined to put in a date on when he thought the Fed could start to withdraw some of the fiscal support it is providing, Reuters reported.

Fed’s Daily Says US Economy ‘Long Way’ From Goals

San Francisco Federal Reserve President Mary Daly on Wednesday said the U.S. economy is a “long way” from its goals, as she noted little upward pressure on wages and remarked on the absence of froth in financial in financial conditions, all suggestive of support for keeping the Fed’s foot on the monetary gas pedal, Reuters reported.

Asked her view of the appropriate timing for the Fed’s first interest rate hike, however, Daly declined to say. She told reporters on a call that what’s important is that people “completely understand” the Fed won’t raise rates until employment shortfalls have been eliminated and inflation is not only running at 2% but is also projected to exceed that for some time. “We are not there yet,” she said. “The important thing right now, I think for everyone, is a healthy dose of patience.”

Fed to Set Monetary Policy on Actual Economic Outcomes, Evans Says

Chicago Federal Reserve President Charles Evans on Wednesday said the central bank will set its monetary policy on economic outcomes and will not reduce monetary policy accommodation until it sees actual improvements, Reuters reported.

“We’re looking for actual improvement in the economy and inflation to get back up to our dual mandate objectives of maximum inclusive employment and 2% inflation on average,” Evans said at an event hosted by the Japan America Society of Chicago.

He forecast in the speech that the U.S. economy will grow 6.5% this year, unemployment will fall to 4.5% this year and below 4% next year, and for inflation to rise temporarily before falling back.

Summary

Powell, Yellen and the other Fed policymakers continued to toe the company line that the economy is still not strong enough to implement a change in monetary policy.

For a look at all of today’s economic events, check out our economic calendar.

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.

gold march 23

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.

silver march 23

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.

kgx march 23

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.

us dx 323

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

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

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

Gary S. Wagner

 

March 23rd 2021: DXY Unchanged at 92.38/91.96 Daily Resistance

Note—Charts provided by Trading View

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

March remains toying with the upper side of 1.1857/1.1352 demand, lower by 1.1 percent.

Price action traders will have noted the demand’s entrance, possibly viewing it as a bullish signal.

A decisive rebound from the aforesaid demand shifts attention back to the possibility of fresh 2021 peaks and a test of ascending resistance (prior support – 1.1641). An extension to the downside, on the other hand, shines the technical spotlight on trendline resistance-turned support, taken from the high 1.6038.

In terms of trend, the primary uptrend has been underway since price broke the 1.1714 high (Aug 2015) in July 2017.

Daily timeframe:

Largely unchanged from previous analysis –

Since March 11, buyers and sellers have been battling for position around support priced in at 1.1887.

Monday, however, witnessed buyers stage a one-sided recovery, with the US dollar index fading best levels.

Additional technical elements visible around 1.1887 are a 127.2% Fib projection at 1.1843, a 100% Fib extension at 1.1855 (harmonic traders will note this represents an AB=CD formation), and a 200-day simple moving average at 1.1846. North of 1.1887, technical framework reveals a 38.2% Fib level at 1.2021—considered by many chartists as an initial target out of AB=CD patterns.

In the context of trend on this timeframe, the unit has faced north since 2020 despite the 2021 retracement so far.

H4 timeframe:

H4 pattern traders will note the currency pair dipped a toe in waters south of a double-top pattern’s neckline at 1.1882, following the modest bearish opening gap. However, price FAILED to CLOSE beneath the level, therefore technical sellers are unlikely to have committed here.

Subsequent action observed Europe’s shared currency rally against the buck, throwing 1.1992 back in the pot as potential resistance.

Space beneath the double-top pattern’s neckline shines light on a nearby support between 1.1818 and 1.1860 (Quasimodo support at 1.1818, a 161.8% Fib projection at 1.1835, and a 100% Fib extension at 1.1860).

H1 timeframe:

1.1881/1.1865 demand welcomed price action early Monday and provided a platform for buyers to overthrow the 1.19 figure. Following a swift retest of the psychological level (a common theme after a round number breach which, in this case, shaped interesting demand at 1.1894/1.1906), price charged above the 100-period simple moving average and also retested the dynamic value before sailing to tops just south of 1.1950 resistance.

Interestingly, RSI movement claimed resistance at 54.40 yesterday and is currently hovering just ahead of overbought space.

Observed levels:

For those who read Monday’s technical briefing you may recall the following (italics):

Knowing we’re working with a higher timeframe bullish vibe this week, H1 buyers could attempt to hold 1.19 and dethrone the 100-period simple moving average. Alternatively, a dip into H1 demand from 1.1851/1.1867 may emerge before a bullish theme forms as it shares space with H4 support at 1.1818/1.1860.

As evident from the H1, we did manage to take on the 100-period simple moving average on Monday.

Going forward, H1 demand at 1.1894/1.1906 is likely to draw interest today (should we retreat and test the zone), in light of the higher timeframe’s bullish tone and room to move higher on the H4.

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

February finished considerably off best levels, establishing what many candlestick fans call a shooting star pattern—a bearish signal found at peaks. What’s interesting was February came within striking distance of trendline resistance (prior support – 0.4776), sheltered under supply from 0.8303/0.8082.

March, as you can probably see, trades higher by 0.5 percent, and remains within February’s range.

Should sellers regain consciousness, demand at 0.7029/0.6664 is in view (prior supply).

With respect to trend (despite the trendline resistance [1.0582] breach in July 2020), the primary downtrend (since mid-2011) remains in play until breaking 0.8135 (January high [2018]).

Daily timeframe:

Largely unchanged from previous analysis –

The daily chart’s technical construction reveals a trendline support-turned resistance, taken from the low 0.5506. Despite the trendline support breach early March, the chart has yet to form a DECISIVE lower low. For that reason, the trend remains to the upside.

A bearish scenario taking shape nudges February’s low at 0.7563 in view, with subsequent downside perhaps taking aim at demand from 0.7453/0.7384 (previous supply).

RSI followers will note the value continues to test the grip of the 50.00 centreline, following 42.00 lows formed March 8.

H4 timeframe:

Demand at 0.7696/0.7715, once again, isolated downside attempts on Monday, consequently generating a moderate recovery move. Continued interest to the upside today elbows demand-turned supply at 0.7848/0.7867 (housing a 61.8% Fib level at 0.7859 and a 127.2% Fib projection at 0.7849) back into the light.

H1 timeframe:

The Quasimodo formation at 0.7710, alongside a 61.8% Fib level at 0.7708, served buyers well as support in opening trade Monday. Despite subsequent attempts to probe lower and test 0.77, bids remained solid, eventually paving the way north to challenge the 100-period simple moving average heading into the US session.

Assuming tops around 0.7772 prove fragile, rupturing the aforesaid SMA could lead the currency pair back to 0.78.

Also worth taking on board, of course, is the RSI climbing above resistance plotted at 54.51, a level demonstrating strong historical significance as an S/R base. This, assuming the value holds higher, suggests further momentum to the upside could be on the cards.

Observed levels:

For those who read Monday’s technical briefing you may recall the following (italics):

H1 Quasimodo support at 0.7710 and the 0.77 figure, housed within H4 demand at 0.7696/0.7715, delivers nearby technical confluence this week.

As you can see, the market did indeed discover a floor off 0.7710 and reach for the 100-period simple moving average on the H1 which may prove difficult for buyers today. Nevertheless, should price clear offers around this region, increased upside could be seen, targeting 0.78.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March, up by 2.2 percent, is closing in on descending resistance, etched from the high 118.66. A spirited break of the latter swings the technical pendulum in favour of further upside.

To the downside, support inhabits 101.70.

Daily timeframe:

Largely unchanged from previous analysis –

Buyers and sellers continue to square off just south of Quasimodo resistance from 109.38. Of particular interest is the Quasimodo formation fusing closely with the monthly timeframe’s descending resistance.

While the aforesaid Quasimodo cannot be disregarded, recognising supply resides at 110.94/110.29 is important, as a run for stops above the Quasimodo head (blue arrow—109.85) could materialise.

Areas visible to the downside are support at 107.64—a previous Quasimodo resistance—and supply-turned demand at 107.58/106.85.

With respect to trend, 2021 has pointed to the upside.

Based on the RSI oscillator, the value remains within overbought space, beneath resistance at 83.02 (the value exiting overbought will add more conviction).

H4 timeframe:

Largely unchanged from previous analysis –

The Quasimodo formation at 109.16 proved stubborn resistance last week, shutting down any attempts to shake hands with supply at 109.59/109.37. Notably, the supply houses daily Quasimodo resistance at 109.38.

This has drawn demand at 108.31/108.50 to attention, followed by support at 108.09 and fresh demand parked at 107.81/108.01.

H1 timeframe:

Demand at 108.67/108.78 (considered an important zone given it was here a decision was made to initially break through 109 offers) continued to echo signs of weakness Monday. Having its lower side clipped twice last week and again yesterday, as well as H1 defending the underside of 109 and 100-period simple moving average, this suggests downside risks are building.

Below demand signals the pair could test support at 108.36, a base withstanding a number of downside attempts earlier in March.

RSI followers will also acknowledge trendline resistance is close by, despite the value pursuing terrain north of the 50.00 centreline at the moment.

Observed levels:

Unchanged from previous analysis –

Current focus on the bigger picture is daily Quasimodo resistance at 109.38 and monthly descending resistance. However, as aired in recent analysis, before sellers attempt to put in an appearance, a whipsaw to daily supply at 110.94/110.29 could develop.

Shorter term, noting H1 demand from 108.67/108.78 is perhaps fragile, H4 and H1 charts indicate price is bound for H4 demand at 108.31/108.50, and possibly H1 support at 108.36 seen within. Therefore, another retest of 109 may be welcomed by sellers.

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

The pendulum swung in favour of buyers following December’s 2.5 percent advance, stirring major trendline resistance (2.1161). February followed through to the upside (1.7 percent) and refreshed 2021 highs at 1.4241, levels not seen since 2018. March currently trades lower by 0.5 percent, contained within February’s range.

Despite the trendline breach, primary trend structure has faced lower since early 2008, unbroken (as of current price) until 1.4376 gives way (April high 2018).

Daily timeframe:

Trendline support, taken from the low 1.1409, remains a major theme on the daily scale. Despite an earnest attempt to hold higher earlier last week, the trendline support came under pressure Monday. Support coming in at 1.3755 is a level worth pencilling in should the trendline support cave, while territory beneath 1.3755 elbows Quasimodo support at 1.3609 in the line of fire.

The trend has faced higher since early 2020.

The RSI indicator continues to test the mettle of support between 46.21 and 49.16, with the value trading below the 50.00 centreline since Friday.

H4 timeframe:

1.3852 support and additional support, in the form of a 61.8% Fib level from 1.3829, entered the fray on Monday and so far provided buyers a floor to work with. Areas beyond here to be conscious of are demand at 1.3761/1.3789, as well as demand fixed at 1.3730/1.3749.

Quasimodo resistance at 1.4007—aligns with a 50.00% retracement—remains an interesting base to the upside, forming a ceiling since early March.

H1 timeframe:

Monday left behind a muted tone; therefore, the technical framework remains unmoved on this timeframe.

Resistance at 1.3878, a previous Quasimodo support level, remains in play. Resistances to note above are 1.39, the 100-period simple moving average, supply at 1.3938/1.3918 and Quasimodo resistance from 1.3952.

Should the unit leave the aforesaid resistances unchallenged and push lower, technical elements point to a test of 1.38, a level shadowed by a Quasimodo support from 1.3786 and a 161.8% Fib extension at 1.3782.

Observed levels:

Outlook largely unchanged.

Additional selling from H1 resistance at 1.3878 is a possibility. The concern, of course, is H4 support at 1.3852 and the 61.8% Fib level from 1.3829 recently making a show.

Given the above, H4 coming off support from 1.3852, aided by daily trendline support and monthly flexing its muscle north of trendline resistance, could see buyers make an entrance and attempt to tackle 1.39 on the H1, possibly followed by H1 supply at 1.3938/1.3918.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

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.”

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

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

Gary S. Wagner

A Strong Economy And Risks For The Markets

A Strong Economy And Risks For The Markets

George Dagnino

Summary

The latest data point to a strong cycle ahead and increased risks for the markets.

The economy is strong, no doubt about it. The trend of the business cycle and financial markets reflects the current positive economic conditions. The markets are reacting as they have typically done during this phase of the business cycle.

The business cycle moves in waves because it reflects justifiable miscalculations by business managers about the desired level of inventory needed to meet expected demand. It is a complex decision biased by the continuous vociferous comments from analysts and commentators.

The bottom line for decision makers is how much to produce to meet demand through the supply chain.

Source: www.peterdag.com

Why does the economy slow down? Why does the business cycle move from Phase 2 to Phase 3? Where is the current position of the business cycle now?

These are crucial questions. Their answer drives tactical and strategic investment decisions, and it shows the risks facing the markets.

The major causes for the economy to slow down and the business cycle to transition from Phase 2 to Phase 3 are: rising commodities, rising interest rates, and rising inflation.

During Phase 2 of the business cycle managers are focused on building inventories to meet rising demand for their products. Demand is strong and production must be increased aggressively. To do so business has to purchase raw materials, hire production workers, and increase borrowing to finance the production process.

Toward the end of Phase 2 the intensity of building up inventories causes inflation and interest rates to rise to levels hindering consumers’ purchasing power and consumers’ confidence. The outcome is demand starts slowing down.

Business remains optimistic about the future and does not recognize this change in demand. They keep ramping up production to keep plants operating at full capacity. Eventually, however, inventories are rising at a much faster pace than demand, causing profitability to suffer. The inventory/sales ratio shows a visible rise.

The decision must be made to reduce production to cut inventory accumulation and bring it in line with the slower growth in demand. Purchases of raw materials are reduced. Workers are laid off. Borrowing is cut as reduced production requires cut in financing.

This process continues through Phase 3 and Phase 4. The outcome is continued weakness in commodities, lower interest rates, and lower inflation.

Eventually, at the end of Phase 4, inventories are brought in line with demand. Consumers’ optimism improves because of lower inflation and interest rates. Demand increases and business is forced to increase production accordingly. Phase 1 is now under way.

In order to increase production business raises purchases of raw materials, hires more production workers causing income to improve, and increases borrowing to finance production. These events feed on themselves throughout Phase 1 and Phase 2.

Where are we now? Recent data about the inventory to sales ratio published every month by the Census (see chart below) help us to answer this question.

A rise in the I/S ratio means inventories are rising more rapidly than sales. This is a bearish sign for the economy because business will be forced to cut production to lower inventory accumulation and bring inventories in line with the slowdown in demand. This process and its impact on the markets have been discussed in detail in my article The Inventory Cycle – Boring But Important Market Setter. An in-depth report showing what happens during a complete business cycle is also available to visitors of www.peterdag.com.

The above graph shows the I/S ratio started to decline sharply in early 2020. It signaled business was heavily understocked compared to demand. Inventories were reduced too aggressively.

Source: Federal Reserve of St. Louis

The outcome, as shown in the above chart, has been a sharp rebound in production (blue line) and manufacturing employment (red line), reflecting the business decision to increase production to replenish inventories.

Source: StockCharts.com

Because of increased production, as shown on the above chart, yields, copper, lumber, and crude oil all moved higher. Exactly as it is supposed to happen in Phase 2 of the business cycle.

REAL-TIME BUSINESS CYCLE INDICATOR

Source: StockCharts.com

The above chart shows the graph of the business cycle. Its trend is computed in real-time and updated in each issue of The Peter Dag Portfolio Strategy and Management (a complimentary subscription is available to the readers of this article on www.peterdag.com).

The current rising trend of the graph shows the business cycle is still improving. The recent sharp increase in inflation, commodities, and long-term interest rates suggests we are much closer to the end of Phase 2 than the beginning of Phase 1.

As long as the I/S ratio declines and our business cycle indicator rises, the trends of the markets shown in a previous chart will continue to rise. They will reverse when the business cycle starts to slow down. This is the time the I/S is likely to bottom and move higher. Its increase will reflect an unwanted accumulation of inventories which will be followed by production cuts.

These trends will signal the business cycle is entering Phase 3 and the outcome will be a decline in commodities and interest rates.

Key takeaways

The current decline in the I/S ratio is forcing business to increase production.

Copper, lumber, crude oil, and bond yields are rising because of the increased production needed to build up inventories as manufacturers try to catch up with demand.

The sharp increase in commodities and interest rates suggests the business cycle is much closer to the end of Phase 2 than the beginning of Phase 1.

The transition from Phase 2 to Phase 3 will be accompanied by a peak in yields and commodities and increased equity market volatility. A prolonged market correction should be expected at that time.

Date: 3/19/2021

As published on TALKMARKETS

Stocks Retreat Ahead Of Fed Interest Rate Decision

It’s Fed Day

S&P 500 futures are losing ground in premarket trading while traders wait for the Fed Interest Rate Decision and the subsequent commentary.

The Fed has previously signaled that it was not going to change the interest rate anytime soon, so the market will remain focused on the commentary. Traders will pay special attention to Fed’s economic projections which will show whether Fed’s view of the economic rebound has changed.

The huge $1.9 trillion stimulus package may push inflation to higher levels, but the Fed was not concerned about higher inflation in its previous comments. Most likely, Fed Chair Jerome Powell will remain focused on the state of the job market which has not recovered from the blow dealt by the pandemic.

At the same time, Powell must find words to calm bond traders as Treasury yields have increased materially since the beginning of the year.

Treasury Yields Move To New Highs

Bond traders remain nervous ahead of the Fed Interest Rate Decision and sell U.S. government bonds, pushing their yields higher.

Currently, the yield of 10-year Treasuries is trying to settle above 1.66%, while the yield of 30-year Treasuries is testing the 2.41% level. It should be noted that Treasury yields have already recovered to pre-pandemic levels as traders expect higher inflation after the new round of economic stimulus.

Higher yields may put more pressure on tech stocks. Big tech stocks like Tesla, Apple, Facebook are down by more than 1% in premarket trading. If Jerome Powell fails to calm bond markets and yields continue to move higher, tech stocks will find themselves under more pressure.

Housing Starts Declined By 10.3% In February

The U.S. has just released Building Permits and Housing Starts reports. Building Permits decreased by 10.8% month-over-month in February compared to analyst forecast which called for a decline of 7.2%.

Housing Starts declined by 10.3% month-over-month while analysts expected that they would grow by 2.3%.

Housing market reports were weaker than expected, but it remains to be seen whether they will put additional pressure on the stock market as traders remain focused on the Fed.

For a look at all of today’s economic events, check out our economic calendar.