Gold pushes past $1,200/oz. to its highest price in seven weeks, as the dollar weakened in reaction to Pres.-elect Trump’s first post-election news conference.
Traders were disappointed by the press conference, as it brought little discussion of economic policy plans - “Instead, the press conference was dominated by verbal sabre-rattling, which highlighted the risks of a Trump presidency,” according to metals analysts at Commerzbank.
“Unless the dollar can rally strongly, which I doubt, then gold should continue to grind slowly higher,” says David Govett, head of precious metals at brokerage firm Marex Spectron.
Other analysts warn that gold's 7% bounce since Dec. 15 may be running out of steam because the dollar likely would rebound once Trump moves forward with his economic plans.
Gold futures inched above yesterday's 10-month low but still fell for the sixth straight week, sinking after the Fed announced its first rate hike of the year with expectations for three more increases in 2017.
"The selling may not yet be exhausted... The bearish factors for gold, namely a high U.S. dollar, rising yields and equities and risk-on investor demand appetite leave bullion clearly on the defensive," HSBC analyst James Steel says.
Gold stocks are not yet in oversold territory but any bumps in enthusiasm about the incoming Trump administration could provide buying opportunities, J.P. Morgan's John Bridges says, while also warning that miners with higher debt loads look vulnerable in the absence of a stronger recovery in prices.
Bridges says Barrick Gold (NYSE:ABX) and Kinross Gold (NYSE:KGC) likely will continue to fluctuate most due to their enhanced sensitivity to gold prices while less levered names like Newmont (NYSE:NEM) and Agnico Eagle (NYSE:AEM) should be more stable, Goldcorp (NYSE:GG) remains in show-me mode as it works under new CEO Dave Garofalo to meet its new targets, and Eldorado Gold (NYSE:EGO) and B2Gold (NYSEMKT:BTG) rank among the few “growth” names left in the sector.
The yellow metal has inched higher overnight but is on track for a sixth weekly loss that has been driven by a more aggressive Fed, investor enthusiasm about Pres.-elect Trump’s policies and ETF sales.
As of Thursday’s close, gold had retreated 17% from July’s high, nearing the 20% loss that commonly defines a bear market.
Eight months after Deutsche Bank (NYSE:DB) settled a lawsuit claiming it manipulated prices of precious metals, plaintiffs say documents it disclosed as part of the accord provide "smoking gun” proof that UBS, HSBC, Bank of Nova Scotia (NYSE:BNS) and other firms rigged the silver market.
Separately, an audit commissioned by German regulators suggest that Deutsche Bank employees may have manipulated internal indexes as part of a scheme to help Monte dei Paschi conceal losses.
Speaking at a conference at the Central Bank of Chile, Fed Vice Chairman Stanley Fischer gives no indication the U.S. central bank has any intention of not raising interest rates next month. "The case for removing accommodation gradually is quite strong."
The remarks should be of absolutely no surprise, but they make for a convenient excuse for a whoosh lower in gold in the last few minutes. The metal is now down 2.6% on the session to $1,233 per ounce, a price not seen since the first days of June. Next stop on the charts is $1,200.
Silver is off 4.15% to $17.96, still well above its early June low of about $16.
Citing a bullish outlook on silver prices, Canaccord Genuity initiates coverage of two silver producers with Buy ratings: Coeur Mining (NYSE:CDE) among the $1B-plus market cap producers on its recent exploration success at Palmarejo and low cost structure at Wharf, and Fortuna Silver (NYSE:FSM) among the smaller cap names due to its execution and cost controls.
Meanwhile, the firm rates Pan American Silver (NASDAQ:PAAS), Hecla Mining (NYSE:HL) and Endeavour Silver (NYSE:EXK) at Hold.
Canaccord says investors who missed the first leg up in silver commodity prices and silver producer equities now have a second chance following the recent pullback.
The firm projects at least 5% upside in silver prices over the next 12-18 months as zinc and lead mine closures impact supply, and says increasing demand from the photovoltaics industry and inflationary pressures from higher oil prices also should boost silver prices.
The 10-year Treasury yield is up another three basis points to 1.73%, its highest level since the start of the summer. On the short end, futures traders have priced in about a 90% chance of a rate hike between now and year-end.
Tomorrow morning brings September's jobs report and it seems only a string of terribly weak prints would be enough to push the Fed off of its promise to raise rates this year.
Gold is lower by another 1% to $1,255 per ounce - now off nearly $100 per ounce over the past couple of weeks. GLD -1%
Silver today is down 2.25% to $17.30 per ounce - almost $3 per ounce less than its level of two weeks ago. SLV -2.7%
With investors this quarter pouring more than $625.5M into the iShares Silver Trust (NYSEARCA:SLV) - the largest quarterly amount since 2010 - holdings in ETFs backed by silver have climbed to their highest ever, according to Bloomberg.
The popularity surge comes as silver has rallied 39% this year.
Barron's interviews Jim Grant, founder of Grant's Interest Rate Observer.
Grant is bullish on metals, including Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Goldcorp (NYSE:GG), New Gold (NYSEMKT:NGD), and Pan American Silver (NASDAQ:PAAS): "Gold stocks have come a long way. But many were priced for bankruptcy, notably Barrick Gold, an encumbered mining company priced at $6 at the bottom, as if its debt would not be paid. Now the stock is $20. I personally own Newmont Mining, Goldcorp, and New Gold.
"I'm very bullish on the metal, bullish on miners. Bears on credit finally get paid in gold. At the end of the road to confetti, gold will reclaim some position as an active monetary asset, not a crank's asset. It is now a relatively high-yielding asset, yielding, as it does, nothing.
"We are also bullish on silver. It is the crazy uncle in the attic of monetary assets. It is as volatile as Donald Trump. It has industrial uses as well as monetary ones, which will come to the fore as the gold bull market progresses. In June, we recommended Pan American Silver (PAAS) and long-dated, out-of-the-money call options on the silver exchange-traded fund iShares Silver Trust (NYSEARCA:SLV).
Grant is bearish on Kraft Heinz (NASDAQ:KHC), Campbell Soup (NYSE:CPB), and United Rentals (NYSE:URI): "One idea that hasn't worked yet is being bearish Big Food. Both are indicative of one form of excess, reaching for yield in equities. Campbell is trading for 23 times trailing net income, and Kraft is 46 times. Both are battling new trends in eating."
Gold rallied in today's trade to its highest price since March 2014, and holdings by the SPDR Gold Trust (NYSEARCA:GLD) rose to 31.6M oz. for its biggest total in three years, picking up speed on reports that three U.K. commercial property funds worth ~£10B had suspended trading.
"The bull market in gold and silver is all about negative real interest rates, currency market volatility and failed central-bank policy worldwide,” says Altavest's Michael Armbruster.
UBS analysts think gold's rise is not over, because it thinks the serious money has not come in yet: "Our sense is that individual positions are not particularly large, but rather the extent of involvement has been quite expansive. It’s also worth noting that despite the very strong inflows into gold ETFs YTD, global holdings are still some distance away from record highs."
Not everyone agrees: OptionSellers.com's James Cordier thinks gold will drop to $1,200-$1,250 by year-end because the metal is acting as a currency and will return to acting like a commodity "once the hysteria slows."