Technical bounce assisted by dollar weakness
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
We suspect that part of the recovery bounce in gold and silver prices this morning is the result of short covering from yesterday's large range down, with additional lift coming from an 8-day low in the dollar index. Holding back the gold and silver trade are unrelenting forecasts of recession based on yield curve signals. Another minor factor is a decline in ETF holdings yesterday of 81,022 ounces, which pulls down the year-to-date gain to 8%. We are surprised that metals have not come under sustained pressure because of indications from Russia that they would slow their attack of the Ukraine capital and specifically stating the pause was a good-faith contribution to the negotiations. However, reports from Ukrainian mayors overnight suggest some cities have been bombed relentlessly by the Russians! The Russians have been anything but forthright in their dealings with Ukraine and the West, and given Putin's personality, it could be difficult for Russia to "settle" without gaining territory. The precious metal trade drained a portion of the flight to quality premium from gold and silver prices over the past 24-hours, even though US interest rates have declined this week. However, central banks like the Bank of Japan are fighting against significant gains in interest rates in a sign that upward pressure on rates is building around the world. In retrospect, gold and silver should be disappointed in the moderation of inflation expectations, especially after the US posted several "hot house price measures" yesterday. However, a large portion of inflationary expectations flow from energy prices, and early action today in the energies favors the bull camp in gold and silver.
MARKET IDEAS: The path of least resistance is down, but a minor and temporary bounce today could set the stage for significant volatility ahead. Given the track record of Russia in its dealings with the West, it seems unlikely that a deal will be reached and complied with quickly. We see psychological support in April gold at $1,909 and then again down at $1,888.30.