Gold (GCJ26) and silver (SIK26) futures prices were posting sharp gains near midday today, boosted by a steady-but-weaker U.S. dollar index ($DXY) and a dip in U.S. Treasury yields at mid-week. The gains come despite a “risk-on” trading day in the general marketplace that sees the stock indexes rallying on improved hopes for a de-escalation in the Middle East war. However, the situation remains very fluid.
There’s an old trading adage that says markets can and will do anything and everything possible to frustrate the largest number of traders. Such appears to be the case at present in the safe-haven metals: They sell off on keener risk aversion and rally on better risk appetite.
Apparently, the metals traders on this day are choosing to focus more on inflation prospects receding if the war in the Middle East de-escalates. That’s what has gold and silver traders’ attention nowadays. The specter of problematic inflation would likely prompt major central banks to hold off on loosening — or may even prompt moves to tightening — their monetary policies. Tighter monetary policies suggest slowing economic growth. Weakening global economies imply less consumer and commercial demand for precious metals.
Veteran gold market watchers remember when their metal used to rally on inflation fears. Owning gold was an inflation hedge. Many would argue such is still the case today. In the late 1970s and into the year 1980, the gold market hit then-record highs due to soaring inflation levels. In January 1980, nearby Comex gold futures hit a then all-time peak of $875.00 an ounce. Indeed, this is not your father’s gold market.
Any higher interest rates would also likely mean a stronger U.S. dollar on the foreign exchange market. That would also be price-bearish for gold and silver markets.
In another confounding matter today, gold and silver are posting solid gains as the crude oil market is seeing significant selling pressure. Nymex crude oil (CLK26) is down over $3.50 a barrel as of this writing. The raw commodity markets have recently been paying extra close attention to the daily price movements in the crude oil market. but for gold and silver, not today.
Markets are fickle and trying to make logical sense of them on a day-to-day basis can drive you to the nuthouse.
Tell me what you think. I enjoy hearing from my valued Barchart readers from all around the globe. Email me at jim@jimwyckoff.com
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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