U.S. PPI +0.3% in Jan, above expectations of +0.1%, vs downward revised -0.2% in Dec; 0.9% y/y, down from 1.0% in Dec.
Core +0.5%, above expectations of +0.2%, vs downward revised -0.1% in Dec; 2.0% y/y, vs revised 1.7% in Dec.
Gold has softened in reaction but remains confined to yesterday's range.
Gold surged nearly 5.5% last week, spurred by safe-haven buying in the wake of the horrific October 7th attack on Israel. While downside retracement was seen on Monday, the initial push back above the $1900 level leaves the low end of the bear channel well protected for the time being.
With an Israeli ground offensive into Gaza thought to be imminent, and amid worries that the conflict could expand, look for the yellow metal to remain underpinned. Iran has warned Israel of “far reaching consequences” should they launch a ground invasion.
Gold is garnering additional lift from rising hopes that the Fed is done raising rates this year. The CME’s FedWatch tool puts the probability of a November rate hike at just 5.2%, while the odds for a December rate hike stand at 32.7%.
While PPI rebounded in September to 2.2% y/y, and CPI held steady at 3.7%, members of the Fed still seem to be encouraged by the progress in the fight against inflation.
“Absent a stark turn in what I see in the data and hear from contacts … I believe that we are at the point where we can hold rates where they are,” said Philadelphia Fed President Patrick Harker. Raphael Bostic of the Atlanta Fed stated last week that he does not believe that the FOMC needs to hike again.
There is still a wide belief that the Fed’s next move is very data-dependent. The present stance has been categorized as a “hawkish hold.” As long as the trajectory for inflation is down, the central bank will likely keep rates as they are.
Monday’s low at $1908.23 now provides a good intervening support level ahead of the 38.2% retracement level of the rally off the $1810.46 low, which comes in at $1886.14.
On the upside, the next tier of resistance is found at $1947.46/$1953.06. A breach of this area would exceed the halfway back point of the entire decline off the $2067.00 high from May, shifting focus to the 61.8% retracement level at $1969.00.
As long as geopolitical tensions remain elevated and nearby supports are intact, setbacks into the range are likely to be viewed as buying opportunities.
While haven flows have gold and the dollar moving generally in tandem at the moment, keep an eye on that relationship for short-term directional cues.
Silver
Silver rose just over 5% last week as outside forces stoked market volatility. Despite the strong rally, additional gains are needed to set a more favorable technical tone.
A rebound above $23.41 would constitute a 50% retracement of the decline from the May high at $26.14. It would also put silver back above its 100- and 200-day moving averages. This would have rather bullish implications.
A retreat below $21.80/75 would return focus to the bearish scenario that has dominated since the downside breakout of the large triangle pattern. Such a move would return focus to the $20.68 low from October 3 and highlight the low for the year at $19.90 once again.
While silver followed gold higher last week, the white metal is probably more concerned about the implications of another war on regional and global growth, as well as prices. If signs of stagflation begin to surface, silver would likely remain defensive.
PGMs
Platinum was comparatively subdued last week, rising a scant 0.5% with activity confined to the previous week’s range. Consolidative trading prevailed on Monday.
The short-term technical bias remains negative with platinum below the midpoint of the COVID-era range and all the important moving averages.
Palladium remains weak after sliding to fresh 5-year lows two weeks ago. The next support level to watch is defined by a measuring objective and a Fibonacci level at $1088.38/$1085.50.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
Gold continues to consolidate in the bearish channel that dominated throughout the summer. The 100-day MA successfully contained the upside last week, leaving the downside vulnerable to further tests.
Last week the Fed held steady on rates, as was widely expected. However, Chairman Powell noted strength in the economy and his desire to see “convincing evidence” that inflation is moderating.
The dot plot suggested that at least one more rate hike could be seen this year. Perhaps more importantly, the dots reinforced the ‘higher for longer’ scenario with the first rate cut now forecast for June 2024.
The 10-year yield moved more convincingly above 4% on Monday, reaching levels not seen since 2007. Higher yields are buoying the greenback. The dollar index extended on Monday to reach 10-month highs.
Higher yields and a higher dollar will continue to pose a considerable headwind for gold. Mounting global growth risks apply additional weight.
It is believed that the Eurozone economy contracted in Q3, even as inflation remains elevated. September CPI is forecast to be 4.5%. While that’s down from 5.2% in August, the inflation rate remains well above target.
Earlier in the month, the ECB hiked rates for a 10th consecutive meeting, pushing the deposit rate to a record high of 4%. Analysts now believe the ECB is on hold, probably into next summer.
However, the ECB also will want to see some convincing evidence to confirm that inflation has been squelched in the EU. Until that happens, at least one more rate hike can’t be ruled out.
Of course, worries about the Chinese economy persist as well. This could have grim implications for the global economy.
Chinese demand for imports has contracted in nine of the last 10 months. If China slips into recession, there are concerns that demand for commodities will suffer further. While that may help tamp inflation, the demand destruction will be the greater concern in the medium term.
The ongoing expansion of official gold reserves remains a bright spot for the yellow metal. Central banks continue to seek diversification, mainly out of dollars and into gold.
While central bank gold demand slowed in Q2, the record purchases in Q1 led to record H1 demand of 387 tonnes. Turkey was a big seller in April and May before resuming purchases in June.
The World Gold Council believes the Turkish sales were “tactical rather than strategic” amid internal economic and political strife. Interestingly, as the TCMB was selling, demand for bars, coins, and gold jewelry surged in the country as citizens sought to protect their wealth against a devaluing lira.
Taking into consideration estimates of China’s unreported gold reserves, analyst Jan Nieuwenhuijs of Gainesville Coins believes world reserves reached an all-time high of 38,764 tonnes in Q2. If that’s an accurate assessment, it exceeds the previous record of 39,347 tonnes from 1965.
Nieuwenhuijs points out that gold as a percentage of total global reserves currently stands at 17%, while the long-term historical average is 58%. That suggests there remains considerable potential for further central bank gold buying.
If gold were once again to make up the majority of global reserves, one of Jan’s models projects a price in excess of $8,000 over the next 10 years.
Silver
Silver continues to trade in a choppy manner within the confines of a large symmetrical triangle pattern. The white metal rose more than 2% last week, but most of those gains were given back on Monday.
The silver market is facing some of the same headwinds as the gold market. Perhaps most notably, sluggish demand for electronics in China is likely to adversely impact demand for silver.
The Chinese auto sector returned to growth in August, after contracting in June and July. Sales surged 8.5% m/m and 2.2% y/y with electric vehicles such as Teslas increasingly popular. However, the sustainability of these gains is in doubt as China’s real estate crisis threatens to sap consumer demand.
Real estate is the biggest contributor to Chinese GDP, so the crisis has the potential to drag the middle kingdom into recession. Growth risks in the world’s second-largest economy pose considerable risks to the global economy as a whole.
That being said, the global trend toward electrification keeps the long-term supply/demand fundamentals undeniably positive. Therefore, retreats into the range that has emerged this year are still likely to be viewed as buying opportunities.
Initial support is well-defined by the series of lows at $22.30, $22.22, and $22.11. This zone should keep the low for the year at $19.90 (10-Mar) at bay.
Last week’s high at $23.78 is now seen as the trigger for a retest of the upper reaches of the triangle pattern, which comes in around $24.50.
PGMs
Platinum continues to struggle on upticks. The market rose modestly last week, notching a second consecutive higher weekly close. However, renewed selling pressure surfaced on Monday.
While U.S. auto sales were robust in August, global growth concerns continue to percolate below the surface. Rising interest rates also threaten to undermine consumer purchasing power.
Late-summer sales were helped by better supply, but if the expanding UAW strike persists the supply of new cars will tighten.
Palladium remains defensive at the low end of the multi-year range.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
Gold has been unable to sustain tests below $1900 in recent weeks. While it’s premature to suggest the corrective low is in place at $1884.88 (21-Aug), support is now clearly defined. The yellow metal traded as low as $1901.05 last week which now marks a good intervening support level.
Gold has garnered some lift from revived inflationary pressures, uncertainty associated with the UAW strike, and the latest risk of a government shutdown.
Annualized CPI rose to 3.7% in August, versus 3.2% in July. PPI jumped to 1.6% y/y from 0.8% in July. Gas prices have reached new highs for the year at a time when ebbing seasonal demand should be tamping the price.
Production cuts by Saudi Arabia and Russia, along with severe flooding in Libya have squeezed supply and pushed crude to 10-month highs, approaching $100 per barrel. The price has risen at the fastest pace since Russia invaded Ukraine last year.
Gold is pressuring the upper reaches of the broad corrective channel. A move back above the 100-day MA at $1945.59, and perhaps more importantly the $1953.06 high from 01-Sep would set a more favorable tone within the range.
Despite resurgent inflation, Fed funds futures indicate that the central bank will hold steady when they announce policy this week. The probability of steady policy is currently at 99%.
Heightened growth risks, seem to be offsetting inflationary pressures. If Fed funds remain at 5.25-5.50%, market participants will turn to the policy statement and the projections for clues as to the Fed’s next move.
Not surprisingly, risks to growth along with stubborn inflation have led to heightened talk about stagflation. During the last bout of stagflation, which occurred in the 1970s, gold was one of the best-performing assets.
It is reasonable to assume that gold will once again serve as a hedge, should stagflation rear its ugly head once again. With gold less than 7% off its all-time high ($2075.28), the last several months of corrective to consolidative price action seem to present a favorable buying opportunity.
Silver
Silver unsuccessfully challenged important support at $22.22/11 last week before rebounding into the range. With this level intact, downside risk is clearly defined.
Worries about an economic slowdown are further exacerbated by the U.S. autoworker’s strike. While the auto industry will remain a huge source of demand for silver, the strike may sap demand in the short term.
According to the Silver Institute, the auto industry consumes 60 Moz of silver annually. That figure is expected to grow to 90 Moz by 2025, driven largely by the rising demand for electric vehicles (EVs).
Conventional vehicles with internal combustion engines contain 15 to 28 grams of silver. On the other hand, the silver load in EVs can be as high as 50 grams.
Some more upbeat economic data out of China in August suggests the demand picture may be improving. That would bode well for silver and other industrial metals, but many analysts worry that the property slump is likely to persist, leading to an ongoing drag on the economy.
A rebound above $24 would put silver back above all the major moving averages, setting a more positive technical tone within the large developing triangle pattern. Given the long-term supply and demand fundamentals, an eventual upside breakout of this pattern is still preferred.
PGMs
Platinum rebounded nearly 4% last week, leaving a potential inverse head-and-shoulders pattern. A breach of the neckline around $990 is needed to confirm the formation, which would have bullish implications. Upside potential would be $1107.68 based on a measuring objective.
A soft landing in the U.S. along with an end to the autoworkers strike would provide fundamental support to this scenario, as would a sustained recovery in China.
Palladium remains defensive after falling to nearly a 5-year low early in September. The autoworkers’ strike adds additional pressure to an already bleak demand environment.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
Gold fell to a 5-month low of $1884.88 last week but was unable to sustain losses below $1900 despite rather hawkish FedSpeak from Chairman Powell at the Jackson Hole Symposium. The yellow metal was able to post a 1.3% weekly gain, its first in five weeks.
Powell acknowledged that inflation has come down some, but it remains too high. He warned that further rate hikes could be in the offing.
“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”– Fed Chairman Jerome Powell
The 10-year Treasury yield reached 4.35% early last week, a level not seen since 2007. While rates moderated in subsequent trading this is likely attributable to profit-taking in advance of the Powell speech rather than any real shift in the perception of policy guidance.
The market certainly seems to be leaning toward “higher for longer” with perhaps some new risk for more rate hikes. However, the hawkish bias remains very much data-dependent.
This week happens to be chock full of U.S. data, including home prices, consumer confidence, GDP, PCE, and nonfarm payrolls. These data points and others in the weeks and months ahead will probably have a greater impact on the rate path than any Fed jawboning.
Interestingly, while the 10-year yield reached a 16-year high, the dollar index is thus far holding below the 104.24 high from May 31. It seems like the dollar should be garnering far more support from the rise in yields. And by extension, gold should be under greater pressure.
The greenback’s share of global reserves has gradually eroded over the past 20 years. News that BRICS membership will more than double as of January 1, 2024, and rumblings of a joint currency conspire to further undermine dollar hegemony.
Speculation that the BRICS currency will at least partially be backed by gold makes for a pretty compelling case to lighten dollar exposure in favor of the yellow metal. This investment theme is already being embraced by a number of central banks.
Silver
Silver snapped back smartly last week, gaining more than 6%. It was the white metal’s second consecutive higher weekly close.
While China has taken a measured approach to stimulus thus far, there seems to be a growing expectation that the Chinese government will deliver more robust measures to prevent a recession in the world’s second-largest economy.
With substantial currency reserves at its disposal, China has the means for large-scale fiscal stimulus. There is historic precedence as well.
However, silver is not out of the woods yet. The range that was established in June and July remains intact at this point. I’m also not seeing the recent gains mirrored in the copper market.
Despite last week’s rally, silver ETFs saw outflows of 6.3 Moz. Holdings are down 3.6% YTD.
Until investors come back to the market, I have to consider the downside still vulnerable. However, the longer-term supply/demand dynamics remain favorable.
PGMs
Platinum rose nearly 4% last week. It was the second consecutive higher weekly close and an additional upside extension (2.6%) was seen on Monday. Most of the declines off
Here too, while the long-term fundamentals remain broadly favorable, higher U.S. rates and the negative impact on auto demand, as well as persistent worries about the Chinese economy are seen as limiting to the upside.
Palladium continues to consolidate at the low end of the range, still within striking distance of multi-year lows.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
Gold remains on the defensive after seeing a third consecutive lower weekly close last week and extending to a 6-week low on Monday of $1902.73. Concerns about the Chinese economy and some uncertainty as to whether the Fed’s tightening cycle is over have conspired to weigh on a broad range of commodities.
Last week’s U.S. inflation data suggests that the recent cooling trend in prices has at a minimum slowed, and possibly reversed. July CPI ticked up to 3.2% y/y, versus 3.0% in June. PPI rose to 0.8% y/y in July, versus 0.2% in June.
Lingering inflation along with the July nonfarm payrolls miss sparked a modest uptick in expectations for a rate hike before year-end. However, the market is still fairly convinced that the Fed will hold steady at its next meeting in September.
The heightened prospects for tighter monetary policy pushed the 10-year yield back within striking distance of the October high at 4.337%. The dollar index followed yields higher to set a 5-week high on Monday, adding additional weight to the yellow metal.
Interest rates have already risen dramatically since the Fed’s tightening cycle began back in March of 2022. The Fed funds rate has gone from 0% to 5.25-5.5%. That’s a significant rise in the cost of carrying debt at a time when the country’s and individual debt loads are on the rise.
The national debt stood at $31.5 trillion as of Q1-2023. Estimates now put the debt load closer to $32.7 trillion. If that number is accurate, nearly $10 trillion has been added to the national debt in just the last several years alone since the beginning of the COVID crisis. That’s a surge of more than 40%!
Each citizen’s share of that debt is around $97,550. If you divide it among taxpayers that share jumps to $253,686.
Meanwhile, the credit card debt of American citizens surpassed an inauspicious milestone in Q2, exceeding $1 trillion for the first time ever. Overall household debt rose to $17.06 trillion.
That’s a monumental debt load no matter how you slice it. Rising interest rates will only make it more difficult for America and Americans to extract themselves from this burdensome situation, especially with student loan payments slated to resume for many in October.
While the Fed has stated its goal is to bring inflation back to the 2% level, there may come a point when a higher rate of inflation becomes desirable to help inflate away the debt. In that situation, the ones that really pay are savers that are capturing a yield lower than the rate of inflation.
One of the best ways to preserve one’s wealth in an inflationary environment is to buy physical gold. In 2021 inflation began to surge due to government spending (see the national debt graph above) and pandemic-related supply chain disruptions.
CPI jumped from 1.7% in February of 2021 to 2.6% in March. At the time gold was trading around $1734. By the time CPI topped out at 9.1% in July of 2022 gold had challenged its record high above $2070. Only drastic action by the Fed prevented new record highs.
During the previous major inflationary period during the 1970s, gold rose from around $35 at the start of the decade to $512 in December of 1979. In January 1980 the yellow metal reached the unheard-of level of $850, a 10-year rise of 2,329%.
Here too only drastic action by legendary Fed chairman Paul Volcker finally tamped inflation and gold. It took a Fed funds rate of 20%.
Setbacks offer buying opportunities for wealth-preservation-minded investors.
Silver
Silver tumbled nearly 4% last week, notching a fourth consecutive lower weekly close. Follow-through losses on Monday saw a 6-week low set at $22.37.
The white metal violated the 50-week, 100-week, and 200-week moving averages on Monday. While the latter was only penetrated slightly and silver firmed into the close, the downside remains vulnerable.
A true challenge of the June low at $22.11 seems likely. If this level gives way, potential would be to the $21.25 Fibonacci level.
Metals like silver that derive the majority of their demand from industry need strong growth from major economies to support prices. Lately, data from China, the world’s second-largest economy, have been rather bleak and the government seems to be reluctant to offer full-fledged stimulus.
PGMs
The PGMs are also being weighed by China’s economic woes.
Platinum notched a fourth consecutive lower weekly close last week, reaching a 9-month low at $887.39. The market remains defensive to start the new week.
Palladium continues to consolidate just above multi-year lows. The downside may be at least temporarily limited by the record net short positioning in the market, but it’s going to be difficult to scare up any buyers given the Chinese growth risks and deflationary pressures.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.
Gold is maintaining a corrective to consolidative tone in the wake of the July FOMC meeting. The market now looks to this week’s inflation data for further confirmation that the Fed is on hold.
July CPI comes on Thursday and median expectations are for a 0.2% monthly increase. PPI is out on Friday and the market is expecting a 0.2% increase here as well.
While decent U.S. economic data suggests there is conceivably room for further monetary tightening, Fed funds futures show an 85% probability that the FOMC will hold steady when they next meet in September. That conviction is not as strong into year-end.
There is heightened optimism in recent weeks that the Fed is going to successfully negotiate a soft landing. It would be quite a feat to avoid recession on the heels of 11 consecutive interest rate hikes over the past 16 months.
The DJIA has rebounded to 16-month highs in recent weeks and is a mere 4% off its all-time high as investors are lured back into stocks. This appetite for risk has weighed on gold with Friday marking the tenth consecutive day of outflows from ETFs, leaving holdings down 2.86 Moz year-to-date.
Is there another shoe to drop in the form of a second wave of inflation and/or a rebound in growth risks? Time will tell, but energy prices are already back on the rise. Crude oil has risen nearly 20% in the past 6-weeks.
Demand from China and India remains subdued, with the former still struggling to recover from COVID-related lockdowns and the latter facing record-high prices against the rupee.
The Indian monsoon season began late this year, but crops have been damaged by more recent torrential rains. A ban on some rice exports from India, meant to ensure domestic availability, is likely to contribute to global food-price inflation while simultaneously putting further pressure on gold demand.
Friday’s price action resulted in a key reversal (lower low, close above the previous session’s high). That’s generally a pretty favorable technical chart pattern, but upside follow-through failed to materialize on Monday. Nonetheless, Friday’s low at 1924.78 now provides a good intervening barrier ahead of the more important $1893.07 support level (29-Jun low).
A breach of initial resistance at $1947 would bode well for renewed tests above the 100-day SMA at $1968.14. I see the July high at $1987.53 as the trigger for a run back above $2000 and an eventual challenge of the all-time high at $2075.28.
However, this bullish scenario threatens to get derailed by weakness in the silver market.
Silver
Silver remains on the defensive weighed by ongoing concerns about the Chinese economy. The white metal notched a third consecutive lower weekly close last week and extended 2% lower on Monday.
An ascendant China and its growing middle class have been at the core of every long-term bullish commodity scenario. However, harsh COVID restrictions that didn’t get rolled back until late-2022 sapped investment and consumer spending. Each has been disturbingly slow to recover.
The devastating supply chain issues that were revealed during the pandemic put pressure on international companies to repatriate some key manufacturing, or at least shorten and diversify supply lines. This means China could be facing disinvestment for some time to come.
Stimulus measures have thus far failed to shake free hoarded cash from Chinese businesses and consumers. Both are understandably worried about the level of authoritarian control exerted by Beijing over the past several years and fear that it could easily happen again.
Seems like a good reason to buy some gold.
Heightened political tensions between China and the U.S. further exacerbate the situation.
More than 61.8% of the June/July rally in silver has already been retraced and the 200-day SMA at $23.16 is under pressure. A convincing penetration of this level would shift focus to the 78.6% retracement level at $22.79. Beyond that, the June 23 low at $22.11 would be back in play.
A rebound above $24 is needed to ease short-term pressure on the downside. Such a move would suggest potential back to the July 20 high at $25.27.
PGMs
Platinum closed 1.6% lower last week. It was the third consecutive lower weekly close and the weakness extended into Monday’s session.
The PGMs are also being weighed by the economic situation in China, which is adversely impacting car and truck demand. Heavy monsoon rains and flooding in India have not been good for car and truck demand either.
Palladium is coiling near multi-year lows, but with the market already quite short, a rebound may be needed to attract renewed selling interest.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.