9/3/2024
Gold and silver remain defensive as focus shifts to Friday's jobs data
OUTSIDE MARKET DEVELOPMENTS: The bodies of six more Israeli hostages were discovered in Gaza over the weekend, including Israeli-American Hersh Goldberg-Polin. Israelis took to the streets demanding that the Netanyahu government reach a cease-fire deal and secure the release of the remaining hostages.
Negotiating with terrorists never seems to work out in the long run. Despite the intense internal and international pressure, the latest hostage deaths likely steel the resolve of Netanyahu to achieve “total victory” over Hamas.
NATO member Turkey has formally applied to join the BRICS economic block in a bid to boost its global influence. According to Bloomberg, Turkish President Recep Tayyip Erdogan recognizes that "the geopolitical center of gravity is shifting away from developed economies."
The BRICS group is growing; recently adding Iran, the United Arab Emirates, Ethiopia, and Egypt. Saudi Arabia has been asked to join, while Malaysia, Thailand, the Philippines, Vietnam, and Azerbaijan are considering joining.
With America's global economic influence eroding, the BRICS – most notably China – are eager to fill the void. This shift plays into the de-dollarization theme.
Prospects for a 50 bps Fed rate cut had been hovering around 30% but were boosted by signs of economic weakness in today's data:
U.S. manufacturing PMI was adjusted lower to a final August print of 47.9, the lowest since June of 2023. That's down from a preliminary print of 48.0 and 49.6 in July.
“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
While August manufacturing ISM rose to 47.2, the print was below expectations of 47.8. The indicator is less than a point off the 3-year low of 46.4. Prices paid rose 1.1 points to 54.0, versus 52.9 in July. New orders tumbled 2.8 points to a 15-month low of 44.6.
Construction spending fell 0.3% in July, below expectations of +0.1%, versus an upward revised UNCH in June. Back month revisions offset the headline number netting a modestly positive report.
Focus this week is squarely on U.S. jobs data, out on Friday. The market is estimating payrolls to rise by 162k and the jobless rate to tick down to 4.2%. Weaker-than-expected jobs growth would boost bets for a 50 bps rate cut.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$2.22 (-0.09%)
5-Day Change: -$44.36 (-1.76%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +29.55
Gold is trading lower for a third session after failing to extend to new record highs last week. A firmer dollar is weighing on the yellow metal as market focus moves to Friday's nonfarm payrolls report for August.
Gold is currently testing below the 20-day moving average at $2,483.77, leaving the low from 22-Aug at $2,474.31 vulnerable to a test. The close that day at $2,484.57 is the lowest close since 15-Aug. Chart points at $2,451.50 (16-Aug low) and $2,435.86 (15-Aug low) offer additional support.
The latest COT report shows spec long positioning rose 3.1k last week to 294.4k contracts. That's the biggest long position since the week ended 13-Mar of 2020.
Given the long positioning, it's not surprising to see some position-squaring ahead of this week's jobs report. Those jobs data have significant implications for the Fed policy decision that is just 15 days out.
A close back above $2,500 would ease pressure on the downside somewhat. While the underlying trend remains bullish, corrective/consolidative action is likely to prevail until Friday.
Last week's high at $2,527.97 reinforces the record high from the previous week at $2,529.57. Beyond that, established objectives at $2,539.77 (Fibonacci) and $2,597.15/$2,600.00 (measuring objective) remain valid.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.234 (-0.82%)
5-Day Change: -$2.097 (-7.00%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +19.34
Silver has extended to the downside, weighed by weak manufacturing data and a firmer dollar. The white metal is decisively back below the 20-day moving average and more than 50% of the August rally has been retraced.
Silver has disappointed yet again, failing to sustain last week's probes above $30. A sustained breach of this level would have had silver on track for a challenge of the high for the year $32.370 (21-May).
Those tests above $30 drew some new longs into the futures market last week. The COT report showed net long positions increased by 2.9k to 52.2k contracts, a 6-week high. Alas, those longs seem to be weak.
The next supports I'm watching are minor chart points at $27.505 and $27.425. These levels protect the more important $27.303/237 zone.
Monday's low at $28.352 and today's intraday high at $28.558 define initial resistances. A climb back above $29.00 is needed to ease pressure on the downside, but that seems unlikely before Friday's jobs report.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
[email protected]
www.ZanerPreciousMetals.com
www.TornadoBullion.com
X: @GrantOnGold
X: @ZanerMetals
Facebook: @ZanerPreciousMetals
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.
8/30/2024
Gold and silver slide ahead of the holiday weekend on pared rate cut bets and a stronger dollar
OUTSIDE MARKET DEVELOPMENTS: The table remains set for a Fed rate cut in September following this morning's economic data. It would be the first rate cut in more than four years.
Chicago PMI rose to 46.1 in August, above expectations of 44.5, versus 45.3 in July. Boeing issues remain a headwind, keeping the indicator in contraction territory.
The final Michigan Sentiment reading for August edged up to 67.9, from the preliminary print of 67.8. Sentiment remains well off the high for the year set in March at 79.4.
One-year inflation expectations were adjusted to a 44-month low of 2.8%, versus a preliminary print of 2.9%. The Buying Conditions for Houses index reached an all-time low of 23.
U.S. PCE rose 0.5% in July, above expectations of +0.4%, versus +0.3% in June. Personal income climbed 0.3% on expectations of +0.2%, versus +0.2% in June.
The chain price index – the Fed's preferred inflation indicator – rose 0.2% in July, in line with expectations. The annualized rate held steady at 2.5%. Core inflation also rose 0.2% m/m. The annualized rate was unchanged at 2.6% y/y on expectations of 2.7%.
I'd call the inflation readings benign, with year-over-year readings less than half of the post-COVID highs, but still above target. This lends further credence to the belief that the Fed's focus has shifted from price risks to growth risks.
The probability for a 50 bps rate cut edged lower, providing some support for the dollar. The dollar index set a new high for the week at 101.65.
There was some troubling news in this morning's data: The savings rate dropped to 2.9%, versus a negatively revised 3.1% in June. That leaves the savings rate just above the 14-year low of 2.7% from June 2022.
Dollar General shares plunged this week after the company slashed earnings and profit guidance. CEO Todd Vasos said their core customers are "less confident of their financial position" and are having to make hard choices at the discount retailer.
"Inflation has continued to negatively impact these households with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items, in addition to paying more for expenses such as rent, utilities and healthcare," said Vasos. Those who earn the least are the most impacted by inflation, particularly when it comes to necessities such as food, fuel, and shelter.
"More of our customers report that they are now resorting to using credit cards for basic household needs and approximately 30% have at least one credit card that has reached its limit," added Vasos.
Credit card balances increased by $27 billion in Q2 to reach a record high $1.14 trillion according to a recent report by the New York Fed. Contrasting rising credit card debt with the declining savings rate paints a pretty grim picture.
With the average credit card interest rate at 27.64%, according to Forbes Advisor’s weekly credit card rates report, this is a hole that many simply won't be able to claw their way out of. Not surprisingly, the delinquency rate reached a more than 12-year high of 3.25% in Q2.
Looking at total household debt, the picture is even more disturbing. Total household debt rose by $109 billion to reach a record $17.80 trillion in Q2.
This week's upward revision in Q2 GDP to 3.0% was driven largely by stronger-than-expected consumer spending. Consumption was revised up to 2.9% from 2.3% in the first report.
However, that strong consumption is being fueled largely by debt. That's simply unsustainable.
While the Fed is rightly shifting its attention to growth risks, policymakers must be careful not to restoke inflation in the process. I think they will be cautious with the first cut in September unless there is a significant downside surprise in August jobs data, which comes out next Friday.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$6.07 (-0.24%)
5-Day Change: -$14.27 (-0.57%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +30.32
Gold went back on the defensive in early U.S. trading, weighed by diminished expectations for a 50 bps rate cut and a stronger dollar. While the yellow metal appears poised for a lower weekly close, it will notch a seventh consecutive higher monthly close.
At this point, the low for the week set on Wednesday at $2,494.93 remains intact. This keeps more important support at $2,474.31/16 (22-Aug low, and 20-day SMA) at bay.
A rebound back above $2500 early next week would bode well for another run at $2,527.97/$2,529.57. Penetration of the latter would establish new record highs and boost confidence in my previously established upside objectives at $2,539.77 (Fibonacci) and $2,597.15/$2,600.00 (measuring objective).
Thin holiday trading is likely to be seen on Monday with U.S. markets closed in observance of Labor Day. Our Tornado precious metals hedging platform will close early at 12:30 CDT on Monday, September 2.
A study by Wisdom Tree found that a gold allocation of 16–19% in a portfolio maximizes risk-adjusted returns. A special report by Incrementum was released today that identifies the ideal allocation to gold as 14–18%.
"A 40% gold allocation might offer the highest returns, but it also comes with significantly higher volatility and drawdowns." according to the report.
In a post on X today, Incrementum notes that gold's total estimated market capitalization is approaching %18 trillion.
Perhaps surprisingly, many investors have little or no allocation to gold at all. Do you have enough gold?
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.010 (-0.03%)
5-Day Change: -$1.082 (-3.63%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +20.43
Silver tumbled to a new low for the week in U.S. trading on Friday. The white metal is poised to notch its first lower weekly close in three (outside week), and a third consecutive lower monthly close (confirmed on a close below $28.998).
Perhaps there's a growing realization that while consumer electronics, solar panels, and EVs all require significant loads of silver, at least American consumers are losing confidence and are already saddled with a massive amount of debt. Who's going to buy these silver-laden products?
The violations of supports at $29.176/159 (50- and 100-day SMAs) and $28.830 (22-Aug low) leave the 20-day moving average at $28.556 vulnerable to a test. Secondary support is noted at $28.078/$28.000.
A climb back above the 50- and 100-day moving averages would take the short-term pressure off the downside, but silver continues to disappoint. The failure to sustain gains above $30 this week leaves the highs for the year above $32 well protected for the time being.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
[email protected]
www.ZanerPreciousMetals.com
www.TornadoBullion.com
X: @GrantOnGold
X: @ZanerMetals
Facebook: @ZanerPreciousMetals
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.
8/29/2024
Gold and silver recover somewhat, await Friday's PCE data
OUTSIDE MARKET DEVELOPMENTS: U.S. Q2 GDP was revised up to 3.0% in the second report. That's above expectations of 2.8%, versus a preliminary print of 2.8%. The gains are largely attributed to sizable upside adjustments to personal consumption.
The GDP Chain Price Index was revised up to 2.5%, on expectations of 2.3%, versus 2.3% in the first report. Core prices were revised down to 2.8% from 2.9%.
Initial jobless claims dipped 2k to 231k in the week ended 24-Aug, below expectations of 235k, versus a revised 233k in the previous week. Continuing claims rose 13k to 1,868k, just off the 32-month from late July at 1,871k.
The U.S, Advanced Goods Trade deficit widened to -$102.7 bln in July, outside expectations of -$97.0 bln, versus a revised -$96.6 bln in June. Exports were unchanged at $172.9 bln, while imports rose 2.3% to $275.6 bln.
The NAR Pending Home Sales Index tumbled 5.5% to a record low 70.2 in July, below expectations of 75.5, versus 79. in June. "A sales recovery did not occur in midsummer. The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election," said NAR Chief Economist Lawrence Yun.
The U.S. economy continues to display resilience in terms of growth, but inflation was sticky above target in Q2. Hints of weakness in the labor market persist and housing affordability remains a challenge.
Yields and the dollar have firmed in reaction. While the Fed is still likely to start easing in September, bets for a 50 bps rate cut have been pared somewhat.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$1.29 (-0.05%)
5-Day Change: +$28.84 (+1.16%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +31.47
Gold is trading higher on the day, despite follow-through gains in the dollar. Price action remains confined to yesterday's range, but Wednesday's reversal day may keep sellers at least somewhat interested ahead of tomorrow's inflation data.
A higher close today will diminish the significance of that chart pattern although the bulls are unlikely to jump back in until the PCE report is behind us. The market is expecting a scant 0.1% increase in PCE inflation. A print at or below expectations would re-embolden the bull camp.
A hotter-than-expected reading from the Fed's preferred measure of inflation would decrease 50 bps rate cut expectations. Further retracement of recent dollar losses would be expected, weighing on gold.
An FT article suggests that the uptrend in gold has "staying power," noting 22% gains already this year and the outperformance of the S&P 500. Investors traditionally rotate into gold when interest rates fall. With other major central banks already easing and the Fed on the verge of joining them, "Rich individuals and financial investors have been filling their vaults," according to the FT.
At this point, important short-term support levels remain protected. Yesterday's low at $2,494.93 now provides a barrier ahead of Friday's low at $2,484.53. More substantial support is noted at $2,474.31 (22-Aug low) and corresponds closely with the rising 20-day moving average at $2,471.21 today.
On the upside, yesterday's high at $2,527.97 reinforced the record high from last week at $2,529.57. Nonetheless, the dominant trend remains bullish with targets at $2,539.77 (Fibonacci) and $2,597.15/$2,600.00 (measuring objective) still valid.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.441 (+1.51%)
5-Day Change: +$0.397 (+1.37%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +24.16
Silver has rebounded from yesterday's weak close and is consolidating within the confines of Wednesday's range. Just over 50% of yesterday's losses have been retraced.
While the white metal probed back below the 50- and 100-day moving averages, the bears were unable to take the market lower, leaving last week's low at $28.830 well protected. Like gold, silver seems to be ignoring the headwind of a stronger dollar today.
Better-than-expected Q2 growth seems to be providing some lift for the white metal intraday. While concerns about the Chinese economy persist, the demand for silver should continue to expand as the world electrifies.
The market is increasingly excited about Samsung's new solid-state silver batteries as an alternative to traditional lithium-ion batteries. The new technology employs a silver-carbon composite layer for the anode. Reportedly, when used in EVs they will increase range, and slash charging times. On top of that, they're lighter and less costly.
That sounds like a win all the way around. However, for a market already in deficit, sourcing adequate supplies of silver could be an issue if the technology is widely adopted. That would lead to higher prices.
A breach of Monday's 6-week high at $30.164 is needed to keep the white metal on track for a challenge of the May high at $32.370. Intervening resistances are noted at $31.126 (78.6% retracement of the May/Aug decline) and $31.652 (11-Jul high).
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
[email protected]
www.ZanerPreciousMetals.com
www.TornadoBullion.com
X: @GrantOnGold
X: @ZanerMetals
Facebook: @ZanerPreciousMetals
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.
8/28/2024
Gold and silver correct, weighed by a firmer dollar
OUTSIDE MARKET DEVELOPMENTS: Risk appetite has waned somewhat as markets seek more data to clarify central bank policy intentions. While a Fed rate cut in September is now a foregone conclusion in the eyes of many, the debate on how big that first cut will be is underway.
The Fed's favored measure of inflation comes out on Friday. The PCE Chain Price Index is expected to show a scant 0.1% rise, which would reinforce Fed Chairman Powell's contention that "upside risks to inflation have diminished."
The dollar index has rebounded from yesterday's 13-month low. This action was likely associated with profit-taking ahead of formidable support at 99.58 (last year's low) and the upcoming long holiday weekend.
However, with the market still pricing in 100 bps of cuts by the end of the year, further losses in the dollar are considered likely. Fed funds futures are projecting more than 200 bps of easing through the end of next year.
While the Fed is about to embark on an easing path, the BoJ will likely tighten again before year-end. Jaideep Tiwari, global head of FX strategy at Citi Wealth, told CNBC earlier this week that the dollar could reach the mid-130s against the yen next year. The USD-JPY rate is currently trading at 144.50.
Tiwari believes most of the speculative money has already been shaken out of the yen carry trade. However, impending changes in interest rate differentials could lead to further market volatility like we experienced early in the month.
I've written this year about the developing demographic issue facing China and the possible implications for the global economy. Surging school closures in China highlight how dire the situation has become.
According to NikkeiAsia, the number of children enrolled in preschool fell by 5 million last year to 40.92 million, the lowest figure in a decade. More than 20,000 schools have been shuttered in the past two years due to declining enrollment.
China's population fell by more than two million in 2023 to 1.409 bln. UN projections see China's population nearly halving by 2100.
As the population ages in the years ahead, the workforce will continue to shrink. Meanwhile, the retirement-aged population is expected to swell to more than 400 million – bigger than the population of the entire U.S. – over the next 20 years.
Fewer employees and employers will be supporting all those retirees, straining the pension system and stoking a fiscal crisis. "The fiscal strain as a result of ageing is immediate and concerning," warned Economist Intelligence.
China is not alone. Demographic challenges are also manifesting in Japan, South Korea, and parts of Europe. Birth rates in Canada and the U.S. are also well below the replacement rate at 1.43 and 1.66 respectively.
According to the Institute for Health Metrics and Evaluations, "over half of all countries and territories (110 of 204) [are] below the population replacement level of 2.1 births per female as of 2021."
It's a disturbing global trend with far-reaching economic implications, perhaps especially for countries saddled with soaring debt burdens. Are the open border policies that have emerged in recent years in much of the West related to the burgeoning demographic issues?
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$18.75 (-0.74%)
5-Day Change: -$13.03 (-0.52%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +30.42
Gold eked out a new high for the week in early-Asian trading at $2,527.97, but could not take out last week's record high at $2,529.57. The yellow metal retreated in subsequent trading weighed by a stronger dollar and perhaps some position squaring ahead of the long holiday weekend.
From a technical perspective, the outside day and a likely lower close are at least short-term troubling. Tests below $2500 leave Friday's low at $2,484.53 vulnerable to a test. More substantial support is noted at $2,474.31 (22-Aug low) and corresponds closely with the rising 20-day moving average at $2,467.42 today.
A close above $2,506.22 would somewhat diminish the significance of the bearish reversal day. However, at this point, new record highs are probably off the table at least until July PCE data come out on Friday.
With gains in the dollar seen as corrective, losses in gold are seem as corrective as well. Further challenges of the upside are expected, with $2,539.77 and $2,597.15/$2,600.00 still seen as valid objectives.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.477 (-1.59%)
5-Day Change: -$0.328 (-1.11%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +23.50
Silver tumbled to new lows for the week after repeatedly failing to sustain tests above $30. The white metal is off more than 3% from Monday's 6-week high at $30.164.
Silver is challenging the 50- and 100-day moving averages at $29.217/141, which protect more important chart supports at $28.950 (23-Aug low), 28.830 (22-Aug low), and 28.781 (19-Aug low). If the latter gives way, focus will shift to the 20-day moving average at $28.498.
A rise above the halfway back point of today's range at $29.611 would ease short-term pressure on the downside. However, the market seems to be waiting for some new catalyst to either push it toward the highs for the year above $32 or send it back into the range below $28.
A weak inflation reading in the PCE data on Friday would increase bets for a 50 bps Fed rate cut in September, putting the dollar back on the defensive and providing a renewed lift for the precious metals. A more neutral inflation print would have the market looking further down the road to the following Friday and August jobs data.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
[email protected]
www.ZanerPreciousMetals.com
www.TornadoBullion.com
X: @GrantOnGold
X: @ZanerMetals
Facebook: @ZanerPreciousMetals
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.
