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10/9/2024

Gold and silver consolidate yesterday's losses amid hopes for more Chinese stimulus

OUTSIDE MARKET DEVELOPMENTS: Chinese stocks are retracing recent stimulus-driven gains on revived growth concerns. The Shanghai Composite Index closed down 6.62% and the CSI300 lost 7.05% today. These were the biggest daily losses since the COVID crisis.

Hong Kong's Hang Seng index lost another 1.7% today, following a plunge of 9.5% on Tuesday. That was the biggest drop since the global financial crisis in 2008. Commodities remain defensive.

The market is demanding more stimulus, which will likely be met. Beijing has announced that a fiscal policy briefing will be held on Saturday, where Finance Minister Lan Fo’an is expected to introduce additional measures to boost growth.

The ECB is widely expected to cut rates by another 25 bps next week. "A cut is very probable, and furthermore it won't be the last," said Banque de France Governor Francois Villeroy de Galhau. With inflation continuing to moderate, ECB policy remains tilted toward easing amid persistent growth risks.

While the Chinese and European (especially German) economies continue to display weakness, last week's strong U.S. jobs report reflects a resilient U.S. economy. Today's update to the Atlanta Fed's GDPNow model estimates Q3 GDP to be 3.2%, up from 2.5% on October 1. The Blue Chip consensus remains below 2% but is rising gradually. 

With the prospects for a U.S. recession considerably diminished, the market has priced out the possibility of another oversized Fed rate cut. However, solid growth has the potential to revive inflationary pressures.

U.S. CPI and PPI data are out on Thursday and Friday respectively. While the market expects both to show benign 0.1% monthly increases, there are whispers of upside risk.

Dallas Fed President Lorie Logan (moderate hawk) warned today of "still meaningful" upside risks to inflation. "I continue to see a meaningful risk that inflation could get stuck above our 2% goal," she said. Logan sees "a more gradual path back to a normal policy stance" as appropriate.

The dollar has rebounded in recent weeks as the market pivoted to less-dovish policy expectations. The dollar index reached a new eight-week high today.

U.S. MBA mortgage applications fell 5.1% in the week ended 04-Oct, weighed by a five-week high in 30-year mortgage rates of 6.36%. Refinances fell 9.3%.

U.S. wholesale sales fell 0.1% in August, below expectations of +0.4%, versus +1.1% in July. Wholesale inventories rose 0.1%.

The minutes from the September 17-18 FOMC meeting will be released this afternoon.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -0.51 (-0.02%)
5-Day Change: -$41.33 (-1.55%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +36.01

Gold is consolidating yesterday's losses with price action confined to the lower end of Tuesday's range. While the yellow metal is trading lower for a sixth session, the magnitude of the correction thus far from the $2,684.45 record high (26-Sep) has been less than 3%.



High geopolitical tensions and political uncertainty are seen as supportive factors that should limit the downside. The shift in Fed rate cut expectations toward a more conservative 25 bps and the corresponding rise in the dollar pose headwinds for gold.

UBS believes gold's rally still has legs. They see ongoing central bank buying and steady consumer demand in China and India as important driving forces. UBS now forecasts $2,800 by year-end and $3000 in 2025.

HSBC has a year-end target of $2,725 and expects a broad range of $2,350 to $2,950 through 2025. HSBC cites central bank demand, expectations for further Fed easing, and rising concerns over fiscal deficits in major economies at tailwinds for gold.

I'd like to see gold climb back above the 20-day moving average at $2,623.57 to boost confidence in the longer-term bullish outlook.

On the downside, initial support at $2,607.26/09 protects the more important $2,600.00/$2,597.42 level. Penetration of the latter would shift focus to $2,579.26 (50% retrace of the rally from $2,474.08 to $2,684.45).

Silver has stabilized somewhat in the wake of yesterday's 3.2% plunge. While the white metal is trading lower for a third session, additional downside progress has not been seen today.



Revived hopes for additional Chinese stimulus are providing some support, but markets seem inclined to wait until after Saturday's policy briefing to see exactly what Beijing is considering. A much-anticipated press conference on Tuesday disappointed, leading to the recent sell-off.  

While the double top formation on the daily chart remains troubling, I believe China is inclined to make whatever accommodations are necessary to ensure the attainment of its 5% growth target.

News this week that Russia is considering holding silver as a reserve asset has rather bullish implications as well. Russian reserve buying has the potential to boost demand considerably in a market that is expected to notch its fourth consecutive structural supply deficit in 2024.

A close back above the 20-day moving average at $31.186 would ease short-term pressure on the downside and favor renewed tests above $32.  The eventual negation of the double top at $32.657/$32.700 would put silver back on track for attainment of previously established objectives at $33.00 and $33.972.

On the other hand, if solid support at $30.00/$29.85 gives way, a more protracted corrective/consolidative phase becomes likely. The 100- and 50-day moving averages are rising to bolster this area and come in at $29.743 and $29.577 today. Today's intraday low at $30.281 and yesterday's low at $30.229 mark the initial downside barriers.

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.

10/8/2024

Gold and silver correct on tepid post-holiday stimulus messaging from China

OUTSIDE MARKET DEVELOPMENTS: Risk-off sentiment has surfaced on renewed worries about the Chinese economy. The Golden Week holiday has ended and a much-anticipated press conference by the chairman of the National Development and Reform Commission was a disappointment. No new stimulus measures were announced.

Chinese stocks saw record volume after the weeklong holiday closure. Initial strong gains were pared into the close. Meanwhile, Hong Kong’s Hang Seng index plunged 9.5%, its worst day since 2008. Commodities are in retreat.

Hurricane Milton continues to strengthen, prompting evacuation orders as the storm approaches the west coast of Florida. Milton is expected to make landfall near Tampa Bay tomorrow and could be the worst storm to hit the U.S. in more than a century.

Tensions remain extremely high in the Middle East amid expectations that Israel is preparing to strike Iran in retaliation for last week's missile barrage. Iranian nuclear facilities are considered by many to be likely targets.

A rare earthquake in Iran over the weekend has some speculating that a nuclear weapon test may have been conducted. CIA Director William Burns said on Monday that he sees no evidence that Iran is rushing the development of such a weapon.

A Wall Street Journal article worries that Iran may now realize that its ballistic missiles and Hezbollah proxies in Lebanon are "less powerful than previously thought." This may prompt Iran to accelerate its nuclear program to achieve a more substantial deterrent against Israel.

The Israeli and U.S. position has always been that Iran can not be allowed to get a nuclear weapon. The deterrent Iran seeks is the exact thing that could prompt a joint strike on the country.

The Japanese yen has come under renewed pressure as prospects for another big Fed rate cut have dimmed. This elicited warnings from key Japanese policymakers that hinted at the potential for direct intervention to support the yen.

The U.S. NFIB Small Business Optimism Index edged up to 91.5 in September from 91.2 in August. It is the 33rd consecutive month below the 50-year average of 98. The Uncertainty Index jumped 11 points to a record high of 103 with the U.S. election less than a month away.

RCM/TIPP Economic Optimism Index rose 0.8 points to a 16-month high of 46.9 in October, versus 46.1 in September. While an improvement, it was the 38th straight month below 50. A sub-50 reading indicates economic pessimism.

The U.S. trade deficit narrowed to -$70.4 bln in August, inside expectations of -$70.6 bln, versus a revised -$78.9 bln in July. The deficit narrowed 10.5% from a 25-month high in July to a 5-month low that some attribute to proactive moves by importers and exporters in advance of what at the time was a threatened strike by longshoremen.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$3.58 (+0.14%)
5-Day Change: -$17.86 (-0.67%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +38.04

Gold slid to a three-week low in early U.S. trading on dampened risk sentiment after China failed to announce any new stimulus as the Golden Week holiday came to an end. The yellow metal is trading lower for a fifth straight day.



The breach of chart support at $2,633.48/$2,627.20 cracked the range that had held for five sessions, prompting a challenge of the important 20-day moving average at $2,614.80. While gold has tested below the SMA, the next tier of chart support at $2,600.00/$2,597.42 remains intact thus far.

High geopolitical tensions and persistent political uncertainty ahead of the U.S. elections continue to provide some underpinning to the market. Meanwhile, the erosion of Fed rate cut expectations and the firm dollar weigh.

September saw a fifth consecutive month of inflows into gold-backed ETFs. Inflows totaled 18.4 tonnes ($1.4 bln). North American investors continue to lead the charge.

North Americans have been net buyers for three straight months. Asian investors extended their buying streak to 20 consecutive months. 

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -0.376 (-1.19%)
5-Day Change: -$0.220 (-0.70%)
YTD Range: $21.945 - $32.700
52-Week Range: $20.704 - $32.700
Weighted Alpha: +37.57

Silver came under selling pressure along with the rest of the commodities sector on revived concerns about the health of the Chinese economy. The white metal plunged more than 4% intraday to approach the $30 zone.



The violation of support at $30.963 confirms the $32.657/$32.700 double top. A more serious challenge of the $30.00/$29.85 zone seems likely, especially on a close below the 20-day moving average at $31.090. The 100- and 50-day moving averages come in at $29.745 and $29.545.

Given the short-term market fallout stemming from China's tepid stimulus messaging today, I suspect at a minimum they'll start jawboning in favor of further accommodations as soon as Wednesday. Ultimately, more stimulus is likely forthcoming based on Beijing's commitment to its growth targets.

A rebound above the 20-day would ease short-term pressure on the downside and favor renewed tests above $32.00. A minor intraday chart point at $30.595 marks an intervening barrier.


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.

10/7/2024

Gold and silver consolidate near historic highs as focus shifts to U.S. inflation data

OUTSIDE MARKET DEVELOPMENTS: Hamas reportedly fired rockets from the Gaza Strip at Tel Aviv on the first anniversary of the horrific October 7th terrorist attack. Israel has issued evacuation warnings for northern Gaza in advance of what may be a major new offensive.

Meanwhile, rockets fired by Hezbollah in the north struck the Israeli city of Haifa. Israel continues to attack Hezbollah positions within Lebanon and the IDF is said to be preparing a “serious and significant” retaliatory strike on Iran.

Hurricane Milton is tracking toward Tampa Bay, an area still reeling from the effects of Hurricane Helene. Milton is projected to make landfall on Wednesday.

Market focus this week will be on U.S. inflation data. September CPI will be released on Thursday and PPI comes out on Friday. Median expectations are +0.1% m/m for both, although Friday's better-than-expected jobs data suggests some upside risk to inflation.

The market is suddenly worried that the Fed's 50 bps rate cut in September was too aggressive. Consequently, expectations for another large rate cut in November have fallen to zero. A more cautious 25 bps cut is now favored, but the probability of a hold has increased to 16.5%.

Today's economic calendar is light with just August Consumer Credit. The market is expecting an increase of $12.0 bln.

We'll hear Fedspeak from Bowman, Kashkari, Bistic, and Musalem later today. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$2.69 (+0.10%)
5-Day Change: +$11.61 (+0.44%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +38.09

Gold remains narrowly confined within striking distance of record highs, as ongoing haven interest is offset to some degree by less dovish Fed expectations and a strong dollar. While the yellow metal notched a second consecutive lower weekly close, I continue to be impressed by this market's resilience in the face of recent seven-week highs in the dollar index.



For five sessions, the yellow metal has been confined to the 01-Oct range ($2,670.67 - $2,633.48). Such price action does not indicate a top is forming but is more likely a continuation pattern. An eventual upside breakout is favored.

A breach of $2,670.67 would clear the way for a retest of the record high at $2,684.45. Above the latter, the $2,700.00/$2,709.14 objective remains valid.

The $2,633.48/$2,627.20 area marks initial support. The rising 20-day moving average will correspond with this support later in the week and is presently at $2,613.66.

The COT report for last week showed that net speculative long positions fell 15.5k to 299.9k contracts from 315.4k in the previous week. I imagine the spec longs that left the market will be quick to jump back onboard with new record highs.

Indian gold imports hit a more than three-year high of 125 tonnes in August, driven by strong consumer demand and industry restocking ahead of the festival and wedding season according to the latest edition of Heaeus's weekly market report. Consumption in India continues to be supported by this summer's steep cut in import duties.

Central bank demand remains an important driving force behind the rally in the gold market. Poland has been a leading buyer, adding 39 tonnes to its holdings over the past five months. The WGC reported The National Bank of Poland held 398 tonnes of gold as of the end of August.

"We now hold 420 tonnes," Adam Glapiński, president of the National Bank of Poland, told reporters last week.  Glapiński went on to note that Poland now has more gold reserves than the UK, viewing that as an important benchmark that ushers Poland into the "exclusive club of the world's largest gold reserve holders."

You may recall that Chancellor of the Exchequer Gordon Brown famously sold about half of Britain's gold between 1999 and 2000, at an average price of $275. It became known as Brown's Bottom.

Silver saw its fourth consecutive higher weekly close last week, and a fresh 12-year high at $32.70. While gains above $32 have proven unsustainable thus far, the trend remains positive.



Recently announced Chinese monetary and fiscal stimulus remains a primary supporting factor. We may see this influence re-exert itself this week as the Golden Week holiday winds down.

Russia has been a consistent buyer of gold as a means to sidestep international sanctions stemming from its invasion of Ukraine. Russia's Draft Federal Budget specifically mentions silver for the first time as part of its plan to continue increasing its holdings of precious metals.

While no real specifics were provided, a nation-state buyer in the silver market would have rather bullish implications. The silver market is substantially smaller than the gold market. The estimated market capitalization of the silver market is about a tenth that of the gold market.

First support at $31.451 (03-Oct low) protects the more substantial $31.041/$30.963 zone. The 20-day moving average has risen to $30.989 today, further bolstering this support level.

While the upside remains favored, be aware of the potential double-top formation at  $32.657/$32.700 that would be confirmed on a breach of $30.963. Such a move would suggest downside potential to the $30 zone initially.

At this point, buying strategies remain favored. An eventual breach of $32.700 would bode well for tests of previously established objectives at $33.00 and $33.972.

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.

10/4/2024

Gold remains consolidative despite dollar strength while silver hits a new 12-year high

OUTSIDE MARKET DEVELOPMENTS: U.S. nonfarm payrolls surged 254k in September, well above expectations of +150k, versus a positive revised +159k in August (was +142k). The unemployment rate ticked down to 4.1% from 4.2% in August.

Hourly earnings rose 0.4% on expectations of +0.3%, versus a positive revised +0.5% in August (was +0.4%). The average workweek edged down to 34.2 hours.

Stronger-than-expected jobs and earnings growth suggest growth risks may not be as worrying as the market thought. Arguably, there are also heightened price risks into year-end. This has prompted the market to completely unwind bets for another oversized rate cut. Fed funds futures now favor a 25 bps cut in November with a slight chance for steady policy.

Chicago Fed President Austan Goolsbee called the jobs report "superb" on BloombergTV. Goolsbee believes it is still appropriate for the Fed to bring the policy rate down "a lot" over the next 12 to 18 months.

"With the benefit of hindsight, the 50 basis point cut in September was a mistake...," wrote former Treasury Secretary Larry Summers on X. Summers believes "Caution in rate cutting" is required.

The Fed is still widely expected to ease in November and December. At the moment the bias is for more conservative 25 bps cuts. The Fed continues to remind us that the policy path is data-dependent and there are 34 days until the next FOMC meeting; plenty of time for more surprises. 

Given the recent more-dovish talk out of the ECB and BoE, shifting expectations for interest rate differentials has led to new seven-week highs in the dollar index. The low-to-high move in the DXY thus far has been 2.5%.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$2.23 (+0.08%)
5-Day Change: +$2.21 (+0.08%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +44.88

Gold initially retreated in reaction to this morning's significant NFP beat, weighed by less-dovish Fed policy expectations and the corresponding rise in the dollar. Nonetheless, price action remains confined to Tuesday's range for a third session. An inside week is evident as well.

 

I wrote yesterday about gold's impressive resilience in the face of the dollar's recent rebound. That is even more evident today although dollar strength is seen as limiting the upside. High geopolitical tensions and rising political uncertainty a month out from U.S. elections provide the counterbalance.

A close above $2,658.20 is needed for the yellow metal to notch a fourth consecutive higher weekly close. That would bode well for a retest of the record high set last week at $2,684.45. Above that, the $2,700.00/$2,709.14 objective remains valid.

On the downside, the $2,633.48/$2,627.20 area marks first support. This level was reinforced by today's earlier intraday low at $2,637.43. The 20-day moving average is now at $2,606.50.

Setbacks into the range are likely to be viewed as buying opportunities even as the trade looks ahead to next week's important inflation data. Both CPI and PPI are expected to come in at a benign +0.1%.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.026 (+0.08%)
5-Day Change: +$0.952 (+3.01%)
YTD Range: $21.945 - $32.700
52-Week Range: $20.704 - $32.700
Weighted Alpha: +52.02

Silver continues to probe above the $32 level, heartened by today's better-than-expected jobs data and demand optimism stoked by Chinese stimulus. The white metal shrugged off seven-week highs in the dollar to slightly exceed last week's high at $32.657, eking out a new 12-year high of $32.70.



Silver is up nearly 2% this week and appears poised for a fourth consecutive higher weekly close. The last time that happened was in March.

A more convincing breach of the previous high would clear the way for short-term tests above $33 and lend credence to the previously established Fibonacci objective at $33.972.

Further out, $35.217 is an important level to watch as it marks 61.8% retracement of the entire decline from $49.752 (Apr'11 high) to $11.703 (Mar'20 low). An eventual breach of this would bode well for the bullish scenario that calls for a return to the $50 zone.

Initial support at $32.00 stands in front of the intraday low at $31.697. Several additional tiers of support now protect the key $31.041/$30.963 zone. 


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.

U.S. nonfarm payrolls +254k in Sep, well above market expectations of +150k, versus revised +159k in Aug (was +142k).

Jobless rate ticks down to 4.1%.

Hourly earnings +0.4% on expectations of +0.3%.