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9/25/2024

Gold sets another new high as silver consolidates Tuesday's gains

OUTSIDE MARKET DEVELOPMENTS: The U.S. is sending an additional $375M in military supplies to Ukraine, including controversial cluster munitions. Ukraine is still trying to get clearance to use U.S. and UK long-range missiles to strike deep inside Russia.

President Biden said in his final speech before the UN General Assembly, "We will not let up on our support for Ukraine, not until Ukraine wins with a just, durable peace." Meanwhile, President Zelensky of Ukraine contends that "Russia can only be forced into peace." Biden is scheduled to meet with Zelenskiy on Thursday.

President Biden also urged Israel and Hamas to accept the ceasefire proposal that's on the table. "Full scale war is not in anyone's interest, even if situation has escalated, a diplomatic solution is still possible," said Biden.

These two wars are almost certain to outlast Biden's presidency and pose geopolitical challenges for the next administration. Countering growing regional influence by the likes of Russia, China, and Iran will also continue to test the next president.

The yuan reached a 16-month high against the dollar as markets digest China's largest stimulus since the COVID crisis. The market is broadly expecting additional PBoC stimulus.

The greenback has been under pressure since mid-year as markets initially looked forward to the Fed beginning its easing campaign.  interest rate cuts and now anticipate further easing.

The dollar index set a new low for the year last week at 100.21 and this level remains under pressure. A challenge of last year's low at 99.58 is anticipated. If this level also gives way, focus will shift to a Fibonacci level at 78.6.

The Institute of International Finance (IIF) reports that global debt rose by $2.1 trillion to reach a record $312 trillion. Estimates for 2024 global GDP are around $108 trillion, resulting in a debt-to-GDP ratio approaching 300%. Most of the recent rise is global debt is attributable to the U.S. and China.

"With the Fed’s new easing cycle expected to accelerate the pace of global debt buildup, a significant concern is the apparent lack of political will to address rising sovereign debt levels in both mature and emerging market economies," the IIF report said.

As debt burdens continue to grow, countries must allocate an ever-greater share of revenue to servicing that debt. While lower interest rates may lighten the load, the risks to growth are considerable.

U.S. mortgage applications surged 11% in the week ended 20-Sep. Refinancings accounted for most of the gains as 30-year mortgage rates fell to 23-month lows.

New home sales fell 4.7% to 716k in August on expectations of 700k, versus a revised 751k in July. Home inventories rose 1.7% to 467k and the median price fell 2.0% as lower mortgage rates may finally be loosening up an extremely tight real estate market.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$1.42 (-0.05%)
5-Day Change: +$97.05 (+3.79%)
YTD Range: $1,986.16 - $2,667.22
52-Week Range: $1,812.39 - $2,667.22
Weighted Alpha: +44.32

Gold set another record high in overseas trading, pulling within striking distance of the $2,674.84 Fibonacci objective. While the yellow metal has retreated into the range, high geopolitical tensions, rising expectations for another jumbo Fed rate cut, and a weak dollar offer ongoing support.



Fed funds futures now show a 59.5% chance of a 50 bps cut at the November FOMC meeting. That's up modestly from 58.2% yesterday. However, the odds of another 50 bps cut were just 37% a week ago when the Fed announced its initial half-point move.

Initial support is marked by a minor intraday chart point at $2,652.08. More substantial supports are found at $2,614.86, $2,600.00/$2,597.42, and $2,585.74/$2,584.84. Dips that approach $2600 are likely to be viewed as buying opportunities.

The World Gold Council reports that Indian gold demand has normalized since the government significantly cut import duties. However, demand remains strong as we move deeper into the important festival and wedding season that extends through year-end.

The WGC sees potential for improved rural consumption due to a good monsoon season and expectations for higher crop yields. When farmers experience better economic conditions, they buy more gold. Record-high prices are not necessarily a deterrent, particularly if they anticipate the uptrend will continue.

The Reserve Bank of India has bought gold every month of this year through August. The RBI's YTD total stands at 50 tonnes.

While central bank buying is expected to remain a driving force in the gold market, the central bank of the Philippines acknowledged that they were a seller in H1. BSP selling was a strategic move that if anything reinforces the advantage of holding gold as a reserve asset.

"The BSP took advantage of the higher prices of gold in the market and generated additional income without compromising the primary objectives for holding gold, which are insurance and safety." according to a press release. I expect the BSP to be a buyer in the future as circumstances warrant.

Silver is consolidating at the upper end of yesterday's range. The white metal surged 4.6% on Tuesday to close above $32 for the first time since 28-May.



An eventual breach of the $32.379 high from 21-May would establish 12-year highs and signal that the longer-term uptrend is back underway. Such a move would shift focus to $33.972 initially based on a Fibonacci projection.

There's another Fibonacci level at $35.217, which marks 61.8% retracement of the entire decline from $49.752 (April 2011 high) to $11.703 (March 2020 low). This level also makes a logical secondary objective pending new highs for the year.

I continue to see the basic supply/demand dynamics for silver as broadly supportive. China's latest stimulus program, and expectations for additional accommodations, provide an additional tailwind.

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.

9/24/2024

Gold and silver continue to march higher

OUTSIDE MARKET DEVELOPMENTS: China's central bank initiated a sweeping stimulus program to halt disinflation and shore up flagging economic growth. The PBoC cut reserve requirements and key interest rates which could unleash up to ¥1 trillion in additional capital at lower borrowing costs.

New swap and funding facilities were announced, providing an initial ¥800 bln in liquidity to support the stock market. A stock stability fund is reportedly being considered as well.

Chinese stocks soared in response. Hong Kong's Hang Seng Index was up more than 4% and is back within 3% of its high for the year.

The PBoC also sought to address the ongoing property crisis by lowering downpayment requirements and cutting existing mortgage rates by 50 bps.

It is widely believed that additional stimulus will be forthcoming. Many see fiscal stimulus as necessary to revive China's economic recovery.

Israel and Hezbollah forces in Lebanon continue to trade cross-border strikes on Tuesday. Tensions remain extremely high with the risk of a broader regional conflict after Lebanon reported that more than 500 were killed on Monday.

Fed Governor Michelle Bowman (centrist-hawk) warns that inflation remains a threat. She worries that last week's 50 bps rate cut “could be interpreted as a premature declaration of victory on our price-stability mandate." Bowman was the lone dissenter in last week's Fed decision, favoring a more cautious 25 bps cut.

The Case-Shiller home price index and the FHFA home price index both reached new record highs in July. Lower mortgage rates driven by easier Fed policy will likely increase demand in a still-hot housing market. I think rates need to come down quite a bit more before homeowners consider rotating out of mortgages with 3 and 2 handles thereby increasing supply.

Consumer confidence tumbled 4.6 points to 98.7 in September, below expectations of 103.0, versus 103.3 in August. It was the largest decline since August 2021. The labor market diffusion index fell to a 42-month low of 12.6. “The deterioration across the Index’s main components likely reflected consumers concerns about the labor market and reactions to fewer hours, slower payroll increases, fewer job openings," said Dana M. Peterson, Chief Economist at The Conference Board.

The Richmond Fed Manufacturing Index fell two points to a post-COVID low of -21 in September, well below expectations of -12, versus -19 in August. The employment component tumbled seven points to −22, the lowest print since April 2009.

Median expectations for September nonfarm payrolls are +145k, but recent labor market readings make me think there's a risk once again for a downside surprise. Perhaps not surprisingly the prospects for another 50 bps rate cut in November are on the rise.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.04 (+0.19%)
5-Day Change: +73.96 (+2.88%)
YTD Range: $1,986.16 - $2,647.09
52-Week Range: $1,812.39 - $2,647.09
Weighted Alpha: +43.42

Gold continues to trend higher, buoyed by news of Chinese stimulus, high geopolitical tensions, political uncertainty in the U.S., expectations of more Fed rate cuts, and a soft dollar. The yellow metal is also being helped by surging silver. Gold's latest record high is $2,647.09.



Fed funds futures now favor a 50 bps rate cut in November. The probability for a cut to 4.25%-4.50% now stands at 58.1%, up from 53% yesterday, 29% a week ago, and 13.1% a month ago.

Short-term focus remains on the $2,674.84 Fibonacci objective. Beyond that, the next psychological barrier at $2,700 would be the attraction. Further out, the $3,000 level looks increasingly attractive.

Setbacks into the range are expected to attract additional buying interest. Initial support is marked by an intraday chart point at $2,641.27. Below that, additional supports are noted at $2,614.86, $2,600.00/$2,597.42, and $2,585.74/$2,584.84.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.226 (+0.74%)
5-Day Change: +$1.200 (+3.91%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +45.33

Silver is surging, boosted by China's biggest stimulus package since COVID with more thought to be in the offing. The white metal is up more than 4% today.



Gains accelerated following the breach of important resistance at $31.652 (11-Jul high) which likely triggered longer-term stops and cleared the way for a challenge of the high for the year at $32.379 (21-May). An eventual breach of the latter would establish new 12-year highs and shift focus to $33.972 based on a Fibonacci projection.

China is the world's largest consumer of silver and many other commodities as well. Not surprisingly, the commodity sector is celebrating the Chinese stimulus.

Former resistance at $31.652 now marks first support. Secondary supports are noted at $31.413 and $31.249.


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.

9/23/2024

Gold sets new record highs as silver fails to sustain gains above $31

OUTSIDE MARKET DEVELOPMENTS: Israel's war intensified on its northern border after escalated rocket and missile attacks by Hezbollah prompted more Israeli airstrikes inside Lebanon. “It is clearly a very dangerous situation and clearly has a potential of escalating dramatically,” said Israeli President Isaac Herzog.

Israel continues to prosecute the war against both Hamas in the south and Hezbollah in the north, despite international pressure for a ceasefire. "We're going to do everything we can to keep a wider war from breaking out," asserted President Biden. The U.S. is reportedly sending additional troops to the region.

Eurozone HCOB flash manufacturing PMI tumbled to a 9-month low of 44.8 in September, below expectations of 45.7, versus 45.8 in August. Services PMI fell to a 7-month low of 50.5 on expectations of 52.3, from 52.9 in August.

Despite mounting growth risks in Europe, ECB Governing Council member Martins Kazaks believes service price inflation is the bigger worry. “In my opinion, the risk of service price inflation is still more significant at the moment," said Kazaks. Such concerns may push the next ECB rate cut into December.

After the BoJ held steady on rates last week, BoJ Governor Ueda indicated that the central bank is in no hurry to hike again. While Ueda sees the Japanese economy as "moving in line with our forecasts," he believes the outlook for the U.S. economy has become more uncertain.

The yen weakened in response, providing some underpinning for the dollar. However, the dollar index remains generally weak within striking distance of last year's low at 99.58 after the Fed launched its easing campaign last week with an oversized 50 bps cut.

It appears that Congress has reached a short-term funding compromise that will avert a government shutdown until after the election. The outcome of the November elections will certainly pose challenges for passing a budget before the new deadline of 20-Dec.

Chicago Fed President Austin Goolsbee (centrist-hawk/nonvoter) believes rates need to come down significantly over the next year. The market has priced in an additional 50 bps in cuts for the remainder of this year, with the Fed's dot plots projecting a Fed funds rate of 2.9% in H1'26.

The Chicago Fed National Activity Index rebounded to 0.12 in August from a negative revised -0.42 in July. The 3-month moving average remained in negative territory for the 23rd month.

U.S. flash manufacturing PMI fell 0.9 points to 47.0 in September. The preliminary read on services PMI came in at 55.4, down from 55.7 in August. 

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence worries that "intensifying political uncertainty" poses a substantial headwind to the economy. Williamson also notes a "reacceleration of inflation" that could be a hawkish influence on Fed interest rate decisions moving forward.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.29 (-0.01%)
5-Day Change: +$47.93 (+1.86%)
YTD Range: $1,986.16 - $2,633.96
52-Week Range: $1,812.39 - $2,633.96
Weighted Alpha: +42.45

Gold continues to set record highs amid heightened geopolitical tensions, last week's launch of the Fed's easing cycle, and a generally soft dollar. While momentum has waned somewhat, the yellow metal has traded as high as $2,633.96 in the U.S. session.



The next upside target is $2,674.84 based on a Fibonacci projection. Beyond that, the next psychological barrier at $2,700 attracts. The Fed dots project another 185 bps in rate cuts in the cycle, which poses a significant headwind for the dollar and makes $3,000 gold look increasingly appealing.

Short-term setbacks are likely to be viewed as buying opportunities. Initial support is marked by the overseas low at $2,614.86. Secondary supports are at $2,600.00/$2,597.42 and $2,585.74/$2,584.84.

Global ETFs saw 3 tonnes in inflows last week. Solid interest from North American investors – to the tune of 8.1 tonnes – more than offset European and Asian outflows. Net inflows have been recorded in five of the last six weeks.

 

The COT report for last week showed that the speculative net long position surged by 27.6k to 310.1k contracts. That's the biggest long position since 03-Jun 2020.

Silver is back on the defensive after setting a 10-week high at $31.413 on Friday. Today's global PMI readings indicate ongoing weakness in manufacturing that could adversely impact demand for the white metal.



However, more record highs in gold are seen as a supporting factor for silver as investors seek a less expensive alternative to the classic safe haven. A short-term breach of the July high at $31.652 is needed to put the high for the year at $32.379 (21-May) in play.

The net speculative long position in silver futures rose 13.6k to 58.3k contracts on last week's rally according to the CME's COT data. It's the biggest net-long position in nine weeks. 

CFTC Silver speculative net position

The German auto industry is demanding more subsidies to stimulate flagging electric vehicle sales. The auto industry currently uses about 80M ounces of silver annually. However, EVs require nearly 75% more silver than conventional ICE vehicles.

Broader adoption of EVs would be good for the silver market. As of last year, only 3.2% of vehicles on the road were electric. That suggests there's plenty of room for growth, but consumers still prefer their gas-fueled cars.

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.

9/19/2024

Gold and silver on the bid as markets digest Fed easing

OUTSIDE MARKET DEVELOPMENTS: The Fed went big yesterday, initiating its first easing campaign in over four years with a 'crisis-sized' rate cut of 50 bps.  The last rate cuts greater than 25 bps were in 2020 during the COVID crisis and in 2008 during the global financial crisis.

"In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent." – FOMC Policy Statement

That hardly seems like a crisis. One might deduce it was an acknowledgment by the Fed that they were behind the curve on easing in the same way they were tardy in raising rates as inflation climbed. Chairman Powell begged to differ...

"We don’t think we’re behind...We think this is timely, but I think you can take this as a sign of our commitment not to get behind.” – Fed Chairman Jerome Powell

I thought cooler heads would prevail, but there was only one in the board room of the Echles Building over the previous two days. Fed Governor Michelle Bowman (centrist/hawk) was the lone dissenter who saw a 25 bps cut as a more appropriate response to the current conditions. It was the first vote against an interest-rate decision in nearly 20 years.

Those more cynical of the central bank's motivation view the oversized cut as a means to juice the flagging economy with just 47 days until election day.

Some worry that the Fed is seeing something that indicates the economy and/or the labor market is in real trouble, but that's not reflected in the economic projections. The median expectation for 2024 GDP was nudged down to 2.0% from 2.1% in June, while 2025, and 2026 remained at 2.0%. The Fed now also sees 2.0% growth in 2027. The longer-run outlook for GDP was left unchanged at 1.8%. Median expectations for unemployment were up modestly over the June projections. 

Focus now shifts to the pace and size of cuts through year-end and into H1'25. Cuts of 25 bps are favored for each of the two remaining FOMC meetings this year. The dots project a Fed funds rate of 3.4% in 2025 and 2.9% in 2026, where it will hold steady.

That implies that 185 bps in cuts are still to come in the newly launched easing cycle. Markets view this as a big-ol' RISK ON signal from the Fed. The DJIA and S&P500 have surged to new record highs. The NASDAQ is up sharply but remains off its record.

There are worries that the Fed is stoking an asset bubble that's not going to end well for investors. ”The danger this time around is the extreme level of complacency and the widespread consensus that the business cycle has been repealed,” writes Economist David Rosenberg.

Be assured that the business cycle is still a thing. And the Fed has only orchestrated one soft landing (1994-1995) in the modern era. The odds are against them.

The BoE opted to hold steady on rates today, as was widely expected. They signaled that further cuts are still in the cards. "It is vital that inflation stays low, so we need to be careful not to cut too fast or by too much," said Bank of England Governor Andrew Bailey.

Norway's Norges Bank held steady as well and indicated they would remain on hold until 2025.

The U.S. Philly Fed Manufacturing Index jumped to 1.7 in September, above expectations of -1.0, versus -7.0 in August. New orders fell to -1.5 from 14.6. Prices paid rose 10 points to 34.0 while prices received increased 10.9 points to 24.6.  The employment component improved, but the workweek contracted.

The U.S. current account deficit widened to -$266.8 bln in Q2, outside expectations of -$260.0 bln, versus a revised -$241.0 bln in Q1. The $25.8 billion widening of "reflected an expanded deficit on goods" according to the BEA.

Initial jobless claims fell 12k to a 17-week low of 219k in the week ended 14-Sep. Continuing jobless claims fell to 1,829K from a revised 1,843k in the previous week.

Leading Indicators fell 0.2% in August, inside expectations of -0.3%, versus -0.6% in July. There hasn't been an increase since February of 2022. The 100.2 print is the lowest since October 2016.

Existing home sales fell 2.5% in August to 3.86M, below expectations of 3.9M, versus an upward revised 3.96M in July. While prices have moderated somewhat as supply and mortgage rates have improved, considerable headwinds for the real estate market persist.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$29.54 (+1.15%)
5-Day Change: +$30.10 (+1.18%)
YTD Range: $1,986.16 - $2,597.42
52-Week Range: $1,812.39 - $2,597.42
Weighted Alpha: +36.14

Gold is back in the bid after a bout of post-FOMC volatility yesterday. While the yellow metal remains within the confines of Wednesday's range, the record high at $2,597.42 is within striking distance.

 

The $2,597.15 measuring objective off the August/early-September consolidation has been satisfied. A move above $2,600 seems likely amid expectations for significant additional easing by the Fed through Q2'26. The next upside targets are $2,619.35 and $2,674.84 based on Fibonacci projections.

With each new record high, the $3,000 psychological objective looks more and more attractive. Suddenly what seemed like a pretty lofty goal is just over $400 (15.44%) away.

A minor intraday low at $2,573.90 defines initial support and protects the more important $2.552.80/$2.549.18 zone, which is highlighted by today's low and yesterday's low. Additional support is marked by previous highs at $2,529.57/$2,525.52, which continues to correspond with the 20-day moving average which is at $2,527.88 today.

The gold market is still pretty overbought and therefore vulnerable to correction. Traders may want to try and shake out some of the weak longs that recently entered the market. However, the trend remains undeniably bullish and setbacks will likely attract more buyers.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +1.090 (+3.63%)
5-Day Change: +$1.323 (+4.43%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +35.89

Silver remains volatile with another broad range today. The white metal has set a fresh nine-week high of $31.249, clearing the way for a short-term challenge of the $31.652 high from 11-Jul.



Yesterday's big rate cut, expectations of even easier policy in the months ahead, and today's Philly Fed beat have emboldened the bull camp. Considerable credence has been returned to the scenario that calls for an eventual retest of the high for the year at $32.379 (21-May).

A word of caution: Silver frequently makes it hard on bulls. Volatility is high right now so it wouldn't be surprising to see some longs square up ahead of the weekend. While the launch of the Fed's easing cycle provides a tailwind for the market, the odds of a soft landing remain long.

Intraday support at $30.711 stands in front of the low for the day at $29.937 and Wednesday's low at $29.850. Good support is offered by rising moving averages at $29.409/364 (100-day & 20-day) and $28.974 (50-day).


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.