Gold and silver recover from multi-week lows on weak ADP print

OUTSIDE MARKET DEVELOPMENTS: The U.S. military continued to strike Iranian targets, including air defenses, radar, maritime assets, and mine-laying capabilities near the Strait of Hormuz. This prompted Iran to retaliate with ballistic missiles and drones targeting U.S. bases and assets in Jordan, Bahrain, Kuwait, and Iraq.

The heightened tensions have pushed Brent crude to six-week highs near $100. The rise in energy prices is amplifying inflation concerns and stoking more hawkish Fed expectations that were already on the rise in the wake of Fed chairman Warsh's Jackson Hole speech. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," he said.

Prospects for a 25 bps rate hike this month stand at 66.2%, down slightly from yesterday, but up significantly from 36.6% a week ago. Fed funds futures suggest potential for 34.75 bps in tightening through year-end.

Private employers added 38k jobs in August according to the ADP National Employment Report, below expectations of +47k, versus an upward revised +46k in July (was +44k). It was the slowest pace of hiring since January. Job gains were heavily concentrated in education and health services, while manufacturing, professional services, and information sectors saw net job losses.

The ADP miss highlights ongoing labor market soft spots. Consequently, Friday’s August nonfarm payrolls report will move the needle on Fed policy expectations, based on which side of consensus (+58k) the print falls; a below-forecast reading would cool rate hike expectations, whereas signs of job market resilience could boost the likelihood of a rate increase at the September 15–16 FOMC meeting.

The Bank of Canada held its key overnight interest rate steady at 2.25% for the seventh consecutive meeting, maintaining a wait-and-see stance amid resilient Q2 growth. However, policymakers flagged heightened uncertainty and upside inflation risks stemming from rising Middle East tensions that are driving up energy prices, alongside newly introduced U.S. trade tariffs.

Financial markets widely anticipate the ECB to deliver a 25 basis point rate hike at its September 9-10 meeting, bringing the deposit facility rate to 2.50%. This expected tightening is primarily driven by persistent headline inflation – which rose to 3.3% in August – and concerns about ongoing energy price volatility.

At the G20 Finance Ministers and Central Bank Governors meeting in Asheville, North Carolina, global financial leaders underscored the resilience of the global economy while cautioning against rising debt risks, trade disruptions, and high borrowing costs. Under the U.S. presidency, discussions focused on easing regulatory burdens, securing energy supply chains, and fostering AI innovation, though the summit concluded without a joint communiqué due to sharp divides over language on non-market economic policies.

"Lowering debt risk" relies on voluntary frameworks and country-specific guidance. However, there are no mandatory debt-reduction targets, so reversal of the macro debt trend seems unlikely. Meanwhile, there was no joint communiqué because of China's rejected language targeting non-market economic policies, industrial subsidies, and massive export surpluses that the other 19 member nations condemned as unsustainable trade distortions.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$19.05 (-0.44%)
5-Day Change: -$263.84 (-5.74%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,512.35 - $5,595.02
Weighted Alpha: +12.43

Gold fell to a four-week low below $4,300 in overseas trading as the trade continued to reprice Fed rate hike expectations in the wake of hawkish FedSpeak from Kevin Warsh last week and heightened Middle East tensions that pushed oil to six-week highs. However, today's soft ADP print sparked a recovery as the recent rally in the dollar index stalled well shy of 100.

 

More than half of the recent rally in gold was retraced, but more important Fibonacci support at $4,232.32 (61.8% retracement) remains protected. This level is bolstered by the rising 50-day moving average at $4,223.05.

A close back above the 100-day MA today would be mildly encouraging to the bull camp, although new highs for the week above $4,471.29 is really needed to return confidence to the scenario that had targeted the midpoint of this year's range at $4770.27. The rising 200-day MA at $4,536 and last week's high at $4,696.31 provide key intervening barriers.

The 100-day MA at $4,361.06 and minor chart support at $4325/23 protect the low for the day at $4,283.60. Below the latter, $4,232.32 and $4,223.05 would be vulnerable to tests.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.379 (-0.59%)
5-Day Change: -$3.761 (-5.52%)
YTD Range: $54.778 - $121.630
52-Week Range: $40.413 - $121.630
Weighted Alpha: +33.70

Silver is on the mend, recovering from four-week lows below $64 after the ADP miss sparked worries about continued labor market weakness ahead of Friday's NFP report. This shifts some of the recent focus away from inflation, tempering rate hike expectations somewhat.

   

Tuesday's fall below the 20-day moving average remains troubling, but the bull camp can take some comfort in that important supports at $62.941 (50% retrace of the Jul-Aug rally), $62.574 (19-Aug low) and $61.646 (50-day MA) were left unmolested.

The white metal must first regain the 20-day MA at $66.017 to take some of the pressure off the downside. Above that, Monday's high at $67.463 and the falling 100-day MA at $67.765 would be back in play. Above the 100-day, focus would return to last week's high at $71.104 and the rising 200-day MA at $72.890.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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.