Gold and silver tumble on hawkish Fed expectations, firm yields and dollar
Outside Market Developments: President Trump rejected Iran’s latest proposal related to reopening the Strait of Hormuz and ending the conflict. While there have been indications that talks would continue this week, oil starts the week on the bid.
The rebound in oil is keeping inflation concerns and expectations for further Fed tightening elevated. Last week's hawkish FedSpeak is certainly contributing to those expectations and rising yields. More Fed speakers are on tap for this week, and the tone will likely be similarly hawkish.
Fed funds futures put the probability of an October rate hike at 65.9%, versus 64.2% on Friday, 57.6% a week ago, and 17.7% a month ago. The probability of at least one 25 bps rate hike before year-end remains above 90%.
The Fed's favored measure of inflation comes out on Wednesday. Headline PCE inflation for August is expected to hold steady at 3.7%. Core inflation is expected to edge up to 3.4%, from 3.3% in July.
The trade will also be focused on the September jobs report on Friday. The consensus estimate is +84k nonfarm payrolls. The jobless rate is anticipated to remain unchanged at 4.1%.
Five men were arrested early Sunday near RAF Fairford in England on suspicion of planning a terrorist attack with explosives after suspicious vans were reported approaching the base, which the U.S. has used for strikes on Iran. A local tip-off led to the arrests; investigators are probing a possible Iranian link.
Iran’s embassy in the UK has categorically rejected and strongly condemned any claims of its involvement as unfounded and malicious speculation. However, counter-terrorism police are pursuing “multiple new lines of enquiry.” Security has been raised to the highest level at RAF Fairford, and elevated at other sites as well. The UK’s national threat level remains SEVERE.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$130.24 (-3.04%)
5-Day Change: -$177.96 (-4.10%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,760.05 - $5,595.02
Weighted Alpha: +0.37
Gold has tumbled to seven-week lows amid expectations of another Fed rate hike, which are buoying yields and the dollar. The lack of diplomatic progress last week toward reopening the Strait of Hormuz has caused oil to rebound, raising inflation concerns.
Today's breach of chart/Fibonacci support at $4,235.99/$4,232.32 triggered stop losses, clearing the way for a challenge of the next Fibonacci level at $4,106.19 (78.6% retrace of the late-summer rally). Below the latter, congestive chart support around $4065/$4,0555 would be the likely attraction.
With the yellow metal well below the important moving averages, the downside is indeed looking vulnerable. However, haven interest from elevated geopolitical tensions and the very inflation worries that are driving yields and the dollar higher should provide some underpinning ahead of the June low at $3,945.52.
India’s weak monsoon season could reduce gold demand during the festival/wedding season. Current monsoon rainfall is around 15% below average, highlighting negative implications for crop yields and farm incomes."Rural consumers account for over half of Indian gold demand, reflecting gold’s long-standing role as a store of wealth in areas where access to financial products has historically been more limited," according to the Heraeus Precious Appraisal.
Global ETFs saw net outflows of 1.6 tonnes, ending the string of consecutive weekly inflows at eleven. It was the first net outflow since the week ended 3-Jul.
A short-term climb back above the key moving averages is needed to take pressure off the downside and reinforce the notion that the low for the year was established in June. Intervening resistances are found at $4,235.99 and today's overseas high at $4,284.54.
Sustained central bank buying (especially from emerging markets seeking reserve diversification) and elevated global debt levels, which raise questions about fiat currency stability, are long-term supportive factors. Persistent geopolitical risks and gold’s role as an inflation and crisis hedge further underpin its structural demand beyond short-term rate and dollar pressures.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$1.863 (-2.78%)
5-Day Change: -$4.456 (-6.75%)
YTD Range: $54.778 - $121.630
52-Week Range: $45.563 - $121.630
Weighted Alpha: +11.89
Silver is extending last week’s losses to plumb seven-week lows, pressured by hawkish Fed expectations along with the resulting strength in yields and the dollar. The white metal has fallen more than 4% to begin the new week.
With the $61.015 Fibonacci level negated, tests below $60 must be considered. The next tier of Fibonacci support comes in at $58.272. Below that, challenges of the August low at $56.583 and the cycle low from July at $54.778 would have to be considered.
The rising 50-day moving average at $63.866 must be regained to set up further consolidation within the recent range. Secondary resistance is marked by today's overseas high at $64.289 and stands in front of the falling 20- and 100-day moving averages.
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.