7/17/2024
Gold sets record highs as expectations mount that Fed easing will commence in Sep
OUTSIDE MARKET DEVELOPMENTS: The 10-year yield is trading at levels not seen since March, dragging the dollar lower and providing a tailwind for the precious metals. The dollar index has traded as low as 103.66 today, a level last seen on 21-Mar.
Signs of softer inflation and dovish Fedspeak this week have heightened the prospect of a September rate hike. Fed funds futures put the likelihood at 98%. There is also a strong probability for a second cut in November and a third in December. Chances that the target rate could be as low as 4.50-4.75% by year-end currently stand at 50.3%.
We'll hear FedSpeak from Barkin and Waller today. Both tend to lean hawkish so they may take the opportunity to temper some of the recent enthusiasm.
Broader markets continue to be buoyed by rising expectations that Donald Trump will win the presidential election in November. The theory is that tax cuts and deregulation will boost economic growth in the short term, even as the longer-term fiscal picture continues to deteriorate.
U.S. housing starts rose 3% in June to 1.353M. Permits rose to 1.446M and completions rose to 1.71M. However, Q2 starts were down 15.7% in Q2, following an 18.7% decline in Q1. High mortgage rates have been a millstone around the housing market's neck, but perhaps there's some hope that rates are coming down.
U.S. industrial production came in at +0.6%, above expectations of +-.3%, versus +0.9% in May. Capacity utilization jumped to 78.8% on expectations of 78.4%.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.76 (-0.03%)
5-Day Change: +$102.44 (+4.32%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +30.17
Gold reached a new all-time high of $2,481.63 in overseas trading on rising optimism that the Fed will begin easing in September. Lower yields and 4-month lows in the dollar index are helping to boost the yellow metal.
Heightened geopolitical risks, ETF inflows, and ongoing central bank demand are all contributing to gold's buoyancy. In a Reuters article this morning, Alex Ebkarian, chief operating officer at Allegiance Gold projected gold to reach $2,600-$2,700 in the second half of the year.
The World Gold Council reports that the Reserve Bank of India (RBI) acquired 9.3 tonnes of gold in June, well above the recent monthly average of 5.6 tonnes. Total H1 buying was 37.1 tonnes, the highest in over 10 years. Gold now comprises 8.7% of the RBIs total foreign reserves, up from 7.4% a year ago.
RBI’s monthly net purchases and reserves, tonnes*
Source: RBI, World Gold Council
*Data as of 28 June 2024
India is still seeing steady ETF inflows and gold imports remain steady. However, record-high prices are expected to sap jewelry demand which is a huge component in the overall demand picture.
My next technical objective on the upside is $2,511.11 based on a Fibonacci projection. Today's earlier low at $2,463.69 marks initial support ahead of the previous record high at $2,449.34.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.341 (-1.09%)
5-Day Change: +$0.198 (+0.64%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +34.35
Silver is consolidating with price action largely contained by yesterday's range. A more serious challenge of the upside has been thwarted thus far despite fresh record highs in gold.
Prospects for a Trump win in November may be leading some investors to scale back their expectations of aggressive green initiatives and zero-emission deadlines. That may have a material impact on demand as silver is featured in much of this technology, particularly solar.
Nonetheless, I would argue that the supply/demand dynamics continue to favor the upside. A lower interest rate environment would also help stoke broad-based demand for electronics, cars, housing, and more.
A breach of last week's high at $31.652 is needed to clear the way for renewed tests above $32 and a challenge of the cycle high from May at $32.379.
I'm watching support marked by Friday's low at $30.509. This level is reinforced by the lows from earlier this week at 30.573/572.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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