7/18/2024
Gold consolidates within yesterday's range, as silver trades defensively
OUTSIDE MARKET DEVELOPMENTS: The ECB held steady on rates today, in line with expectations. The policy statement noted that "domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year."
The ECB is prepared to keep policy sufficiently restrictive to "ensure that inflation returns to its 2% medium-term target in a timely manner." They went on to say that the Governing Council is not pre-committing to a particular rate path, but will remain data-dependent.
Even if the Fed cuts in September, interest rate differentials will continue to favor the dollar for some time. In more normal times, I might see dollar strength as a headwind for the precious metals. However, geopolitical risks, rising debt-to-GDP ratios, and central bank demand have the potential to continue overriding the historic inverse correlation between gold and the dollar.
Once the Fed does start easing it will give other central banks, including the ECB, more room for cuts. Even in this scenario, dollar yields would remain comparatively attractive.
President Biden is facing reinvigorated calls to step aside. Biden has come down with COVID a day after saying that being diagnosed with a “medical condition” could prompt him to drop out of the race. If that were to happen, an unpopular Vice President Harris would likely move to the top of the Democratic Party ticket.
Former President Trump's popularity surged after he displayed courage and resolve following last weekend's failed assassination attempt but it remains to be seen whether he can carry that momentum through election day. There is still plenty of uncertainty surrounding the U.S. election in November, but this week markets seem to be pricing in a Trump advantage.
U.S. initial jobless claims surged 20k to an 11-month high of 243k in the week ended 13-Jul, above expectations of 230k, versus a revised 223k in the previous week. Continuing claims also jumped 20k to a 31-month high of 1,867k. The uptrend in claims since April creates some downside risk for the next payrolls report.
U.S. Philly Fed Index jumped to 13.9 in July, well above expectations of 2.9, vs 1.3 in June. This is the highest reading since the 15.5 print in April. The 6-month outlook index surged to 38.7, versus 13.8 in June. A strong reading on future employment tempers the bad claims data somewhat.
Leading indicators fell 0.2% in June, inside expectations of -0.3%, versus a revised -0.4% in May.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.79(+0.24%)
5-Day Change: +$50.37 (+2.09%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +29.55
Gold is consolidating within yesterday's range with focus still very much on the upside. The yellow metal set a new record high in overseas trading on Wednesday at $2,481.63.
While yesterday's lower close after a new high is perhaps a little troubling for the short term – as is the comparative weakness in silver – the dominant trend remains unquestionably bullish. I'm looking to a Fibonacci objective at $2,511.11 next. Beyond that, $2,530.19 attracts.
First support is marked by yesterday's low at $2,452.34 which is bolstered by the previous record high at $2,449.34.
Focus remains on Fed rate cut expectations. Today's claims data suggest the labor market may be cooling, which should add weight to calls for the central bank will begin easing in September.
Tempered demand in Asia may lead to some short-term volatility as investors and jewelry buyers acclimate to the latest round of record highs. We could see some selling out of Asia but I suspect setbacks will continue to be met with buying interest.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.168 (+0.55%)
5-Day Change: -$1.030 (-3.28%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +30.70
Silver remains defensive in the wake of yesterday's retreat to 2-week lows. It would seem that the silver market is a little less optimistic about growth prospects.
I also suggested yesterday that Trump pledges to "drill baby drill" if he is elected may indicate that aggressive green initiatives and emissions standards could get walked back early in a Trump administration. This could have a detrimental impact on silver demand.
Mounting concerns that the Chinese economy is slowing are certainly a factor as well. Adding to those worries is the fact that the Trump/Vance ticket is very hawkish on trade, perhaps especially with regard to China.
My initial support area at $30.573/509 was taken out yesterday, leaving $30.15/00 vulnerable to a challenge. A dip below $30 would shift focus to $29.777.
A rebound above $30.509/584 is needed to ease short-term pressure on the downside and clear the way for renewed tests above $31. Such a move would return focus to last week's high at $31.652.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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