7/26/2024

Gold recovers somewhat ahead of the weekend, but silver remains defensive 

OUTSIDE MARKET DEVELOPMENTS: U.S. stocks are recovering somewhat from sharp losses earlier in the week, buoyed by recent U.S. data which are boosting confidence that the Fed will successfully orchestrate a soft landing. Arguably this has only happened once (1994-1995) in the past 60 years so the odds are probably against them.

Stock market weakness yesterday overshadowed positive U.S. growth news. Q2 advanced GDP came in at +2.8%, well above market expectations. While the U.S. economy continues to look resilient, the trade is increasingly worried about growth risks in China.

China's NDRC announced a new 'cash for clunkers' program on Thursday.  The latest effort to stimulate the lagging economy will focus directly on consumers by dedicating 150 bln yuan ($20.7 bln) to the replacement of old cars, appliances, bicycles, and other goods. 

The U.S. PCE price index – the Fed's favored measure of inflation – ticked up 0.1% in June, but the annualized rate dipped to 2.5%, from 2.6% in May. Core inflation rose 0.2% m/m, holding steady at 2.6% y/y.

Personal income rose 0.2% in June, below expectations of +0.4%, versus a negative revised +0.4% in May (was +0.5%). PCE came in at +0.3%, in line with expectations, versus an upward revised +0.4% in May (was +0.2%).

While more aggressive Fed rate cut bets are being pared, the market is still pricing in two cuts this year beginning in September. The probability that the Fed funds rate will be 25 to 50 bps lower after the September FOMC meeting stands at 99.6%.

With Fed easing widely anticipated to begin in September and the BoJ expected to tighten again next week, the market is reassessing a wide array of leveraged bets based on the yen carry trade. This is contributing to broader market volatility.



The USD-JPY rate slid to a two-month low on Thursday of 151.946, more than 6% off the multi-decade high set early in July at 161.948. The 200-day moving average has come within striking distance.

While it's premature to suggest the yen has reversed, the technical picture has deteriorated significantly in recent weeks. Narrowing interest rate differentials with the U.S. and the ongoing threat of direct BoJ intervention in support of the yen definitely have markets on edge. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$8.44 (+0.36%)
5-Day Change: -$22.64 (-0.94%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +23.01

Gold has stabilized somewhat after Thursday's sharp sell-off to a two-week low of $2,354.48. While the yellow metal is higher on the day, price action remains confined to yesterday's range.

 

Gold appears poised for a second-consecutive lower weekly close with last week's close at $2,400.39 seemingly out of reach today. The 20-day moving average is at $2,391.68 and has come within striking distance today. I'd consider a close back above the 20-day as moderately encouraging.

While gold probed below the 50-day moving average yesterday and earlier today, this indicator remains intact on a close basis. Yesterday's low at $2,354.48 reinforces chart support noted in yesterday's commentary at $2,355.03/$2,352.28.

If this level were to give way, gold would be vulnerable to the next Fibonacci level at $2,329.15. Below that, the June lows at $2,295.86 and $2,287.64 would be back in play.

With silver still very much on the ropes, gold bulls need to be cautious here. I'd need to see the yellow metal move decisively back above $2,400 to set a more favorable short-term tone, which is likely predicated on more favorable price action in silver.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.079 (+0.27%)
5-Day Change: -$1.440 (-4.93%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +15.78

Silver remains defensive below $28 in the wake of yesterday's 3.7% plunge. Baring a miraculous rebound, the white metal will notch a third consecutive lower weekly close.



Silver has closed lower in nine of the last eleven sessions. Over that period, the white metal has tumbled below the 20-, 50-, and 100-day moving averages, leaving focus squarely on the downside.

While silver has been leading the charge lower, weighed by mounting growth risks in China, a rebound in gold could provide some underpinning to the market. I still think silver needs to recapture the $30 level to really reinvigorate the bulls. However, incremental gains above $28.476 (100-day SMA) and $29.00 would offer some encouragement along the way.

Yesterday's low at $27.524 now offers intervening support ahead of the $27.404 Fibonacci level (78.6% retrace of the rally from $26.049 to $32.379). An eventual penetration of the latter would leave the $26.049 low from 02-May vulnerable to a challenge.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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