7/29/2024

Gold and silver fail to sustain overseas gains

OUTSIDE MARKET DEVELOPMENTS: Israel is blaming Iran-backed Hezbollah for a weekend rocket attack on the Golan Heights that killed 12 children on a soccer pitch. Israel is expected to retaliate escalating risks of a wider conflict in the Middle East.

Israel struck an area in Gaza on Saturday that included a school where Hamas militants were reportedly operating. There were civilian casualties including children.

Cease-fire talks continued in Rome on Sunday. However, Israeli PM Netanyahu vowed "total victory" over Hamas in a fiery speech before a joint session of Congress last week.

U.S. economic data at the end of last week prompted a recovery on Wall Street. PCE data released on Friday broadly supported expectations that the Fed will begin easing in September. Equity futures are indicating upside follow-through to start the new week.

The FOMC will hold a two-day meeting beginning tomorrow. Policy will be announced on Wednesday. While no change is anticipated, the statement – and eventually the minutes (21-Aug) – may provide some clues as to the central bank's intentions for the remainder of the year.

BoJ policy will be announced tomorrow. Rising expectations for another rate hike helped boost the yen further off its multi-decade low last week.

The BoE also meets this week, and the policy decision is more of a toss-up. The latest Reuters survey is leaning toward a cut, but markets are only pricing in a 50% chance of easier policy.

The U.S. calendar is light today with just the Dallas Fed Index, which is expected to narrow modestly from -15.1 in June. 


GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +5.48 (+0.23%)
5-Day Change: -$7.33 (-0.31%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +24.20

Gold ticked back above $2,400 in overseas trading, perhaps benefitting from a bit of a haven bid associated with the latest worries of a wider Middle East conflict. The yellow metal remains narrowly confined at the high end of last Thursday's range with weak upside momentum.

  
Today's action has seen tests back above the 20-day moving average, but intraday upticks have proven unsustainable thus far. A close above this indicator at $2,394.96 would be mildly encouraging. However, the more important close-in level I'm watching is $2,400.70/$2,403.05, where last Thursday's high corresponds closely with the 38.2% retracement level of the decline off the $2,481.63 record high from 17-Jul.

A breach of $2,400.70/$2,403.05 would shift focus to $2,418.06 (50% retrace) initially. Beyond that, $2,430.89/$2,433.06 (24-Jul high and 61.8% retrace) would attract.

Fresh intraday lows below $2,387.36 would leave the 50-day moving average ($2,359.34 today) vulnerable to further challenges. Gold tested below this indicator on Thursday and Friday last week, but was unable to close below it.

Gold ETFs saw 9.8 tonnes of net inflows last week. It was the sixth consecutive week of net inflows suggesting investors in all regions were buying into the correction. North America accounted for more than half of the net inflows. 

Gold ETF Flows by Region

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council

Further evidence of buying interest comes from the latest COT report, which saw speculative net futures positions increase by 18.3k contracts last week to 273.1k contracts. That's the highest since November of 2022 when gold set a low of $1,617.06 which ended up being the third low of a triple bottom.

CFTC Gold speculative net positions

That being said, the market is very long. If gold doesn't rally out of this area, long liquidations could have rather bearish implications. Persistent weakness in silver remains a concern.

China Gold Association reported H1 gold production of 180 tonnes, up 1% over H1 2023. Gold consumption fell 5.6% y/y to 523.8 tonnes, weighed primarily by poor consumer sentiment that led to a sharp drop in jewelry buying.

Jewelry demand plummeted 26.8% to 270 tonnes. However, those same worries about the economy caused bar and coin demand to surge 46% to 213.6 tonnes.

“There are very limited choices in asset preservation due to capital control and the lack of investment options,” Gary Ng, senior economist with Natixis Corporate and Investment Banking, told the South China Morning Post.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.221(+0.79%)
5-Day Change: -$1.054 (-3.62%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +19.66

Silver remains defensive, having proven unable to sustain overseas gains. Last week's low at $27.524 has been exceeded, establishing new 11-week lows.



Concerns about the health of the Chinese economy are the biggest fundamental factor weighing on the commodities sector. In the wake of the Third Plenary Session, there is growing concern that the recent economic turmoil will lead to greater government controls.

Downside potential is initially to the $27.404 Fibonacci level (78.6% retrace of the rally from $26.049 to $32.379). A breach of that level would leave the $26.049 low from 02-May vulnerable to a challenge.

Perhaps not surprisingly, speculative net long positions in silver declined last week by 9.7k contracts to 51.1k. That's the lowest long positioning since the week ended 29-Mar.

CFTC Silver speculative net positions

A short-term close back above the 100-day moving average ($28.508 today) would take at least a little pressure off the downside. However, I still think $30 needs to be regained to re-instill confidence in the longer-term uptrend. And that level keeps getting further and further away.

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