8/14/2024

Gold and silver retreat as prospects for a 50 bps rate cut ebb

OUTSIDE MARKET DEVELOPMENTS: Hamas has said that it will not participate in the latest round of cease-fire talks with Israel, even as international pressure intensifies to end the 10-month-old conflict. Nobody seems optimistic that the latest talks will bear fruit.

Meanwhile, worries of a wider regional war persist. The U.S. has pledged to defend Israel and is rushing additional military assets to the region as a signal to Iran and its proxies of that commitment. The U.S. has also approved a new $20 bln weapons sale to Israel.

A Ukrainian military commander proclaimed that his troops now control nearly 400 square miles of Russian territory. Reports say about 200,000 people have been evacuated from the Kursk border region as the Russian military mounts a counterattack.

U.S. CPI rose 0.2% in July, in line with expectations, versus -0.1% in June; 2.9% y/y, down from 3.0% in June. Core CPI rose 0.2% as well on expectations of the same, versus +0.1% in June; 3.2% y/y, versus 3.3% in June.

In conjunction with yesterday's PPI data, the U.S. inflation picture was largely benign in July. The market still expects the Fed to begin easing in September, although prospects for a 50 bps cut have moderated since yesterday. Nonetheless, Fed funds futures continue to suggest scope for 100 bps of cuts by year-end.

Atlanta Fed President Raphael Bostic said yesterday that he wants to see "a little more data" before he'll be ready to support rate cuts. Bostic is an ardent dove, so his apprehension is tantamount to hawkishness. "I am willing to wait, but it's coming ... It is coming," Bostic said. 

The final inflation reads for the week come out tomorrow in the form of import and export price indexes. The market is expecting unch for exports and -0.1% for imports.


GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$9.88 (+0.40%)
5-Day Change: +$87.98 (+3.69%)
YTD Range: $1,986.16 - $2,481.63
52-Week Range: $1,812.39 - $2,481.63
Weighted Alpha: +31.73

Gold failed to set new all-time highs despite modest easing in annualized consumer inflation that likely keeps the Fed on track for a rate cut in September. The yellow metal has retreated into the range as prospects for a larger 50 bps rate cut ebbed, but weakness in the dollar should be a limiting factor on the downside.



Today's setback without reaching new highs bolsters the prospects for further choppy trade within what appears to be a symmetrical triangle pattern. Look for the lows to be higher within the range and perhaps more lower highs as well, before gold ultimately breaks out to the upside.

A breach of the record high at $2,481.33 (17-Jul) is needed to clear the way for an upside extension to  $2,500.00/$2,503.27 initially. Beyond that, the $2,539.77 Fibonacci objective attracts.

On the downside, a minor chart point at $2,440.37/$2,440.00 offers support. If this level gives way, scope is seen for additional retracement to the $2424.62/$2,417.67 zone, where the lows from Monday and Friday correspond with the 20-day moving average.

Wells Fargo notes that Asian gold ETF holdings have increased 56% year-to-date, with the vast majority of that growth attributed to China. Chinese investors are seeking diversification in the tried and true asset amid growing economic uncertainty and an ongoing real estate crisis. Asian interest, despite near-record highs, is a bullish signal for gold.

While the PBoC has reported no purchases of gold for 3-months now, a recent World Gold Counsel survey suggests central banks will continue to be net buyers for the remainder of the year. Central bank interest should continue to be broadly supportive for gold.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.111 (+0.40%)
5-Day Change: +$1.258 (+4.73%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +21.01

Silver started the U.S. session modestly higher, but once again upticks have proven unsustainable. The white metal appears poised for a second consecutive lower close and nearly all of Monday's gains have been retraced.



The three-month downtrend remains highlighted. New lows for the week below $27.255 would constitute more than a 50% retracement of the bounce from last week's cycle low at $26.524. Such a move would shift focus to $27.098 initially, but the cycle low would be considered back in play.

I suggested yesterday that "fresh highs in gold might prevent new cycle lows in silver." That didn't happen today, so the downside in silver remains vulnerable.

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