8/21/2024

Gold consolidates recent gains, while silver plays catch-up

OUTSIDE MARKET DEVELOPMENTS: The dollar index slid to a 7-month low in overseas trading. The greenback fell to its lowest level since January against the euro and a 13-month low versus Sterling.

Meanwhile, the yen is showing signs of renewed strength after BoJ research highlighted persistent inflationary pressures. This suggests another rate hike remains on the table, which could prompt additional yen carry trade unwinding, putting the recent risk-on tone in jeopardy.

Economist Art Laffer recently warned that the dollar is becoming "an unhinged paper currency," noting flight to alternatives such as gold and bitcoin. "We're in a new period of collapse of the U.S. dollar, and it's quite frightening," said Laffer.

The U.S. must rebuild trust in its currency or the global de-dollarization trend will continue. Unsound money leads to high interest rates, high inflation, and ever-more government debt, which all weigh on growth prospects.

MBA data showed mortgage applications fell 10.1% last week, even as the 30-year mortgage rate fell to a 15-month low of 6.50%. Purchases were off 5.2%, while refinances declined by 15.2%. With lending still well below the January highs, home sales still face considerable headwinds from high mortgage rates.

BLS payrolls guidance suggested a likely annual revision of -818k jobs for the 12 months ending in March. That's the largest downward revision since the period that included the global financial crisis (-824k), indicating the U.S. economy may be weaker than many believe. 

While a Fed rate cut is fully priced in for September, expectations as to whether it will be 25 bps or 50 bps continue to fluctuate. The probability of a 50 bps cut has edged up recently amid signs of slowing growth.

The market will be looking for clues in the FOMC minutes from the July meeting, which will be released this afternoon. Traders will also look to glean insight into the Fed's policy intentions from the KC Fed's Jackson Hole Symposium, particularly Chairman Powell's speech on Friday.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$4.82 (-0.19%)
5-Day Change: +$64.53 (+2.64%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +33.08

Gold has turned mildly corrective in the wake of Tuesday's move to new record highs. However, the trend remains decisively bullish and dips are likely to be viewed as buying opportunities.



The breach of support at $2,500.00/$2,498.32 leaves Monday's low at $2,488.19 vulnerable to a test. The latter protects more important support marked by Friday's low at $2.451.50, which should correspond closely with the 20-day moving average early next week.

Short-term upside potential remains to the $2,539.77 Fibonacci objective, with Tuesday's all-time high at $2,529.57 now providing an intervening barrier. Further out, $2,597.15/$2,600.00 attracts based on a measuring objective.

The PBoC reportedly gave several commercial banks new import quotas this month after a 2-month pause. This suggests that the central bank is anticipating increased demand from the world's largest consumer of gold, despite record high prices. Gold set a new record high against the yuan on Tuesday at ¥18,089.60, and is up nearly 25% YTD.

The PBoC hasn't made any official purchases of gold for the past three months, through July. However, it is widely believed that China's appetite for gold remains robust as it diversifies its reserves away from dollars.

Revived buying interest from Chinese investors, and the official sector could be the catalyst that drives gold to $3,000. More and more analysts seem to be subscribing to the $3,000 objective in recent weeks.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.155 (+0.53%)
5-Day Change: +$2.081 (+7.55%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +25.88

Silver is consolidating within yesterday's range after setting a 5-week high on Tuesday just shy of the important $30 level. The longer-term uptrend in silver regained some credence with gold's move to new all-time highs.



While global growth risks remain a headwind for industrial demand, silver typically garners some safe-haven spillover interest as a much less expensive alternative to gold. The gold/silver ratio recently reached a 4-month high of 90.048 before retreating to a 3-week low of 84.461 on Tuesday.

I see potential in the ratio back to the 80 zone initially as silver continues to play catch-up. That should equate with a silver price approaching $32. A breach of Fibonacci resistance at $30.14 would bolster confidence in this scenario.

Yesterday's low at $29.24 corresponds closely with the 50-day moving average and marks the first tier of support. More substantial support is at $29.04 (100-day SMA) down to Monday's low at $28.781.


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