8/23/2024
Gold and silver firm ahead of Powell's speech
OUTSIDE MARKET DEVELOPMENTS: Market focus today will be on Fed Chairman Jerome Powell's keynote speech in Jackson Hole. Recent FedSpeak and the minutes from the July FOMC meeting have laid the groundwork for a September rate cut as long as the incoming data cooperate.
I think Powell will stick to that messaging. I am interested to hear his thoughts on the labor market in the wake of this week's big negative revision to payrolls for a period when the Fed was still tightening.
The market believes the probability of an ease in September is 100%. The chances for a larger 50 bps cut continue to fluctuate but have mostly settled into the 25% zone.
Powell is scheduled to take the podium at 10:00 EDT. We'll also hear from BoE Governor Bailey at 11:00 EDT, and ECB Executive Board Member Philip Lane at 12:25 EDT.
The BoE and ECB have already started down the easing path. Both are expected to cut rates further before the end of the year, and September is on the table in each case.
The BoJ on the other hand has begun raising rates. Bank of Japan Governor Kazuo Ueda hinted today that further tightening is likely. "Japan's short-term rates are very low. If the economy is in good shape, they will move up to levels deemed neutral," Ueda told Parliament.
The expansion of interest rate differentials stemming from rising yen rates and declining rates elsewhere threatens to precipitate further unwinding of yen carry trades, leading to additional market volatility. "Markets at home and abroad remain unstable, so we will be highly vigilant to market developments for the time being," Ueda said.
U.S. new home sales rose 10.6% to a 14-month high of 739k in July, above expectations of 625k, versus an upward revised 668k in June (was 617k). The median price rose 3.1% to $429,800, still well above the pre-pandemic high of $343,400.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$14.50 (+0.58%)
5-Day Change: -$5.48 (-0.22%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +32.31
Gold has been choppy since setting a new record high at $2,529.57 on Tuesday, but the dominant uptrend remains highlighted. Setbacks into the range are considered corrective and should continue to attract buying interest. A close above $2,507.65 is needed to register a second consecutive higher weekly close.
Dovish central bank bets – with Japan as the notable exception – and ongoing haven flows remain broadly supportive of the yellow metal. The market is eager for Fed Chairman Powell to tip in a September rate cut in his speech today.
In an FT article earlier this week, John Reade, chief market strategist at the World Gold Council noted that Western investors and speculators are returning to the gold market. More than 90 tonnes in holdings have been added to gold-backed ETFs since May alone.
The same article notes that demand in India has surged in recent weeks, stoked by seasonal festival buying and a substantial cut in import duties. “India is seeing huge amounts of physical demand for gold,” said Ruth Crowell, chief executive of the LBMA.
With gold probing back above $2,500 ahead of Powell's speech, scope is seen for a short-term retest of Tuesday's high. A move to new record highs would put the yellow metal back on track for a challenge of the $2,539.77 Fibonacci objective. Beyond that, potential is seen to $2,597.15/$2,600.00 based on a measuring objective.
On the downside, the overseas low at $2,484.53 protects more important support marked by yesterday's low at $2,474.31. Secondary support remains defined by Friday's low at $2.451.50, which now corresponds with the 20-day moving average.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.451 (+1.56%)
5-Day Change: +$0.467 (+1.61%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +24.77
Silver is trading higher, but remains within the confines of yesterday's range. Despite the inability of the white metal to regain $30 this week, and yesterday's setback, I remain cautiously bullish.
A close above $29.015 today would confirm a second consecutive higher weekly close. The white metal would also register its first close above the 20-week moving average in five weeks with a close above $29.079. These events would further embolden the bull camp.
I've been impressed by the bullish moment since silver formed a key reversal on 08-Aug. Silver has rallied $3.353 (+12.64%) since the low on that day. More than half of the retreat off the May high at $32.379 has been retraced.
While considerable credence has been returned to the longer-term uptrend, I'd still like to see a breach of $30.00/14 to clear the way for a move back to the $32 zone. The $30.14 level marks 61.8% retracement of the decline from $32.379 to the cycle low at $26.424.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
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