8/26/2024

Gold just below record territory as silver trades above $30

OUTSIDE MARKET DEVELOPMENTS: “The time has come for policy to adjust,” was Fed Chairman Powell's unequivocally dovish message from Jackson Hole on Friday. The Fed's focus is turning from the two-year fight against inflation to supporting the labor market.

While Powell didn't specifically mention the September FOMC meeting for that first policy adjustment, his keynote, the minutes from the July meeting, and recent FedSpeak from other policymakers all send a pretty clear signal. The market has been fully pricing in a September rate cut for some time now and it's just a matter of whether it will be 25 bps or 50 bps.

I believe it will be the former unless August employment data are significantly weaker than expected. Median expectations for nonfarm payrolls are +150k. That report comes out on Friday, 06-Sep.

There's still plenty for the market to hash out in terms of the longer-term policy outlook after Powell through in the 'data-dependence qualifier'. "The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” said Powell.

Except for the BoJ, major central banks are either currently on easing paths or about to embark on one. This should keep pressure on yields and currencies, most notably the dollar. However, once that first Fed rate cut is behind us, the market should be more focused on interest rate differentials.

The dollar index fell to a new 13-month low in earlier trading today. This leaves the 99.58 low from July 2023 vulnerable to a test. Below that, Fibonacci support at 98.97 (61.8% retracement of the rally from 89.20 to 114.78).

Israeli forces struck Hezbollah positions in southern Lebanon over the weekend in an effort to thwart anticipated missile and drone strikes on Israel. Hezbollah claims they were still able to launch hundreds of missiles and drones resulting in the death of one IDF soldier.

The risk of a wider conflict in the Middle East persists amid retaliation after retaliation. Last week's optimism about a potential cease-fire between Israel and Hamas has fizzled.

U.S. durable orders rebounded 9.9% in July, well above market expectations of +4.5%, versus a negative revised -6.9% in June. The strength was in the transportation sector, which saw a 34.8% bounce, mostly associated with aircraft. Orders ex-transportation fell 0.2%.

The Dallas Fed Index rose 7.8 points in August to reach a 19-month high of -9.7, versus -17.5 in July. Nonetheless, the index has been signaling contraction for 27 months.

Today's data lend a little credence to the soft landing scenario. We should see 50 bps rate cut bets pared today. 

GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$13.06 (+0.52%)
5-Day Change: +$21.63 (+0.86%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +32.37

Gold moved back within striking distance of last week's record high at $2,529.57, buoyed by Fed rate cut expectations and the resulting weakness in yields and the dollar. The yellow metal is also getting a boost from heightened Middle East tensions. Price action has been narrowly confined so far today due to the Summer Bank Holiday in the UK.

 

While gold retreated following a solid U.S. durable goods print, downticks within the range are likely to be viewed as buying opportunities. An eventual move to new all-time highs would clear the way for a challenge of the previously established $2,539.77 Fibonacci objective and will lend additional credence to the secondary objective at $2,597.15/$2,600.00.

The COT report for last week showed that net speculative long positions increased by 24k contracts to 291.3k contracts. That's a more than 4 year high.

Initial support is marked by the overseas low at $2,509.25. Friday's low at $2,484.53 protects more substantial support at $2,474.31 (22-Aug low) and the rising 20-day moving average that comes in at $2,458.85 today.

Here are a couple of fun facts to start your week:

According to the World Gold Council, a 400-ounce good delivery gold bar now costs more than $1,000,000!

Guess what you could have bought a 400-ounce gold bar for in 1971?

It would have been $14,000 before 15-Aug and $17,440 after Nixon closed the gold window.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.296 (+0.99%)
5-Day Change: +$0.677 (+2.30%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +28.52

Silver has traded with a 30-handle for the first time in more than a month. While upticks above $30 have been tentative thus far, the breach of the $30.142 retracement level (61.8% of the decline from $32.379 to $26.524) should embolden the bull camp.



The next levels I'm watching on the upside at $30.584 (18-Jul high), and $31.126 (78.6% retracement of this year's correction). Further out, potential is back to the high for the year at $32.379.

With the Fed poised to support the economy with easier monetary policy, we could see some mitigation of growth risks that would underpin the white metal. Heraeus thinks industrial demand looks "relatively strong" according to their weekly report, driven by ongoing growth in the solar energy sector.

Net speculative long positions rose 4k contracts to 49.3k contracts according to last week's COT report. It was the first increase in six weeks.

CFTC Silver speculative net positions

The overseas low at $29.665 marks initial support. The 50-day moving average at $29.221 and the 100-day at $29.110 now look to be well protected. More substantial short-term support is defined by last week's lows at $28.950/$28.781.

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