8/29/2024

Gold and silver recover somewhat, await Friday's PCE data

OUTSIDE MARKET DEVELOPMENTS: U.S. Q2 GDP was revised up to 3.0% in the second report. That's above expectations of 2.8%, versus a preliminary print of 2.8%. The gains are largely attributed to sizable upside adjustments to personal consumption.

The GDP Chain Price Index was revised up to 2.5%, on expectations of 2.3%, versus 2.3% in the first report. Core prices were revised down to 2.8% from 2.9%.

Initial jobless claims dipped 2k to 231k in the week ended 24-Aug, below expectations of 235k, versus a revised 233k in the previous week. Continuing claims rose 13k to 1,868k, just off the 32-month from late July at 1,871k.

The U.S, Advanced Goods Trade deficit widened to -$102.7 bln in July, outside expectations of -$97.0 bln, versus a revised -$96.6 bln in June. Exports were unchanged at $172.9 bln, while imports rose 2.3% to $275.6 bln.

The NAR Pending Home Sales Index tumbled 5.5% to a record low 70.2 in July, below expectations of 75.5, versus 79. in June. "A sales recovery did not occur in midsummer. The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election," said NAR Chief Economist Lawrence Yun.

The U.S. economy continues to display resilience in terms of growth, but inflation was sticky above target in Q2. Hints of weakness in the labor market persist and housing affordability remains a challenge.

Yields and the dollar have firmed in reaction. While the Fed is still likely to start easing in September, bets for a 50 bps rate cut have been pared somewhat.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$1.29 (-0.05%)
5-Day Change: +$28.84 (+1.16%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +31.47

Gold is trading higher on the day, despite follow-through gains in the dollar. Price action remains confined to yesterday's range, but Wednesday's reversal day may keep sellers at least somewhat interested ahead of tomorrow's inflation data.



A higher close today will diminish the significance of that chart pattern although the bulls are unlikely to jump back in until the PCE report is behind us. The market is expecting a scant 0.1% increase in PCE inflation. A print at or below expectations would re-embolden the bull camp.

A hotter-than-expected reading from the Fed's preferred measure of inflation would decrease 50 bps rate cut expectations. Further retracement of recent dollar losses would be expected, weighing on gold.

An FT article suggests that the uptrend in gold has "staying power," noting 22% gains already this year and the outperformance of the S&P 500.  Investors traditionally rotate into gold when interest rates fall. With other major central banks already easing and the Fed on the verge of joining them, "Rich individuals and financial investors have been filling their vaults," according to the FT.

At this point, important short-term support levels remain protected. Yesterday's low at $2,494.93 now provides a barrier ahead of Friday's low at $2,484.53. More substantial support is noted at $2,474.31 (22-Aug low) and corresponds closely with the rising 20-day moving average at $2,471.21 today.

On the upside, yesterday's high at $2,527.97 reinforced the record high from last week at $2,529.57. Nonetheless, the dominant trend remains bullish with targets at $2,539.77 (Fibonacci) and  $2,597.15/$2,600.00 (measuring objective) still valid.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.441 (+1.51%)
5-Day Change: +$0.397 (+1.37%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +24.16

Silver has rebounded from yesterday's weak close and is consolidating within the confines of Wednesday's range. Just over 50% of yesterday's losses have been retraced.



While the white metal probed back below the 50- and 100-day moving averages, the bears were unable to take the market lower, leaving last week's low at $28.830 well protected. Like gold, silver seems to be ignoring the headwind of a stronger dollar today.

Better-than-expected Q2 growth seems to be providing some lift for the white metal intraday. While concerns about the Chinese economy persist, the demand for silver should continue to expand as the world electrifies.

The market is increasingly excited about Samsung's new solid-state silver batteries as an alternative to traditional lithium-ion batteries. The new technology employs a silver-carbon composite layer for the anode. Reportedly, when used in EVs they will increase range, and slash charging times. On top of that, they're lighter and less costly.

That sounds like a win all the way around. However, for a market already in deficit, sourcing adequate supplies of silver could be an issue if the technology is widely adopted. That would lead to higher prices.

A breach of Monday's 6-week high at $30.164 is needed to keep the white metal on track for a challenge of the May high at $32.370. Intervening resistances are noted at $31.126 (78.6% retracement of the May/Aug decline) and $31.652 (11-Jul high).


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