9/3/2024

Gold and silver remain defensive as focus shifts to Friday's jobs data

OUTSIDE MARKET DEVELOPMENTS: The bodies of six more Israeli hostages were discovered in Gaza over the weekend, including Israeli-American Hersh Goldberg-Polin. Israelis took to the streets demanding that the Netanyahu government reach a cease-fire deal and secure the release of the remaining hostages.

Negotiating with terrorists never seems to work out in the long run. Despite the intense internal and international pressure, the latest hostage deaths likely steel the resolve of Netanyahu to achieve “total victory” over Hamas.

NATO member Turkey has formally applied to join the BRICS economic block in a bid to boost its global influence. According to Bloomberg, Turkish President Recep Tayyip Erdogan recognizes that "the geopolitical center of gravity is shifting away from developed economies."

The BRICS group is growing; recently adding Iran, the United Arab Emirates, Ethiopia, and Egypt. Saudi Arabia has been asked to join, while Malaysia, Thailand, the Philippines, Vietnam, and Azerbaijan are considering joining.

With America's global economic influence eroding, the BRICS – most notably China – are eager to fill the void. This shift plays into the de-dollarization theme.

Prospects for a 50 bps Fed rate cut had been hovering around 30% but were boosted by signs of economic weakness in today's data:

U.S. manufacturing PMI was adjusted lower to a final August print of 47.9, the lowest since June of 2023. That's down from a preliminary print of 48.0 and 49.6 in July.

“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

While August manufacturing ISM rose to 47.2, the print was below expectations of 47.8. The indicator is less than a point off the 3-year low of 46.4. Prices paid rose 1.1 points to 54.0, versus 52.9 in July. New orders tumbled 2.8 points to a 15-month low of 44.6.

Construction spending fell 0.3% in July, below expectations of +0.1%, versus an upward revised UNCH in June. Back month revisions offset the headline number netting a modestly positive report.

Focus this week is squarely on U.S. jobs data, out on Friday. The market is estimating payrolls to rise by 162k and the jobless rate to tick down to 4.2%. Weaker-than-expected jobs growth would boost bets for a 50 bps rate cut.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$2.22 (-0.09%)
5-Day Change: -$44.36 (-1.76%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +29.55

Gold is trading lower for a third session after failing to extend to new record highs last week. A firmer dollar is weighing on the yellow metal as market focus moves to Friday's nonfarm payrolls report for August.



Gold is currently testing below the 20-day moving average at $2,483.77, leaving the low from 22-Aug at $2,474.31 vulnerable to a test. The close that day at $2,484.57 is the lowest close since 15-Aug. Chart points at $2,451.50 (16-Aug low) and $2,435.86 (15-Aug low) offer additional support.

The latest COT report shows spec long positioning rose 3.1k last week to 294.4k contracts. That's the biggest long position since the week ended 13-Mar of 2020.

Given the long positioning, it's not surprising to see some position-squaring ahead of this week's jobs report. Those jobs data have significant implications for the Fed policy decision that is just 15 days out.

A close back above $2,500 would ease pressure on the downside somewhat. While the underlying trend remains bullish, corrective/consolidative action is likely to prevail until Friday.

Last week's high at $2,527.97 reinforces the record high from the previous week at $2,529.57. Beyond that, established objectives at $2,539.77 (Fibonacci) and  $2,597.15/$2,600.00 (measuring objective) remain valid.




SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.234 (-0.82%)
5-Day Change: -$2.097 (-7.00%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +19.34

Silver has extended to the downside, weighed by weak manufacturing data and a firmer dollar. The white metal is decisively back below the 20-day moving average and more than 50% of the August rally has been retraced.



Silver has disappointed yet again, failing to sustain last week's probes above $30. A sustained breach of this level would have had silver on track for a challenge of the high for the year $32.370 (21-May).

Those tests above $30 drew some new longs into the futures market last week. The COT report showed net long positions increased by 2.9k to 52.2k contracts, a 6-week high. Alas, those longs seem to be weak.

The next supports I'm watching are minor chart points at $27.505 and $27.425. These levels protect the more important $27.303/237 zone.

Monday's low at $28.352 and today's intraday high at $28.558 define initial resistances. A climb back above $29.00 is needed to ease pressure on the downside, but that seems unlikely before Friday's jobs report.


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