9/9/2024

Gold and silver consolidate ahead of this week's inflation data

OUTSIDE MARKET DEVELOPMENTS: Friday's jobs report reinforced that the labor market is cooling. August payrolls undershot expectations by 20k jobs, and back-month revision totaled -86k.

The downtick in the jobless rate to 4.2% suggested that the slowdown in the labor market remains orderly thus far. “While the labor market has clearly cooled, based on the evidence I see, I do not believe the economy is in a recession or necessarily headed for one soon,” said Fed Governor Chris Waller on Friday. Hopes for a soft landing spring eternal.

FedSpeak last week indicated that the focus has shifted to the "full employment“ side of the central bank's dual mandate. Fed funds futures were volatile on Friday, but ultimately swung in favor of a smaller 25 bps rate cut when the Fed announces policy on 18-Sep. 

The probability of a 25 bps cut has fallen to 25%. That's down from 30% last week, and 51% a month ago. Fed funds futures imply 112 bps in cuts by year-end.

While the Fed's focus may be on the weakening labor market, inflation data out this week will have the market's attention.  Median expectations for August CPI (out on Wednesday) stand at +0.2%. Thursday's PPI report is expected to come in at +0.2% as well.

U.S. wholesale sales surged 1.1% in July, well above expectations of +0.2%, versus an upward revised -0.3% (was -0.6%). It's the best monthly sales jump since February. Inventories rose 0.2%, just off the advance print of +0.3%, versus +0.2% in June.

We'll see July consumer credit later today. The market is anticipating a monthly increase of $10.2 bln, versus an $8.9 bln rise in June. 

Over the weekend, The Wall Street Journal reported that there are "about 590 million active cards in circulation in the first quarter of this year, 40 million more than in 2019." America's total credit card balance reached a record-high $1.142 trillion in the second quarter.

With an average interest rate on credit cards north of 27%, this level of debt is an ever-growing millstone around the neck of the U.S. consumer and the economy. Even with home prices and stocks at/near record highs, the Fed is behooved to start bringing rates down or consumption is going to collapse.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$2.74 (-0.11%)
5-Day Change: -$0.61 (-0.02%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +30.25

Gold is straddling the $2500 level as traders look ahead to this week's inflation data. The market is expecting fairly benign readings for both CPI and PPI, which should solidify beliefs that the Fed will begin its easing campaign with a cautious 25 bps cut.



Consolidative trading is likely to prevail early this week as the market awaits the inflation data. The range is well defined by the all-time high at $2,529.57 (20-Aug) and the lows since then at $2,474.31/08. The 20-day moving average has been serving as support on a close basis and comes in at $2,498.84 today.

ETF inflows were unchanged last week amid some lingering uncertainty as to Fed intentions. Modest North American inflows were offset by European outflows.

The COT report shows that net spec positions moderated slightly to 287.6k contracts, versus 294.5k contracts in the previous week. The market is still quite long, at levels not seen since Q1'20. That does create some downside risk, but the long specs have proven themselves to be sticky up here.

CFTC Gold speculative net positions

With the underlying trend bullish, and recent activity deemed corrective/consolidative, buying strategies remain favored. A short-term breach of $2,529.57 would clear the way for tests of $2,539.77 (Fibonacci) and  $2,597.15/$2,600.00 (measuring).


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.194 (+0.69%)
5-Day Change: -$0.419 (-1.47%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +20.29

Silver is trading higher on the day, buoyed by the strong wholesale sales print. However, price action has been confined to the lower half of Friday's range.



The inability of silver to sustain rallies in recent weeks is reflective of persistent concerns about growth and doubts that the Fed will successfully orchestrate a soft landing. Where the 20-day moving average has been providing support in the gold market, the 20-day serves as resistance on a close basis for silver.

Short-term conditions are likely to remain choppy with a modest downside bias ahead of this week's inflation data. The comparative strength of the gold market may provide some underpinning with the gold/silver ratio above 90.

Net speculative long positions in silver futures fell to 46.1k last week, versus 52.2k in the previous week. The specs have been reducing long exposure since mid-July. Current positioning is the lowest since the week ended 16-Aug. A little over a week later, silver was testing above $30.

CFTC Silver speculative net positions

A climb back above the midpoint of last week's retreat at $28.429, would be somewhat encouraging. The 20-day SMA comes in at $28.863 today. A breach of Thursday's high at $29.125 is needed to return focus to the August highs above $30.

Intraday support at $28.079/00 protects the recent lows at $27.791732. The latter now appears to be a formidable downside barrier.



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