9/24/2024

Gold and silver continue to march higher

OUTSIDE MARKET DEVELOPMENTS: China's central bank initiated a sweeping stimulus program to halt disinflation and shore up flagging economic growth. The PBoC cut reserve requirements and key interest rates which could unleash up to ¥1 trillion in additional capital at lower borrowing costs.

New swap and funding facilities were announced, providing an initial ¥800 bln in liquidity to support the stock market. A stock stability fund is reportedly being considered as well.

Chinese stocks soared in response. Hong Kong's Hang Seng Index was up more than 4% and is back within 3% of its high for the year.

The PBoC also sought to address the ongoing property crisis by lowering downpayment requirements and cutting existing mortgage rates by 50 bps.

It is widely believed that additional stimulus will be forthcoming. Many see fiscal stimulus as necessary to revive China's economic recovery.

Israel and Hezbollah forces in Lebanon continue to trade cross-border strikes on Tuesday. Tensions remain extremely high with the risk of a broader regional conflict after Lebanon reported that more than 500 were killed on Monday.

Fed Governor Michelle Bowman (centrist-hawk) warns that inflation remains a threat. She worries that last week's 50 bps rate cut “could be interpreted as a premature declaration of victory on our price-stability mandate." Bowman was the lone dissenter in last week's Fed decision, favoring a more cautious 25 bps cut.

The Case-Shiller home price index and the FHFA home price index both reached new record highs in July. Lower mortgage rates driven by easier Fed policy will likely increase demand in a still-hot housing market. I think rates need to come down quite a bit more before homeowners consider rotating out of mortgages with 3 and 2 handles thereby increasing supply.

Consumer confidence tumbled 4.6 points to 98.7 in September, below expectations of 103.0, versus 103.3 in August. It was the largest decline since August 2021. The labor market diffusion index fell to a 42-month low of 12.6. “The deterioration across the Index’s main components likely reflected consumers concerns about the labor market and reactions to fewer hours, slower payroll increases, fewer job openings," said Dana M. Peterson, Chief Economist at The Conference Board.

The Richmond Fed Manufacturing Index fell two points to a post-COVID low of -21 in September, well below expectations of -12, versus -19 in August. The employment component tumbled seven points to −22, the lowest print since April 2009.

Median expectations for September nonfarm payrolls are +145k, but recent labor market readings make me think there's a risk once again for a downside surprise. Perhaps not surprisingly the prospects for another 50 bps rate cut in November are on the rise.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.04 (+0.19%)
5-Day Change: +73.96 (+2.88%)
YTD Range: $1,986.16 - $2,647.09
52-Week Range: $1,812.39 - $2,647.09
Weighted Alpha: +43.42

Gold continues to trend higher, buoyed by news of Chinese stimulus, high geopolitical tensions, political uncertainty in the U.S., expectations of more Fed rate cuts, and a soft dollar. The yellow metal is also being helped by surging silver. Gold's latest record high is $2,647.09.



Fed funds futures now favor a 50 bps rate cut in November. The probability for a cut to 4.25%-4.50% now stands at 58.1%, up from 53% yesterday, 29% a week ago, and 13.1% a month ago.

Short-term focus remains on the $2,674.84 Fibonacci objective. Beyond that, the next psychological barrier at $2,700 would be the attraction. Further out, the $3,000 level looks increasingly attractive.

Setbacks into the range are expected to attract additional buying interest. Initial support is marked by an intraday chart point at $2,641.27. Below that, additional supports are noted at $2,614.86, $2,600.00/$2,597.42, and $2,585.74/$2,584.84.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.226 (+0.74%)
5-Day Change: +$1.200 (+3.91%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +45.33

Silver is surging, boosted by China's biggest stimulus package since COVID with more thought to be in the offing. The white metal is up more than 4% today.



Gains accelerated following the breach of important resistance at $31.652 (11-Jul high) which likely triggered longer-term stops and cleared the way for a challenge of the high for the year at $32.379 (21-May). An eventual breach of the latter would establish new 12-year highs and shift focus to $33.972 based on a Fibonacci projection.

China is the world's largest consumer of silver and many other commodities as well. Not surprisingly, the commodity sector is celebrating the Chinese stimulus.

Former resistance at $31.652 now marks first support. Secondary supports are noted at $31.413 and $31.249.


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