9/25/2024

Gold sets another new high as silver consolidates Tuesday's gains

OUTSIDE MARKET DEVELOPMENTS: The U.S. is sending an additional $375M in military supplies to Ukraine, including controversial cluster munitions. Ukraine is still trying to get clearance to use U.S. and UK long-range missiles to strike deep inside Russia.

President Biden said in his final speech before the UN General Assembly, "We will not let up on our support for Ukraine, not until Ukraine wins with a just, durable peace." Meanwhile, President Zelensky of Ukraine contends that "Russia can only be forced into peace." Biden is scheduled to meet with Zelenskiy on Thursday.

President Biden also urged Israel and Hamas to accept the ceasefire proposal that's on the table. "Full scale war is not in anyone's interest, even if situation has escalated, a diplomatic solution is still possible," said Biden.

These two wars are almost certain to outlast Biden's presidency and pose geopolitical challenges for the next administration. Countering growing regional influence by the likes of Russia, China, and Iran will also continue to test the next president.

The yuan reached a 16-month high against the dollar as markets digest China's largest stimulus since the COVID crisis. The market is broadly expecting additional PBoC stimulus.

The greenback has been under pressure since mid-year as markets initially looked forward to the Fed beginning its easing campaign.  interest rate cuts and now anticipate further easing.

The dollar index set a new low for the year last week at 100.21 and this level remains under pressure. A challenge of last year's low at 99.58 is anticipated. If this level also gives way, focus will shift to a Fibonacci level at 78.6.

The Institute of International Finance (IIF) reports that global debt rose by $2.1 trillion to reach a record $312 trillion. Estimates for 2024 global GDP are around $108 trillion, resulting in a debt-to-GDP ratio approaching 300%. Most of the recent rise is global debt is attributable to the U.S. and China.

"With the Fed’s new easing cycle expected to accelerate the pace of global debt buildup, a significant concern is the apparent lack of political will to address rising sovereign debt levels in both mature and emerging market economies," the IIF report said.

As debt burdens continue to grow, countries must allocate an ever-greater share of revenue to servicing that debt. While lower interest rates may lighten the load, the risks to growth are considerable.

U.S. mortgage applications surged 11% in the week ended 20-Sep. Refinancings accounted for most of the gains as 30-year mortgage rates fell to 23-month lows.

New home sales fell 4.7% to 716k in August on expectations of 700k, versus a revised 751k in July. Home inventories rose 1.7% to 467k and the median price fell 2.0% as lower mortgage rates may finally be loosening up an extremely tight real estate market.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$1.42 (-0.05%)
5-Day Change: +$97.05 (+3.79%)
YTD Range: $1,986.16 - $2,667.22
52-Week Range: $1,812.39 - $2,667.22
Weighted Alpha: +44.32

Gold set another record high in overseas trading, pulling within striking distance of the $2,674.84 Fibonacci objective. While the yellow metal has retreated into the range, high geopolitical tensions, rising expectations for another jumbo Fed rate cut, and a weak dollar offer ongoing support.



Fed funds futures now show a 59.5% chance of a 50 bps cut at the November FOMC meeting. That's up modestly from 58.2% yesterday. However, the odds of another 50 bps cut were just 37% a week ago when the Fed announced its initial half-point move.

Initial support is marked by a minor intraday chart point at $2,652.08. More substantial supports are found at $2,614.86, $2,600.00/$2,597.42, and $2,585.74/$2,584.84. Dips that approach $2600 are likely to be viewed as buying opportunities.

The World Gold Council reports that Indian gold demand has normalized since the government significantly cut import duties. However, demand remains strong as we move deeper into the important festival and wedding season that extends through year-end.

The WGC sees potential for improved rural consumption due to a good monsoon season and expectations for higher crop yields. When farmers experience better economic conditions, they buy more gold. Record-high prices are not necessarily a deterrent, particularly if they anticipate the uptrend will continue.

The Reserve Bank of India has bought gold every month of this year through August. The RBI's YTD total stands at 50 tonnes.

While central bank buying is expected to remain a driving force in the gold market, the central bank of the Philippines acknowledged that they were a seller in H1. BSP selling was a strategic move that if anything reinforces the advantage of holding gold as a reserve asset.

"The BSP took advantage of the higher prices of gold in the market and generated additional income without compromising the primary objectives for holding gold, which are insurance and safety." according to a press release. I expect the BSP to be a buyer in the future as circumstances warrant.

Silver is consolidating at the upper end of yesterday's range. The white metal surged 4.6% on Tuesday to close above $32 for the first time since 28-May.



An eventual breach of the $32.379 high from 21-May would establish 12-year highs and signal that the longer-term uptrend is back underway. Such a move would shift focus to $33.972 initially based on a Fibonacci projection.

There's another Fibonacci level at $35.217, which marks 61.8% retracement of the entire decline from $49.752 (April 2011 high) to $11.703 (March 2020 low). This level also makes a logical secondary objective pending new highs for the year.

I continue to see the basic supply/demand dynamics for silver as broadly supportive. China's latest stimulus program, and expectations for additional accommodations, provide an additional tailwind.

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