9/27/2024

Gold and silver turn corrective after this week's big run-ups

OUTSIDE MARKET DEVELOPMENTS: Japan's former Defense Minister Shigeru Ishiba has been chosen to lead the ruling Liberal Democratic Party and is set to become the country's next Prime Minister. Ishiba favors a strong military and close security ties with the U.S.

Ishiba has pledged to continue the economic policies of outgoing PM Fumio Kishia, focusing on increasing real wages, boosting consumption, and ending deflation. He also favors more government spending to revitalize depopulated regions. Addressing Japan's declining population is a priority.

The yen surged in reaction and Japanese stocks fell. Ishiba supports an independent BoJ and the market seems to think there is now a heightened chance of more rate hikes.

Israel and Hezbollah forces in Lebanon continue to trade fire. IDF troops have been told to prepare for possible ground operations within Lebanon. This would be a significant escalation.

“Israel has every right to remove this threat and return our citizens to their home safely. And that’s exactly what we’re doing … we’ll continue degrading Hezbollah until all our objectives are met,” Israeli Prime Minister Benjamin Netanyahu told the UN General Assembly this morning. 

Netanyahu made no mention of the 21-day ceasefire proposal being brokered by the U.S. and France, suggesting that the deal is not in play.

Hurricane Helene has been downgraded to a tropical storm after making landfall on Florida's Gulf Coast last night. Floridians are dealing with mass power outages and flooding. At least 11 have died as the storm tracks north through Georgia causing severe flooding.

U.S. personal income rose 0.2% in August, below expectations of +0.4%, versus +0.3% in July. The savings rate ticked down to 4.8%.

PCE was up 0.2% in August, below expectations of +0.3%, versus +0.5% in July. The PCE inflation rose 0.1% resulting in a 2.2% annualized pace. Core PCE inflation also ticked up 0.1%; 2.7% y.y.  

The final Michigan Sentiment reading for September was 70.1, up from a preliminary print of 69.0 and 67.9 in August. The current conditions index was revised up to 63.3, while the final expectations reading was raised to 74.4. The one-year Inflation rate was adjusted down to 2.7%, the lowest since December 2020.

The U.S. Advance Indicators report for August showed the trade gap narrowed by 8.3% to -$94.3 bln thanks to a better-than-expected $4.1 bln rise in exports to $177 bln. Wholesale inventories rose 0.2% and retail inventories climbed 0.5%. 

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$8.05 (-0.30%)
5-Day Change: +$49.01 (+1.87%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +45.46

Gold has slipped to a three-session low as traders took profits after this week's gains. Today is the first day of the week that a new record high has not been established. When September ends on Monday, it will mark the eighth consecutive higher monthly close.



Today's losses are seen as corrective within the well-established uptrend. Renewed buying interest is likely to surface with good supports noted at $2,624.58 (24-Sep low) and $2,414.86 (23-Sep low).

While the trade is arguably getting crowded, all the fundamental factors that have been driving gold higher are still very much in place. Heightened geopolitical tensions, political uncertainty, generally easier global monetary policy, a weaker dollar, Chinese stimulus, and strong central bank buying are all likely to persist and perhaps even intensify.

My next upside target is $2,700.00/$2,709.14. There are psychological barriers at $2,800 and $2,900 on the way to the longer-term objective is $3,000.

On last night's earnings call, Costco CFO Gary Millerchip said their physical gold sales were up "double digits" in Q3. Bullion is a driving force behind Costco's eCommerce revenue. Costco CEO Ron Vachris said the company had "no plans at this time" to create Kirkland Signature branded bullion.

Silver has retreated to approach the midpoint of this week's broad range. Even with today's pullback, the white metal is still up 4.7% this week.



Chinese monetary stimulus and expectations for up to CN¥2 trillion in fiscal stimulus drove silver to a 12-year high of $32.657 on Thursday. This upside breakout returns a measure of credence to the longer-term uptrend that began when silver bottomed at $11.703 in March 2020.

Silver has risen $20.954 (+179%) since that low was established. The $33.00 psychological barrier is the next upside target. Beyond that, there's a Fibonacci projection at $33.972.

An eventual violation of a key retracement level at $35.217 (61.8% of the entire decline from the March 2011 high at $49.752 to $11.703 low) would bolster a scenario that calls for a return to the $50 zone.

Keep in mind that the beta in the silver market is high and corrective action can be volatile. A pullback to the $30 zone can't be ruled out, although such a move is likely to attract additional buying interest.

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