10/2/2024

Gold consolidates within yesterday's range as silver tests back above $32 

OUTSIDE MARKET DEVELOPMENTS: Israeli Prime Minister Netanyahu has vowed retaliation for Iran's 'retaliatory' missile attack on Israel. Iran "made a big mistake tonight and it will pay for it,” warned Netanyahu. The cycle of retaliation seems likely to continue and the regional risks grow with each exchange.

Israel is thought to be considering taking out Iranian oil infrastructure and nuclear sites. It is believed that any response will be coordinated with the U.S.

Iran fired at least 180 missiles at Israel on Tuesday, but Israeli air defenses including the Iron Dome intercepted most. There are reports that U.S. forces participated in the defense effort. Despite the magnitude of the attack, damage and loss of life in Israel has been limited.

Hezbollah fighters in southern Lebanon say that they are engaged with IDF forces. Israel reports that eight soldiers have been killed in the fighting.

MBA mortgage applications fell -1.3% in the week ended 27-Sep, following some big weekly gains in the wake of the Fed's oversized rate cut on 18-Sep. Thirty-year mortgage rates ticked up for the first time in nine weeks to 6.14% from a 23-month low of 6.13%.

The ADP Employment Survey showed that private employers added 143k jobs in August, above expectations of +125k, versus a revised +103k in July (was +99k). Strength in the ADP report suggests some upside risk for Friday's NFP report, where the median payrolls estimate is +150k.

Richmon Fed President Thomas Barkin (moderate hawk) said there is still "significant uncertainty" about inflation and employment. Along with Fed Chairman Powell, he worries that core inflation won't come down much more until next year.

Incoming data and less dovish FedSpeak have seen the prospects for another 50 bps rate cut in October diminish to 34.7%. That's down from 36.8% yesterday and 57.4% a week ago.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$14.34 (-0.54%)
5-Day Change: -$6.03 (-0.23%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +44.18

Gold is consolidating within yesterday's range but remains generally well-supported by elevated Middle East tensions.  Given that yesterday's Iranian attack on Israel was largely ineffectual, some of the haven bid has come out of the market.



Geopolitical risks are still elevated, and gold is the preferred hedge against such risks. An article by The World Gold Council outlines the advantages of a gold allocation in times of geopolitical crisis.

According to the WGC: "In almost every week during which the GPR [Geopolitical Risk] index soared by over 100%, gold saw positive returns. Gold averaged a weekly return of 1.6% during these spikes while global equities declined, on average, by 0.8%." 

Gold, a consistent outperformer during geopolitical crises

The dollar remains on the bid as the market pares expectations for another jumbo rate cut in October. This is providing a bit of a headwind for gold.

Nonetheless, the trend remains decisively bullish with fresh record highs anticipated. Initial resistances are noted at $2,670.67/$2,673.67 (01-Oct and 27-Sep highs), and $2,684.45 (26-Sep high).

Sights remain set on the $2,700.00/$2,709.14 objective. Beyond that, psychological barriers at $2,800 and $2900 stand in front of the longer-term target at $3,000.

First support at $2,644.46 protects the more substantial $2,633.48/$2,627.20 area. The important 20-day moving average is at $2,591.53 today.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.022 (+0.07%)
5-Day Change: +$0.544 (+1.77%)
YTD Range: $21.945 - $32.657
52-Week Range: $20.704 - $32.657
Weighted Alpha: +43.32

Silver tested back above $32 today as a little more risk-on sentiment allows some level of focus to return to China's massive monetary and fiscal stimulus efforts. This is providing support to the broader commodity complex, but silver is likely garnering some additional lift from being a less costly alternative to gold.

 

While the white metal has slipped back into the range, leaving last week's high at $32.657 intact, focus remains on buying strategies. The three daily lows so far this week reinforce the importance of the $31 zone as short-term support.

An eventual move to new 12-year highs above  $32.657 would bode well for the bullish scenario that targets $33.972 based on a Fibonacci projection. The $33 area can be considered an intervening barrier.


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