10/7/2024

Gold and silver consolidate near historic highs as focus shifts to U.S. inflation data

OUTSIDE MARKET DEVELOPMENTS: Hamas reportedly fired rockets from the Gaza Strip at Tel Aviv on the first anniversary of the horrific October 7th terrorist attack. Israel has issued evacuation warnings for northern Gaza in advance of what may be a major new offensive.

Meanwhile, rockets fired by Hezbollah in the north struck the Israeli city of Haifa. Israel continues to attack Hezbollah positions within Lebanon and the IDF is said to be preparing a “serious and significant” retaliatory strike on Iran.

Hurricane Milton is tracking toward Tampa Bay, an area still reeling from the effects of Hurricane Helene. Milton is projected to make landfall on Wednesday.

Market focus this week will be on U.S. inflation data. September CPI will be released on Thursday and PPI comes out on Friday. Median expectations are +0.1% m/m for both, although Friday's better-than-expected jobs data suggests some upside risk to inflation.

The market is suddenly worried that the Fed's 50 bps rate cut in September was too aggressive. Consequently, expectations for another large rate cut in November have fallen to zero. A more cautious 25 bps cut is now favored, but the probability of a hold has increased to 16.5%.

Today's economic calendar is light with just August Consumer Credit. The market is expecting an increase of $12.0 bln.

We'll hear Fedspeak from Bowman, Kashkari, Bistic, and Musalem later today. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$2.69 (+0.10%)
5-Day Change: +$11.61 (+0.44%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +38.09

Gold remains narrowly confined within striking distance of record highs, as ongoing haven interest is offset to some degree by less dovish Fed expectations and a strong dollar. While the yellow metal notched a second consecutive lower weekly close, I continue to be impressed by this market's resilience in the face of recent seven-week highs in the dollar index.



For five sessions, the yellow metal has been confined to the 01-Oct range ($2,670.67 - $2,633.48). Such price action does not indicate a top is forming but is more likely a continuation pattern. An eventual upside breakout is favored.

A breach of $2,670.67 would clear the way for a retest of the record high at $2,684.45. Above the latter, the $2,700.00/$2,709.14 objective remains valid.

The $2,633.48/$2,627.20 area marks initial support. The rising 20-day moving average will correspond with this support later in the week and is presently at $2,613.66.

The COT report for last week showed that net speculative long positions fell 15.5k to 299.9k contracts from 315.4k in the previous week. I imagine the spec longs that left the market will be quick to jump back onboard with new record highs.

Indian gold imports hit a more than three-year high of 125 tonnes in August, driven by strong consumer demand and industry restocking ahead of the festival and wedding season according to the latest edition of Heaeus's weekly market report. Consumption in India continues to be supported by this summer's steep cut in import duties.

Central bank demand remains an important driving force behind the rally in the gold market. Poland has been a leading buyer, adding 39 tonnes to its holdings over the past five months. The WGC reported The National Bank of Poland held 398 tonnes of gold as of the end of August.

"We now hold 420 tonnes," Adam Glapiński, president of the National Bank of Poland, told reporters last week.  Glapiński went on to note that Poland now has more gold reserves than the UK, viewing that as an important benchmark that ushers Poland into the "exclusive club of the world's largest gold reserve holders."

You may recall that Chancellor of the Exchequer Gordon Brown famously sold about half of Britain's gold between 1999 and 2000, at an average price of $275. It became known as Brown's Bottom.

Silver saw its fourth consecutive higher weekly close last week, and a fresh 12-year high at $32.70. While gains above $32 have proven unsustainable thus far, the trend remains positive.



Recently announced Chinese monetary and fiscal stimulus remains a primary supporting factor. We may see this influence re-exert itself this week as the Golden Week holiday winds down.

Russia has been a consistent buyer of gold as a means to sidestep international sanctions stemming from its invasion of Ukraine. Russia's Draft Federal Budget specifically mentions silver for the first time as part of its plan to continue increasing its holdings of precious metals.

While no real specifics were provided, a nation-state buyer in the silver market would have rather bullish implications. The silver market is substantially smaller than the gold market. The estimated market capitalization of the silver market is about a tenth that of the gold market.

First support at $31.451 (03-Oct low) protects the more substantial $31.041/$30.963 zone. The 20-day moving average has risen to $30.989 today, further bolstering this support level.

While the upside remains favored, be aware of the potential double-top formation at  $32.657/$32.700 that would be confirmed on a breach of $30.963. Such a move would suggest downside potential to the $30 zone initially.

At this point, buying strategies remain favored. An eventual breach of $32.700 would bode well for tests of previously established objectives at $33.00 and $33.972.

Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
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