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Zaner Daily Precious Metals Commentary

Zaner Daily Precious Metals Commentary

10/8/2024

Gold and silver correct on tepid post-holiday stimulus messaging from China


OUTSIDE MARKET DEVELOPMENTS: Risk-off sentiment has surfaced on renewed worries about the Chinese economy. The Golden Week holiday has ended and a much-anticipated press conference by the chairman of the National Development and Reform Commission was a disappointment. No new stimulus measures were announced.

Chinese stocks saw record volume after the weeklong holiday closure. Initial strong gains were pared into the close. Meanwhile, Hong Kong’s Hang Seng index plunged 9.5%, its worst day since 2008. Commodities are in retreat.

Hurricane Milton continues to strengthen, prompting evacuation orders as the storm approaches the west coast of Florida. Milton is expected to make landfall near Tampa Bay tomorrow and could be the worst storm to hit the U.S. in more than a century.

Tensions remain extremely high in the Middle East amid expectations that Israel is preparing to strike Iran in retaliation for last week's missile barrage. Iranian nuclear facilities are considered by many to be likely targets.

A rare earthquake in Iran over the weekend has some speculating that a nuclear weapon test may have been conducted. CIA Director William Burns said on Monday that he sees no evidence that Iran is rushing the development of such a weapon.

A Wall Street Journal article worries that Iran may now realize that its ballistic missiles and Hezbollah proxies in Lebanon are "less powerful than previously thought." This may prompt Iran to accelerate its nuclear program to achieve a more substantial deterrent against Israel.

The Israeli and U.S. position has always been that Iran can not be allowed to get a nuclear weapon. The deterrent Iran seeks is the exact thing that could prompt a joint strike on the country.

The Japanese yen has come under renewed pressure as prospects for another big Fed rate cut have dimmed. This elicited warnings from key Japanese policymakers that hinted at the potential for direct intervention to support the yen.

The U.S. NFIB Small Business Optimism Index edged up to 91.5 in September from 91.2 in August. It is the 33rd consecutive month below the 50-year average of 98. The Uncertainty Index jumped 11 points to a record high of 103 with the U.S. election less than a month away.

RCM/TIPP Economic Optimism Index rose 0.8 points to a 16-month high of 46.9 in October, versus 46.1 in September. While an improvement, it was the 38th straight month below 50. A sub-50 reading indicates economic pessimism.

The U.S. trade deficit narrowed to -$70.4 bln in August, inside expectations of -$70.6 bln, versus a revised -$78.9 bln in July. The deficit narrowed 10.5% from a 25-month high in July to a 5-month low that some attribute to proactive moves by importers and exporters in advance of what at the time was a threatened strike by longshoremen.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$3.58 (+0.14%)
5-Day Change: -$17.86 (-0.67%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +38.04

Gold slid to a three-week low in early U.S. trading on dampened risk sentiment after China failed to announce any new stimulus as the Golden Week holiday came to an end. The yellow metal is trading lower for a fifth straight day.



The breach of chart support at $2,633.48/$2,627.20 cracked the range that had held for five sessions, prompting a challenge of the important 20-day moving average at $2,614.80. While gold has tested below the SMA, the next tier of chart support at $2,600.00/$2,597.42 remains intact thus far.

High geopolitical tensions and persistent political uncertainty ahead of the U.S. elections continue to provide some underpinning to the market. Meanwhile, the erosion of Fed rate cut expectations and the firm dollar weigh.

September saw a fifth consecutive month of inflows into gold-backed ETFs. Inflows totaled 18.4 tonnes ($1.4 bln). North American investors continue to lead the charge.


North Americans have been net buyers for three straight months. Asian investors extended their buying streak to 20 consecutive months. 


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -0.376 (-1.19%)
5-Day Change: -$0.220 (-0.70%)
YTD Range: $21.945 - $32.700
52-Week Range: $20.704 - $32.700
Weighted Alpha: +37.57

Silver came under selling pressure along with the rest of the commodities sector on revived concerns about the health of the Chinese economy. The white metal plunged more than 4% intraday to approach the $30 zone.



The violation of support at $30.963 confirms the $32.657/$32.700 double top. A more serious challenge of the $30.00/$29.85 zone seems likely, especially on a close below the 20-day moving average at $31.090. The 100- and 50-day moving averages come in at $29.745 and $29.545.

Given the short-term market fallout stemming from China's tepid stimulus messaging today, I suspect at a minimum they'll start jawboning in favor of further accommodations as soon as Wednesday. Ultimately, more stimulus is likely forthcoming based on Beijing's commitment to its growth targets.

A rebound above the 20-day would ease short-term pressure on the downside and favor renewed tests above $32.00. A minor intraday chart point at $30.595 marks an intervening barrier.


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