10/14/2024

Gold remains within site of record highs amid heightened geopolitical risks

OUTSIDE MARKET DEVELOPMENTS: The U.S..bond market, the Fed, and banks are closed today for the Columbus Day holiday. The U.S. stock market is open.

Canadian markets are closed for Thanksgiving.

Japan markets were closed for Health/Sports Day.  

North Korea has accused South Korea of flying drones over Pyongyang and dropping anti-North leaflets. The North is viewing this as a serious provocation and is said to be preparing to blow up roads and cut rail lines that connect the two countries. Pyongyang has also put border artillery units on high alert and has threatened retaliation if the incitements continue.

China's military launched a new round of war games near Taiwan as a warning against the "separatist acts of Taiwan independence forces." Bejing said further action was possible, "until the Taiwan issue is completely resolved." The PLA drills have drawn strong condemnation from Tapei and Washington.

Over the weekend, the Chinese government promised additional economic stimulus to achieve its growth goals. However, Beijing again failed to deliver the specifics the market was craving.

Last week's U.S. inflation data were benign for the most part, and the market continues to expect a 25 bps rate cut from the Fed in November. The prospects for steady policy stand at 15.9%.

The unwinding of bets that favored more aggressive Fed easing continues to lift the dollar. The dollar index set new 8-week highs in overseas trading and is threatening to move above the 100-day moving average for the first time since July.

This week's key U.S. economic reports are Sep retail sales (+0.3% expected) and Sep industrial production (-0.1%). Both come out on Thursday.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.04 (0.00%)
5-Day Change: +$9.76 (+0.37%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +35.52

Gold is consolidating last week's rebound and thin holiday conditions are expected to prevail once London closes. Last week's corrective setback stalled in front of the $2,600 level, leaving the yellow metal within striking distance of the all-time high at $2,684.45.



Heightened tensions between the Koreas along with China's latest intimidation of Taiwan add to the already high geopolitical risk environment. Haven interest should continue to provide a solid underpinning for the gold market.

While dollar strength is seen as a headwind, I continue to be impressed by gold's resilience. The last time the dollar index was above 103.20, gold was trading nearly $200 lower than its current price.

Global ETFs saw net outflows of 6.4 tonnes last week. Modest inflows of 2.1 tonnes from North American investors were eclipsed by European and Asian outflows.

The COT report for last week saw the net speculative long position reduced by 21.7k to 278.2k contracts. It was the second consecutive weekly decline.

CFTC Gold speculative net positions

The recent corrective activity in gold provides an upside measuring objective of $2,718.42. The high from October 1 at $2,670.67 and the record high at $2,684.45 (26-Sep) provide intervening barriers.

Today's intraday low at $2,644.62 protects the more important $2,628.36 low from Friday. Key short-term support is now well defined at $2,606.62/$2,604.09.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -0.258 (-0.82%)
5-Day Change: -$0.526 (-1.66%)
YTD Range: $21.945 - $32.700
52-Week Range: $20.704 - $32.700
Weighted Alpha: +34.05

Silver dipped briefly back below $31 in overseas trading as weekend talk of Chinese stimulus was disappointingly vague. While the ongoing jawboning suggests additional measures to spur growth will be forthcoming, the trade is keen to hear the specifics.



Dollar strength and geopolitical tensions are seen as potentially limiting factors on the upside. However, gold's resilience provides at least a modicum of support.

The COT report for the week ended 11-Oct revealed a 2.2k decline in silver's net speculative long position to 54.7k contracts. It was the second consecutive weekly decline off of the more than four-year high of 62.2k contracts from the 27-Sep week.

CFTC Silver speculative net positions

A close back above the 20-day moving average at $31.318 and a breach of resistance at $31.615 would shift focus to more important chart/Fibonacci resistance at $31.713/756. Penetration of the latter would bode well for further tests above $32.00 and eventually fresh 12-year highs above $32.700.

Today's low at 30.950 now provides a good intervening barrier ahead of the corrective low from last week at $30.229. The 50- and 100-day moving averages have converged at $29.770/760 and mark another important support to watch.


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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