10/15/2024

Gold and silver firm despite dollar strength

OUTSIDE MARKET DEVELOPMENTS: In what the AP called a "symbolic display of anger," North Korea blew up unused sections of roads and rail lines that once linked the two Koreas. The action prompted the South Korean military to fire warning shots.

North Korea was angered this week by anti-north leaflets being dropped by drones over its capital Pyongyang. Seoul has not taken responsibility for the drone flights, but civilization unification groups frequently send propaganda north by balloon. The North sends trash balloons south in retaliation.

North Korean leader Kim Jong Un has accused South Korea and the U.S. of provoking hostilities in the region because of their tighter military ties. Kim has threatened to use the country's nuclear weapons in the event of a conflict.

China surrounded Taiwan on Monday with warplanes and warships to simulate a blockade as part of a large-scale one-day military drill. Chinese military drills around Taiwan have become increasingly frequent in recent years. Taipei and Washington have condemned China for raising tensions in the region.

With the Russia-Ukraine conflict raging, NATO began its annual nuclear exercise on Monday ramping up tensions on the Continent. NATO Secretary General Mark Rutte said the exercise is a display of the alliance's deterrence capabilities.

That messaging is clearly aimed at Russia. A Russian government spokesman said the "exercises lead to nothing but further escalation of tension."

All these factors, along with Israel's ongoing multifront war against regional terrorists, have global geopolitical risks quite high at the moment. Safe haven assets such as gold, the Swiss franc, and the dollar have seen stronger buying interest.

Canadian CPI fell 0.4% m/m in September, below expectations of -0.2%, versus -0.2% in August. The annualized pace of consumer inflation eased to 1.6% from 2.0% in August, the lowest since Feb'21. This raises the likelihood of a 50 bps rate cut by the BoC next week.

U.S. Empire State Index tumbled 23.4 points in October to a five-month low of -11.9, well below expectations of 3.0, versus 11.5 in September. However, optimism about the six-month outlook rose to a 25-month high of 38.7.

NY Fed Empire State Manufacturing Survey

The evidence of weakness in the manufacturing sector didn't impact Fed policy expectations much. The market is still widely anticipating an additional 50 bps points in easing through year-end, evenly divided into 25 bps cuts in November and December.

Fed Governor Christopher Waller worried yesterday that the economy is not cooling at the central bank's desired pace. "I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +4.67 (+0.18%)
5-Day Change: +$36.83 (+1.40%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +35.95

Gold firmed to a two-week high as the trade reduced bets on steady Fed policy in November after a weak Empire State reading. The yellow metal approached the high for the month at $2,670.67 (01-Oct) before retreating into the range.



Gold remains supported by heightened geopolitical tensions and continues to shrug off strength in the dollar. The dollar index remains well-bid after setting an 11-week high on Monday at 103.36. The last time DXY was above 103.30 was 08-Aug. Gold closed at $2,427.04 that day.

Talk out of the London Bullion Market Association's annual conference in Miami indicates that official sector buying is likely to remain a tailwind for the gold market. Reserve diversification is a primary motivation for central bank purchases.

A breach of initial resistance at $2,670.67 would clear the way for a retest of the record high at $2,684.45 (26-Sep). Penetration of the latter would bode well for an upside extension to a measuring objective off the recent correction at $2,718.42. New record highs would also boost confidence in the longer-term target at $3,000.

Today's overseas low at $2,639.35 protects the more important $2,628.36 low from Friday. Key short-term support is well defined at $2,606.62/$2,604.09.

Silver has once again bounced from intraday tests below $31 helped by strength in gold. While the breach of resistance at $31.537/615 is encouraging, ongoing worries about the state of the Chinese economy and weakness in U.S. manufacturing pose headwinds.



Beijing continues to promise it will take appropriate measures to reach its 5% growth goal, but the market is keen to hear plan specifics. Simple jawboning over the past week has resulted in some degree of uncertainty.

A close above the 20-day moving average at $31.361 today would provide some additional technical encouragement. A move back above $32 is needed to clear the way for a retest of the 12-year high at $32.700 (04-Oct).

On the downside, keep an eye on $31.361 on a close basis. This level protects the more important $30.950/856 zone.

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