10/16/2024

Gold sets record highs against multiple currencies, but the dollar high holds for now

OUTSIDE MARKET DEVELOPMENTS: This week's generally weak EU and UK inflation readings have sent yields lower as the trade contemplates the likelihood of more aggressive ECB and BoE easing into year-end. 

The ECB will announce policy tomorrow and another 25 bps cut is widely anticipated. The Bank of Canada is expected to cut next week. The Fed and the BoE are both expected to ease on 07-Nov. 

The BoJ is an outlier that began a tightening campaign earlier this year. There is scope for another hike on 30-Oct.

Broadly speaking, interest rates are heading lower as inflationary pressures ebb, albeit slowly. While this is allowing central banks to focus more on growth risks, it will be some time before monetary policy is truly accommodative.

U.S. export prices fell 0.7% in September, outside expectations of -0.6%, versus a revised -0.9% in August (was -0.7%). Import prices fell 0.4% on expectations of -0.3%, versus a revised -0.2% in August (was -0.3%). Import prices ex-petro rose 0.2%.  

U.S. mortgage applications plunged 17.0% in the week ended 11-Oct according to the Mortgage Bankers Association. Both purchase and refis fell as 30-year mortgage rates continued to rebound, reaching a 9-week high of 6.52%.

It looks like the mortgage market got ahead of itself and is correcting. This poses a headwind for home sales.

Chinese shares remain under pressure as investors lose patience with Beijing. The PBoC injected C¥642.4 bln in liquidity via seven-day reverse repos in an effort to shore up the market.

The South China Morning Post reports "Some prominent economists have called for China to roll out a stimulus plan worth 10 trillion yuan ($1.4 trillion)." Anything close to that would certainly get the market's attention and would send shares and commodities soaring. 

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$11.61 (+0.44%)
5-Day Change: +$64.17 (+2.46%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +36.90

Gold approached the $2,684.45 record high in early U.S. trading. While the yellow metal was unable to set a new high against the dollar, it did reach fresh records against the euro, pound, C$, yen, yuan, rupee, and others.



I believe a new all-time high against the dollar is just a matter of time. The dollar is benefitting from safe-haven interest along with gold, but I continue to be impressed with gold's resilience in the face of that dollar strength.

A survey of the delegates at the LBMA conference in Miami projects gold will reach $2,941 over the next 12 months. I think gold could reach $3,000 as soon as Q1'25.

The fourth quarter is a seasonally significant period where we typically see heightened demand from festival and wedding-related buying out of India. Clarification of China's stimulus intentions could provide a boost to the market as well. Certainly, anything close to C¥10 trillion would likely send gold sharply higher.

John Lee, chief executive of the Hong Kong Special Administrative Region, said Hong Kong will become a major international gold trading center. China is already the largest producer and consumer of gold and has aspirations of becoming the global trading hub. The Shanghai Gold Exchange has gained prominence since opening in 2002 and is already the world's largest purely physical spot exchange.

The anticipated breach of $2,684.45 would favor an upside extension to a measuring objective off the recent correction at $2,718.42. Beyond the latter, I have a Fibonacci projection at $2,732.55.

An intraday chart point at $2,668.37 provides intervening support ahead of the overseas low at $2,659.20. Tuesday's low at $2,639.35 is bolstered by the 20-day moving average that comes in at $2,644.74 today.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.298 (+0.95%)
5-Day Change: +$1.226 (+4.02%)
YTD Range: $21.945 - $32.700
52-Week Range: $20.704 - $32.700
Weighted Alpha: +37.41

Silver tested back above $32 today, but those gains once again proved unsustainable. I'm beginning to feel that a sustained push above $32 and a breach of the 12-year high at $32.700 may be dependent on China announcing additional stimulus measures.



I do think such an announcement is forthcoming, making dips within the recent range buying opportunities. Attendees of the LBMA conference in Miami think silver could reach $45 over the next year. That would be more than a 40% rise from the present level.

Such a move seems likely based on the realities of supply and demand. Demand for industrial and green applications continues to rise. Mining output and recycling have not been able to keep pace, leading to structural deficits for the past four years. If demand is greater than supply, the price must rise.

Yesterday's close above the 20-day moving average provided some impetus for the test above $32. An eventual breach of $32.70 would initially shift focus to $33.372 based on a Fibonacci projection.

Former resistance at $31.620/615 now marks first support, protecting the intraday low at $31.434. More substantial support is well-defined at $30.950/856.


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