10/17/2024

Gold sets new record highs while silver consolidates below $32

OUTSIDE MARKET DEVELOPMENTS: As widely expected, the ECB cut its deposit facility rate by 25 bps. The vote was unanimous. This was the first back-to-back cut since the easing cycle began in June.

The ECB may now be comfortable accelerating the pace of rate cuts to achieve a truly accommodative policy stance. "No question that we are currently restrictive," said ECB President Christine Lagarde.

While the policy statement contends the "disinflationary process is well on track," the ECB is not pre-committing to a particular rate path. The central bank reiterated that it will "continue to follow a data-dependent and meeting-by-meeting approach to determining appropriate level and duration of restriction."

The Bank of Canada is expected to cut rates next week. The Fed and the Bank of England are expected to ease when they announce policy on 07-Nov.

Iran has warned Israel not to retaliate for the massive missile barrage that hit the country on 01-Oct. " If you do, and target us in any way, whether in the region or in Iran, we will strike you in a painful manner again," said the commander of Iran's Revolutionary Guards.

Meanwhile, Russia's Deputy Foreign Minister warned Israel against striking Iran's nuclear facilities. He said such an attack would be a "catastrophic development."

China pledged to nearly double the funds available for loans to complete existing real estate projects to C¥4 trillion. Once again, Chinese markets were not impressed.

China's property crisis began several years ago when Beijing cracked down on the sector's high levels of debt. Adding debt that also adds inventory to the market, without addressing weak homebuyer confidence doesn't seem like a well-thought-out plan.

U.S. retail sales rose 0.4% in September, above expectations of +0.3%, versus +0.1% in August. Ex-auto rose 0.5% on expectations of +0.2%, versus a positive revised +0.2% in August (was +0.1%). A resilient consumer provides support to the broader economy.

U.S. Philly Fed Index rose 8.6 points to 10.3 in October, above expectations of 3.0, versus 1.7 in September. More than 24% of participants reported increases in general activity. Nearly 35% of firms reported increases in input prices, 5% reported decreases, and 60% reported no change.

Philly Fed Manufacturing Business Outlook Survey

U.S. NAHB Housing Market Index rose 2 points to 43 in October, versus an eight-month low of 39 in August. The recent rebound in mortgage rates intensified the headwind faced by the housing market.

U.S. industrial production fell 0.3% in September, below expectations of -0.1%, versus a negative revised +0.3% in August (was +0.8%). Cap use slipped to 77.5%.

U.S. initial jobless claims fell 19k to 241k in the week ended 12-Oct, inside expectations of 245k, versus 260k in the previous week. 

U.S. business inventories rose 0.3% in August in line with expectations, versus a negative revised +0.3% in July.  


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +13.81 (+0.52%)
5-Day Change: +$63.22 (+2.40%)
YTD Range: $1,986.16 - $2,695.77
52-Week Range: $1,812.39 - $2,695.77
Weighted Alpha: +38.37

Gold has set new record highs against the dollar, following the path blazed by the yellow metal against other currencies yesterday. Geopolitical tensions, political uncertainty, dedollarization, and the latest central bank rate cut are all seen as supportive.



Today's ECB rate cut is seen as just the latest evidence that most central banks are on a protracted easing path. Additional cuts are expected from the BoC, BoE, and the Fed in the weeks ahead. Lower interest rates make non-yielding gold increasingly attractive.

Ongoing central bank gold buying has been a hot topic at the LBMA conference in Miami. Robert Armstrong of the Financial Times observed, “If you are a central bank and you see the U.S. government trying to turn the screws on another nation’s foreign reserves, you are going to start thinking about alternatives and how to protect your economy."

Armstrong went on to say, “I think diversification works for everyone, and after the U.S. dollar, gold is probably the only show in town.” That's an important message to central banks, and individual investors alike and should provide an ongoing source of demand.

The latest gains in gold bode well for tests above $2700 and attainment of previously established objectives at $2,705.62 and $2,718.42. Another Fibonacci projection is found at $2,732.55. With each new high, the $3,000 level looks increasingly appealing.

The previous high at $2,684.45 now provides initial support, protecting the low for the day at $2,673.42. Yesterday's low at $2,659.20 should be bolstered by the rising 20-day moving average by the end of the week. The 20-day is at $2,649.88 today.

Silver is consolidating below $32, weighed by another disappointing Chinese stimulus announcement and further evidence of weakness in the U.S. manufacturing sector. While the white metal has traded below yesterday's low and the 20-day moving average, new record highs in gold should help limit the downside.



I continue to believe the supply and demand fundamentals are positively aligned for silver. However, it may take a decisive announcement on stimulus from China to catapult silver back toward its record high near $50.

This year's move to a new 12-year high at $32.700 is a step in the right direction. More than 50% of the entire decline from $49.752 (Apr'11 high) to $11.703 (Mar'20 low) has already been retraced. The 61.8% retracement level of that move is at $35.217 and becomes my next significant target upon a breach of $32.700.

In an interview in the Jerusalem Post, Rick Rule made note of Russia's recently stated intention to buy silver as a reserve asset, suggesting other central banks are interested in silver as well.

"When silver does break out, it's truly an amazing financial circumstance for those speculators who can afford it and those speculators who have the emotional stability to handle the volatility that you're going to see in the silver market," said Rule. His caution about silver market volatility should be heeded.

Dips within the range should continue to attract buying interest. I still see $30.950/856 as a formidable downside barrier in the short term.

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