10/21/2024

Gold sets new record highs as silver extends gains above $34

OUTSIDE MARKET DEVELOPMENTS: Israeli Prime Minister Benjamin Netanyahu's residence was struck by a Hezbollah drone over the weekend. The PM and his wife were not home at the time. “The agents of Iran who tried to assassinate me and my wife today made a bitter mistake,” said Netanyahu.

The U.S. is investigating the leak of top secret documents that revealed details of Israel's planned retaliatory strike against Iran for its 01-Oct missile barrage. The source of the documents appears to be the U.S. National Geospatial-Intelligence Agency.

Iran fired missiles at Israel in April and earlier this month as retribution for Israeli actions. Israel has vowed retaliation for the latest barrage with one Israeli official calling it a "done deal." Of course, Iran is threatening revenge for this anticipated strike. This cycle continues, heightening risks for an all-out regional war.

China continues to talk a big game on stimulus, but accommodations implemented thus far have failed to relieve market angst over growth risks. Liu Shangxi, head of the Ministry of Finance's Chinese Academy of Fiscal Sciences, told the South China Morning Post that measures ‘should absolutely surpass’ C¥10 trillion to prevent the Chinese economy from "falling off a cliff."

The probability of steady Fed policy in November is back at 15% after falling to 9.7% late last week. With the economy showing signs of resilience, the trade remains somewhat worried that the central bank will pause its easing cycle to prevent inflation from heating back up.

At a speech in New York this morning, Dallas Fed President Lorie Logan said the economy is "strong and stable," but "meaningful uncertainties" remain. "If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals," Logan said.

U.S. leading indicators fell 0.5% to 99.7 in September, below expectations of -0.3%, versus a negative revised -0.3% in August (was -0.2%). The 99.7 print is the lowest since May 2016.

The Conference Board said, “Weakness in factory new orders continued to be a major drag on the US LEI in September as the global manufacturing slump persists.” The report also cited the fact that the yield curve remains inverted, a decline in building permits, and a "tepid" outlook for future business conditions.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +13.81 (+0.52%)
5-Day Change: +$75.97 (+2.87%)
YTD Range: $1,986.16 - $2,739.66
52-Week Range: $1,812.39 - $2,739.66
Weighted Alpha: +38.78

Gold started the new week with another round of fresh record highs. The yellow metal traded as high as $2,739.66 before pulling back into the range.

 

High geopolitical tensions, uncertainty about the outcome of the upcoming U.S. elections, expectations of further central bank easing and gold purchases, and dedollarization continue to be the primary driving forces behind gold's rally.

The breach of the $2,732.55 Fibonacci target lends credence to the next upside objective at $2,810.38. With each new record high, the $3,000 level looks increasingly appealing.

Bank of America reaffirmed its $3,000 objective last week in a research note that argued gold may be a better safe-haven option than U.S. Treasuries given the ballooning debt. "Indeed, with lingering concerns over US funding needs and their impact on the US Treasury market, the yellow metal may become the ultimate perceived safe haven asset," analysts wrote.

Importantly, physical gold is arguably the only asset not simultaneously someone else's liability. This makes the yellow metal an ideal hedge.

Not surprisingly, inflows into gold-backed ETFs (someone else's liability) surged last week to 23.7 tonnes. It was the largest weekly inflow in nearly a year. Both U.S. and European investors were strong buyers.

The COT report for last week showed that net speculative long positions increased by 8.2k to 286.4k contracts. There haven't been more than two consecutive weeks of declines in spec long positions since the January/February period.

Silver extended to the upside to trade with a 34 handle for the first time since late November 2012. Last week's impressive performance marked the fifth higher weekly close out of the past six weeks.



Last week's upside breakout above the previous range high at $32.700 is a bullish technical event that bodes well for a short-term challenge of the $35.217 Fibonacci level (61.8% retracement of the decline from $49.752 to $11.703). An eventual breach of the latter would bode well for a return to the record-high $50 level.

Last week's COT report saw the net speculative long position in silver fall by a modest 0.7k to 54.0k contracts. It was the third consecutive weekly contraction and was likely attributable to market disappointment over Chinese stimulus early last week. I imagine Friday's upside breakout pulled a lot of longs back in.

CFTC Silver speculative net positions

The intraday low at $33.573 protects a minor chart point from Friday at $33.094/00. The first level of significant support is marked by former resistance at $32.700.


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