10/23/2024

Gold and silver turn corrective

OUTSIDE MARKET DEVELOPMENTS: A memo released by the Office of the Director of National Intelligence warned that Russia and Iran may seek to stoke political unrest after the upcoming U.S. election. The memo also suggested "China may be more willing to meddle in certain Congressional races."

I worry the antagonists' goals to increase division, foster doubt about the election results, and hinder the peaceful transfer of power will be far too easy. There are elements aligned with both political camps in the U.S. that are already predisposed to unrest – and perhaps violence – if their preferred candidate loses.

U.S. Treasury Secretary Janet Yellen believes Chinese efforts to stimulate its economy have thus far been insufficient. "Our view has been that raising consumer spending in China as a share of GDP is really important, along with measures to address problems in the property sector," Yellen said. 

"So far I would say I haven't really heard any policies on the Chinese side that address that."

The IMF did not factor Chinese stimulus into its latest forecasts because recent jawboning lacked detail. This has been a consistent gripe from the market as well.

The FT reports that the stakes for China and its leader Xi Jinping "could hardly be higher." Failure to act decisively to address growth risks and the property crisis "could throw China into a deflationary spiral similar to that of Japan after the bursting of its real estate bubble in the 1990s, from which it has taken decades to recover. 

The Bank of Canada slashed its policy rate by 50 bps to 3.75%, as was widely expected. It was the fourth consecutive BoC policy meeting that ended with a rate cut. “We took a bigger step today because inflation is now back to the 2 per cent target and we want to keep it close to the target,” said Governor Tiff Macklem.

Signs of economic weakness and low inflation in Europe reportedly has the ECB concerned. Citing multiple sources, a Reuters article contends the central bank is contemplating an easing path that would take rates below neutral.

U.S. MBA Mortgage Applications fell 6.7% in the week ended 18-Oct, versus a 17.0% decline in the previous week. It was the fourth consecutive weekly decline as higher mortgage rates continued to sap demand. The 30-year fixed rate remained at a 10-week high of 6.52%.

U.S. Existing Home Sales fell 1.0% to a 3.840M pace in October, below expectations of 3.853M, versus a positive revised 3.880M in September. It's the lowest existing home sales pace in 14 years, weighed by persistently high mortgage rates.

The Beige Book for the November FOMC meeting comes out this afternoon.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +2.18 (+0.08%)
5-Day Change: +$42.41 (+1.59%)
YTD Range: $1,986.16 - $2,757.95
52-Week Range: $1,812.39 - $2,757.95
Weighted Alpha: +38.19

Gold set a new record high at $2,757.95 before retreating to trade lower on the day. The higher high and lower low versus yesterday sets up a potential key reversal.



Recent corrective activity has been quickly met with renewed buying interest. We haven't seen more than a single lower close in two weeks. However, a confirmed key reversal would suggest there is at least scope for a more protracted correction.

Initial support is noted at $2,700.00/$2,692.49 and protects previous resistance at $2,684.45. The 20-day moving average comes in at $2,666.91.

The latest jumbo rate cut, this time from the Bank of Canada, is clear evidence that most of the major central banks are on an easing path. The prospect that the ECB will accelerate rate cuts to achieve a truly accommodative stance is reflective of rising growth risks and worries about disinflation.

The trade continues to favor 50 bps of Fed easing spread over the next two meetings. However, those bets have been tapered recently amid signs of economic resilience and worries about revived inflation.

A rebound above the midpoint of today's range at $2,734.56 would ease short-term pressure on the downside and favor another round of record highs. The previously established $2,810.38 Fibonacci objective remains valid with today's high at $2,757.95 defining a solid intervening barrier.

Silver has turned corrective after the multi-day rally stalled shy of $35. The white metal is off more than 1% and has set new lows for the week.



Initial supports at $33.779 (yesterday's low) and $33.573 (Monday's low) have been exceeded, suggesting potential back to the $33 zone before renewed buying interest is likely to emerge. Secondary support is well defined by former resistance at $32.700/657.

While Chinese President Xi Jinping may be reluctant to unleash a new barrage of stimulus, the FT points out that the Chinese people "have become accustomed to constant improvements in living standards" in recent decades.

Xi and the CCP are going to have to make some hard decisions in the weeks ahead or face potential social unrest. More stimulus seems like the lesser evil. Decisive market-supporting accommodations would bode well for the perpetuation of the uptrend in silver.

A rebound above $34.19 would ease pressure on the downside and favor further tests of the $35.00 level and a true challenge of the critical $35.217 Fibonacci level (61.8% retracement of the decline from $49.752 to $11.703). Yesterday's high at $34.853 provides intervening resistance.


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