10/24/2024
Gold consolidates recent losses within Wednesday's range
OUTSIDE MARKET DEVELOPMENTS: Doubts about how aggressively the Fed might ease into year-end are on the rise. While a 25 bps cut to the Fed funds rate in November remains baked into the cake, the trade is now less sure about December.
With much of the incoming data suggesting a resilient economy and some worries of a "mission accomplished" moment on inflation, the Fed's policy path has turned somewhat cloudy.
The Beige Book for the upcoming FOMC meeting that was released yesterday showed economic activity was stable or increased modestly in nine of twelve Districts since early September. Economic activity in the Philly, Atlanta, and Minneapolis Districts declined only slightly.
Half the Districts saw employment increases, while the remainder showed little or no change."Demand for workers eased somewhat, with hiring focused primarily on replacement rather than growth."
Inflation "continued to moderate" in most Districts, but the prices of "some food products, such as eggs and dairy, were reported to have increased more sharply." Increasing price sensitivity among consumers was noted in most Districts, but that wasn't reflected in the September retail sales data.
Cleveland Fed President Beth Hammack indicated she is unwilling to declare victory over inflation. "We have made good progress but inflation is still running above the 2% objective," she said.
Treasury yields have been on the rise for a month. With the 10-year yield reaching three-month highs, so too has the dollar index. U.S. stocks seemed to finally take notice on Wednesday, prompting a risk aversion sell-off. The Dow fell more than 400 points on Wednesday, its worst day in over a month.
U.S. 10-Year Treasury Note Yield
On Wednesday the BoC slashed rates by 50 bps, its largest rate cut since the COVID crisis. Amid persistent growth risks in Europe, particularly Germany the largest economy in the EU, talk of an accelerated ECB easing path has intensified.
The prospect for interest rate differentials to rotate more favorably toward the U.S. could be an ongoing tailwind for the greenback. The upside potential for the dollar index is back to the 106.00 level.
U.S. Initial Jobless Claims fell to 227k in the week ended 19-Oct, below expectations of 244k, versus a revised 242k in the previous week. Continuing jobless claims rose to 1,897k for the 12-Oct week, from a revised 1,869k in the previous week.
U.S. New Home Sales rose 4.1% to a 0.738M pace in September, above expectations of 0.718M, versus a negative revised 0.709M in August (was 0.716M). The pullback in mortgage rates from last October's 23-year highs has been generally supportive this year, but the more recent rebound is likely to weigh on October sales.
S&P Global Manufacturing PMI (Flash) rose to 47.8 in October, above expectations of 47.5, versus 47.3 in September.
S&P Global Services PMI (Flash) edged up to 55.3 in October, above expectations of 55.0, versus 55.2 in September.
Chicago Fed National Activity Index fell to -0.28 in September, versus a negative revised -0.01 (was 0.12) in August. The index has been in negative territory for seven of nine months so far this year.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$21.22 (+0.78%)
5-Day Change: +$43.91 (+1.63%)
YTD Range: $1,986.16 - $2,757.95
52-Week Range: $1,812.39 - $2,757.95
Weighted Alpha: +39.64
Gold has rebounded from yesterday's retreat, but remains confined to Wednesday's range. Today's price action tempers the technical significance of yesterday's key reversal, but I wouldn't completely discount that chart pattern just yet.
More than half of yesterday's decline has been retraced, but I'd like to see a close above $2,734.56 to suggest we're more likely to see new record highs than a challenge of the $2,700 level on the downside.
Initial support is well-defined at $2,715.50/$2,711.17 and protects the $2,700.00/$2,692.49 zone. Penetration of the latter would shift focus to the 20-day moving average at $2,670.14. The 20-day has been a pretty consistent attraction during the corrective phases of this rally.
Gold has recorded just a single close below the 100-day moving average in more than a year. That occurred on 14-Feb, was slightly more than a dollar, and lasted just one day. That's a strong testament to the strength of this rally.
Fresh record highs above $2,757.95 would bode well for a challenge of the previously established $2,810.38 Fibonacci objective.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.435 (+1.29%)
5-Day Change: +$1.989 (+6.28%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +49.57
Silver extended corrective losses in U.S. trading today. Scope remains for a challenge of the $33 zone, but I am seeing some buying interest at the lower end of today's range.
A convincing move back above $34 would ease short-term pressure on the downside and return credence to the dominant uptrend. The midpoint of the corrective decline is at $34.087.
A breach of this level would favor a challenge of the 12-year high from Tuesday at $34.853. New cycle highs would bode well for the anticipated test of the $35.217 Fibonacci level (61.8% retracement of the decline from $49.752 to $11.703).
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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