10/28/2024

Gold and silver continue to consolidate ahead of next week's election

OUTSIDE MARKET DEVELOPMENTS: Israel conducted precision strikes against military targets within Iran over the weekend. The strikes were retaliation for Iran's 01-Oct missile barrage against Israel, which was retaliation for the killing of Iranian Republican Guard, Hezbollah, and Hamas leaders.

Arguably Israel showed restraint. Iran said the damage was limited. Is this the opportunity to end the retaliatory cycle and dial down regional tensions? The market seems hopeful.

“It looks like they didn't hit anything other than the military targets. My hope is this is the end,” said President Biden.

Already elevated political uncertainty was further stoked by Sunday's snap election in Japan. The long-ruling Liberal Democratic Party was severely rebuked by voters and lost control of the lower house for the first time in 15 years.

Recently elected Prime Minister Shigeru Ishiba's gamble to consolidate power and form a government backfired. While Ishiba has pledged to remain PM, gains by the LDP's main rival CDPJ party are going to make the formation of a coalition government challenging.

Japan's political uncertainty may force the BoJ to pause its tightening campaign. The yen tumbled in reaction to set a 13-week low against the dollar before rebounding in later trading. The Nikkei 225 closed up nearly 2% on hopes of slower monetary tightening.

The U.S. Dallas Fed General Business Activity Index rose six points to a 30-month high of -3 in October. While the index has been in contraction territory for more than two years.

Prices paid for raw materials declined 1.9 points to 16.3. It was the second straight monthly decline.

Market focus this week is on PCE inflation on Thursday and October jobs data out on Friday. The chain price index is expected to rise 0.1% m/m, while the market is forecasting a 125k rise in nonfarm payrolls.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -15.17 (-0.55%)
5-Day Change: +$22.04 (+0.81%)
YTD Range: $1,986.16 - $2,757.95
52-Week Range: $1,812.39 - $2,757.95
Weighted Alpha: +39.99

Gold remains within the range that was established last Wednesday. Corrective activity since the $2,757.95 record high was set that day has been very limited, leaving focus on the dominant uptrend.



Israel's limited retaliatory strikes against Iran have not led to renewed Iranian saber-rattling (at least not yet), suggesting regional tensions may have moderated somewhat. Broadly speaking however geopolitical tensions and political uncertainty remain elevated and supportive to gold.

As I noted in commentary last week, gold is agnostically bullish when it comes to next week's election results. Regardless of the winner, half of the country is going to disappointed and perhaps angry.

I expect rhetoric in the media and on social media to be hyperbolic. There are radical fringe elements on both sides that may be incited to political unrest and violence.

A push to new all-time highs would lend credence to the bullish scenario that calls for a challenge of $2,810.38 based on a Fibonacci objective. Beyond that, the $3,000 level looks increasingly attractive.

Citi Bank has raised its three-month projection for gold to $2,800 from $2,700 previously. Citi sees $3,000 gold in the 6 to 12-month timeframe.

“We note that gold and silver have performed extremely well despite weakening China retail physical demand and rising US interest rates since the Fed cut 50 (basis points) and payrolls beat last month,” according to Citi analysts.

Investment demand remains a bullish driver with a net inflow into global ETFs of 14.7 tonnes. It was the second consecutive weekly inflow. 

There have only been five weekly outflows out of the last 24 weeks. The last time there were two straight weekly outflows was in early May. 

The COT report for last week showed the net speculative long position in gold rose by 9.8k to 296.2k contracts from 286.4k in the previous week. It was the second straight weekly increase.

Support marked by Wednesday's low at $2,711.17 has increased in importance. Minor intervening barriers are noted at $2,725.94, $2,717.88 and $2,715.51.

Silver is trading modestly higher within the confines of Friday's range. Recent corrective downticks have attracted buying interest ahead of $33, keeping focus on the dominant uptrend.



A climb back above $34 would bode well for a retest of last week's high at $34.853. Intervening resistance is marked by Thursday's high at $34.285.

The net speculative long position in silver surged 12.4k to 66.4k contracts last week according to the CFTC's COT report. That's the largest net spec long position since 28-Feb'20.

CFTC Silver speculative net positions

This year's rally to 12-year highs has got to be putting considerable pressure on the large commercial short potion in silver. If those commercial shorts start covering, it would be a substantial tailwind for the market.

An eventual violation of the $35.217 Fibonacci level (61.8% retracement of the decline from $49.752 to $11.703), could be the trigger for that short covering as it would be suggestive of potential back to the $50 zone.

In the report referenced above, Citi raised its 6 to 12-month forecast for silver from $38 to $40. That makes a good intermediate objective ahead of $50.

Last week's low at $33.109 now protects $33.00 and previous resistance at $32.700/657. Buying strategies remain highlighted.

Palladium continues to charge higher after the U.S. lobbied the G7 to impose additional sanctions on Russian exports of the precious metal. Spot palladium is up nearly 15% since the middle of last week and is trading at new highs for the year. Palladium gains are providing some support for platinum as well. 


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