11/1/2024

Gold starts November on defense, but ongoing haven demand should limit the downside

OUTSIDE MARKET DEVELOPMENTS: Iran's Supreme Leader Khamenei has ordered his military to strike back at Israel for last week's retaliatory attack on Iranian military targets by Israel. While the Iranians initially downplayed last Friday's attack, Khamenei has now deemed it too big to ignore.

Iranian officials indicated to the NYT that their next move is unlikely to happen before the U.S. election. They reportedly don't want to do anything that might benefit Donald Trump.

Despite renewed U.S. efforts to negotiate a cease-fire, the retaliatory cycle between Israel and Iran seems destined to continue. The risk of an all-out regional war between the two nations remains elevated.

According to Nikkei Asia reporting, four Toyota group companies cut guidance for the current fiscal year due to concerns about the Chinese economy. "Sluggish sales in China had a major impact," said Denso Executive Vice President Yasushi Matsui. "This will likely continue for a long time."

The potential that the economic woes of the world's second-largest economy will continue for a "long time,"  despite expectations for additional stimulus, will continue to have a significant impact on global markets.

The UN has warned that current demographic trends portend a halving of China's population by 2100. No amount of stimulus the CCP could muster can offset that potential reality. China needs to increase birth rates.

U.S. Nonfarm Payrolls rose 12k in in October, below expectations of +125k, versus a negative revised +223k in September (was +254k). That's the weakest print since December 2020.

The unemployment rate held steady at 4.1%.

August NFPs were revised down to +78k from +159k previously. That makes total back-month revisions  -112k.

Private nonfarm payrolls plummeted to -82k on expectations of +105k. That's the first negative print since December 2020.

Manufacturing jobs fell by 46k, notching a third straight month of declines.

Hourly earnings rose 0.4%, above expectations of +0.3%, versus a negative revised +0.3% in September. The average workweek ticked up to 34.3 hours.

Overall this was a fairly grim jobs report with the recent hurricanes and strikes certainly playing a roll. In a note appended to the jobs report, the BLS warned that the establishment survey is not designed to isolate effects from extreme weather events and therefore "it is not possible to quantify the net effect" on changes in employment, hours, or earnings.

U.S. S&P Manufacturing PMI rose 0.7 points to 48.5 in October from 47.9 in September.

U.S. Manufacturing ISM fell to a 15-month low of 46.5, below expectations of 47.6, versus 47.2 in September. It was the seventh consecutive month in contraction territory and the 23rd time in the last 24 months. Prices paid rebounded 6.5 points to 54.8 from 48.3 in September.

According to one respondent from the transportation equipment sector: “Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025. Although inflation has stabilized and returned to historical levels, and interest rates are decreasing, there appears to be a general pessimism in the economy that is driving customers to be more restrictive in their capital expenditures, including investment in commercial vehicles."

U.S. Construction Spending rose 0.1% in September, in line with expectations.

U.S. auto and light-truck sales for October come out this afternoon. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.61 (+0.20%)
5-Day Change: -$4.54 (-0.17%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +40.07

Gold notched a ninth consecutive higher monthly close in October but begins November on its back foot. The yellow metal appears poised for its first lower weekly close in four. Beware of the reversal week (higher high, lower close).



Today's U.S. economic data are suggestive of heightened growth risks, dimming the prospects for a Fed-orchestrated soft landing. A 25 bps Fed rate cut is fully priced in for next week, but bets on a December hold have been reduced.

Indian festival demand was muted this week due to near-record-high prices. While sales volume was down, the value of those sales was up significantly due to the sharply higher price. Reuters reported that the price of gold in rupees was up nearly 33% since last Diwali.

This evidence of price sensitivity is perhaps raising demand concerns as we move deeper into the Indian wedding season. While still several months away, price sensitivity could also impact Lunar New Year demand in Asia. Call that a potential near-term headwind.

With geopolitical tensions still very high, most central banks in easing mode, and the U.S. election looming, I see downside potential in gold as limited. Good support is noted at $2,715.51/$2,711.17, and the rising 20-day moving average ($2,700.51 today) should correspond with this level early next week.

A rebound above resistance at $2,757.95/$2,762.22 would ease short-term pressure on the downside and favor a retest of Wednesday's record high at $2,789.68. Beyond that, the $2,810.38 Fibonacci objective remains valid.

Silver remains on the defensive having established fresh two-week lows and trading lower for a third straight day. The white metal seems destined to notch a second consecutive lower weekly close.  



Silver is being weighed by ongoing concerns about the Chinese economy and today's evidence of a faltering U.S. economy. A firmer dollar and continued pressure on gold also weigh.

Concerns that Donald Trump will increase trade barriers if he becomes President again are also providing some headwinds. Silver is used in consumer electronics, solar panels, and automobiles that the U.S. imports.

Today's convincing violation of the $32.700/$32.542 support zone suggests further downside potential to $31.995 (61.8% retracement of the leg-up from $30.229 to last week's 12-year high at $34.853).  Secondary support is noted at $31.645 (18-Oct low), which should closely correspond with the 50-day moving average next week.

The midpoint of the recent decline now comes in at $33.617 with today's overseas high at $33.066 providing an intervening barrier. A rebound above the former would favor renewed tests above $34 and another run at the cycle high at $34.853.


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