11/5/2024

Gold and silver mildly corrective to consolidative awaiting election outcome

OUTSIDE MARKET DEVELOPMENTS: It's election day in America and more than 80 million votes have already been cast. The outcome of the Presidential race remains too close to call.

Boeing machinists have agreed to a new employment contract, ending a 7-week strike. The workers will receive a 38% raise over the next four years.

U.S. Secretary of State Anthony Blinken says Hamas has rejected a short-term ceasefire deal proffered by Egypt. Arab mediators contend that Netanyahu's intransigence remains a major roadblock as well.

Iran's supreme leader Ayatollah Ali Khamenei continues to threaten retaliation against both Israel and the U.S. The regime is also warning it may restart its nuclear weapons program which would be very destabilizing to the region.

A 25 bps rate cut is fully priced in for the two-day FOMC meeting that begins tomorrow. Fed funds futures continue to show a chance for a pause in December. The trade will be paying close attention to the guidance, but I think the central bank will stick to the 'data-dependent' mantra.

U.S. Goods & Services Trade Deficit surged to $84.4 bln in September, outside expectations of -$84.1 bln, versus -$70.8 bln in August (was -$70.4 bln). "The September increase in the goods and services deficit reflected an increase in the goods deficit of $14.2 billion to $109.0 billion and an increase in the services surplus of $0.6 billion to $24.6 billion," according to the BEA report.

U.S. S&P Service PMI fell to 55.0 in October, below expectations of 55.3, versus a preliminary read of 55.3. "Particularly welcome news comes from the cooling inflation picture," said Chris Williamson of S&P Global Market Intelligence.

U.S. Services ISM rose to a 27-month high of 56.0 in October, above expectations of 53.5, versus 54.9 in September. Prices moderated to 58.1 from 59.4. The employment gauge rebounded 4.9 points to 53.0.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.64 (+0.21%)
5-Day Change: -$34.68 (-1.25%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +41.93

Gold edged to an eight-session low in Asian trading before rebounding into the range. The short-term tone is consolidative to mildly corrective as the market awaits the U.S. election outcome.



Ultimately, the trend in gold remains decidedly bullish. While election results will remove the risk associated with U.S. political uncertainty, the technicals and a host of fundamental factors will continue to drive the uptrend.

Geopolitical risks, debt, easing by some major central banks, growth risks in Europe and China, official sector gold buying, and seasonal demand are all on the bullish side of the ledger. A resilient U.S. economy and stock market, cooling inflation, and recent three-month highs in the dollar pose headwinds.

The latest COT report shows the net speculative long position in gold futures contracted by 17.5k contracts to 278.7k in the week ended 01-Nov. This was likely associated with profit-taking and position squaring ahead of the election.

I'm hopeful that the U.S. election will go smoothly with a winner in the Presidential race declared by late this evening. Without any significant political unrest, we could see gold extend the correction.

I'm watching chart support at $2,715.51/$2,711.17, which is bolstered by the 20-day moving average at $2,711.08 today. Secondary support is at $2,698.15 (50% retracement of the leg up from $2,606.62 to $2,789.68).

Anything that extends the political uncertainty such as a drawn-out period of recounts, legal challenges, and unrest would put the yellow metal back on the bid. Initial resistance is marked by the intraday high at $2,748.87, which protects the more important $2,757.95/$2,762.22 area.

Penetration of the latter would bode well for a retest of the $2,789.68 record high from last week. Beyond that, the previously established $2,810.38 Fibonacci objective attracts.

Silver slipped to a 12-session low in Asian trading but subsequently rebounded to exceed yesterday's high and set up a potential key reversal. Like gold, I call the short-term tone consolidative to mildly corrective ahead of the U.S. election results.



The CFTC COT report for the week ended 01-Nov showed the net speculative long position in silver fell by 6k to 60.4k contracts versus 66.4k in the previous week. The fact that the spec long position remains above 60k contracts despite the 3.8% price decline is encouraging.

CFTC Silver speculative net positions

The dominant trend remains bullish with the white metal just 6% off the 12-year high set 22-Oct at $34.853. However, ongoing concerns about the Chinese economy and worries that a Trump win may lead to more restrictive trade policies that could negatively impact demand for imported silver-centric products like consumer electronics, solar panels, and cars are headwinds.

Further downside potential to $31.995 (61.8% retracement of the leg-up from $30.229 to $34.853) can't be ruled out. Today's Asian low at $32.309 provides an intervening barrier.

A rebound above Friday's high at $33.066 would further ease pressure on the downside and shift focus to the halfway back point of the correction at  $33.581. Penetration of the latter would bode well for renewed short-term tests above $34.


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