11/6/2024

Gold and silver break hard on U.S. election outcome

OUTSIDE MARKET DEVELOPMENTS: The U.S. election is over, and former President Trump won a decisive victory. Besides surpassing the 270 electoral vote threshold to secure the Presidency, Trump appears poised to win the popular vote. With no doubt about the outcome, VP Harris is expected to concede today.

With the Nation calm thus far, markets are unwinding the political uncertainty trade and shifting to a risk-on profile. U.S. stocks are surging in anticipation of a more business-friendly regulatory environment. Treasury yields are on the rise.

Concern that inflation could reignite if Trump follows through on plans to impose tariffs on some foreign goods may alter the Fed's easing path. The Fed began its two-day FOMC meeting today and is still expected to announce a 25 bps rate cut tomorrow.

While another 25 bps cut remains favored for December, the prospects for a hold increased to 32.4%, versus 22.0% yesterday, 26.7% a week ago, and 2.1% last month. Bets on additional rate cuts in 2025 were also trimmed.

The dollar index has surged to four-month highs buoyed by rising yields. The 10-year note has reached a five-month high of 4.467%. Some of the dollar gains are certainly attributable to foreign investors rotating into U.S. shares.

Oil fell nearly 2% on Trump's promise to "drill baby drill" would increase supply. Meanwhile, trade war risks could also sap demand. Lower energy costs would at least partially offset inflation risks.

With the Chinese economy already on the ropes, a second Trump term increases the likelihood that China will have to deploy much larger stimulus measures to offset negative market sentiment associated with a potential trade war. The National Peoples Congress is already in session and could make an announcement by the end of the week. 

U.S. Mortage Applications plunged 10.8% in the week ended 01-Nov, versus -0.1% in the prior week. The drop in refinances was even greater at -18.5%. Rising mortgage rates continue to pose a headwind with the 30-year mortgage rate reaching a 14-week high of 6.81%.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$44.23 (-1.61%)
5-Day Change: -$105.39 (-3.78%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +37.77

Gold has come under heavy selling pressure as haven bets associated with political uncertainty were unwound. The prospects for less-dovish Fed policy, rising yields, a higher dollar, and the rotation out of haven assets into risk assets are all weighing on the yellow metal.



Thus far, the correction from last week's record high at $2,789.69 to today's intraday low at $2,655.59 is less than 5%. It may take a week or more for the market to stabilize and buyers to step back in, but the longer-term trend is still unquestionably bullish.

There are a number of fundamental factors that remain bullish for gold:

While the Fed may have to adopt a less-dovish policy stance, the bias is still toward easing through 2025. The ECB, BoE, and BoC are likely to remain on their easing paths.

Geopolitical risks still abound. While there is some level of hope that Trump's foreign policies could ease global tensions, other hot spots may flare.

We remain in the midst of a period of heightened seasonal demand associated with the Indian wedding season. The Lunar New Year holiday in Asia is just around the corner. These lower prices are likely to be appealing.

Global central banks still have plenty of incentive to diversify reserve holdings. Gold is likely to remain a popular alternative to foreign currency, particularly the dollar.

The next support level I'm watching is the 50-day moving average at $2,636.32, which is bolstered by a minor chart point at $2,639.35 (15-Oct ow). Below that, October's low at $2,606.62 will correspond with the rising trendline early next week.

On the upside, minor intraday chart resistance is noted at $2,676.02. A rebound above the 20-day moving average at $2,714.32 would ease pressure on the downside and suggest the corrective low is in.

A breach of the $2,748.72/87 level would clear the way for a challenge of the $2,789.69 record high and return a measure of credence to the previously established $2,810.38 Fibonacci objective.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -0.876 (-2.68%)
5-Day Change: -$2.360 (-6.99%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +38.07

Silver plunged to a three-week low of $30.903 as markets made significant adjustments in anticipation of a second Trump Presidency. The white metal now appears poised for a third consecutive lower weekly close.



The market is worried that restrictive trade policies particularly against China could weigh on demand for consumer electronics, solar panels, cars...and by extension silver. This same concern is what may prompt China to unleash new fiscal and monetary stimulus to support the economy.

Gold's weakness, a higher dollar, and higher yields are also contributing to the sell-off in silver.

With more than 78.6% of the rally from $30.229 to $34.853 already retraced, and the 50-day moving average violated, further attacks on the $30.856 low from 15-Oct seem likely. A breach of this level would leave last month's low and the 100-day moving average at $30.229/$30.253 vulnerable to a test.

Initial resistance is marked by the 50-day moving average and a minor intraday chart point at $31.290/$31.381. A close above the 50-day would be mildly encouraging but I suspect upticks will be viewed as selling opportunities for at least one more day.

It will take a short-term rebound above $33 to suggest the low is in place. At that point, I'd anticipate a period of choppy consolidation as the bulls and bears hash out the longer-term implications of the election outcome.


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