11/7/2024

Gold and silver retrace some of Wednesday's sharp losses

OUTSIDE MARKET DEVELOPMENTS: Markets are continuing to digest yesterday's election results with control of the House yet to be decided. Today's focus is on the Fed's policy decision.

A 25 bps rate cut remains widely anticipated. The trade will be paying close attention to the guidance in the hope of discerning if there will be any significant change to the policy path.

An additional 25 bps of easing in December is still favored. While odds for a December hold continue to hover around 32%, Fed funds futures are suddenly reflecting a very slight change of a 50 bps cut at the last FOMC meeting of the year.

Yesterday the markets expressed heightened concern that the trade policies of the new Trump administration will stoke inflation and cause the Fed to become less dovish. However, I do not think the Fed will proactively adjust policy guidance based on campaign talking points.

I believe that Trump's tariff threats against China are likely a negotiating tactic to get Xi Jinping to pull back on direct subsidies to Chinese corporations that give them an unfair competitive edge. See China's 'hidden' subsidies fuel export onslaught. 

The current state of the Chinese economy probably makes ending any subsidies problematic. In fact, Beijing is currently contemplating additional measures to boost the flagging economy.

Today's 25 bps BoE rate cut was widely expected. There was a single lone dissenter on the MPC. Governor Bailey said the BoE will continue to take a gradual approach to further easing, 

Sweden's Riksbank trimmed rates by 50 bps and indicated further easing is in the offing. The policy statement said the move was to "provide further support to the economy and help inflation stabilise at the target".

Norway's Norgesbank left rates unchanged at a 16-year high of 4.5%. Governor Ida Wolden Bache indicated the central bank will likely stay on hold for the remainder of the year.

German Chancellor Scholz fired Finance Minister Christian Lindner on Wednesday creating political uncertainty in Europe's largest economy on the same day U.S. election results were coming in. Lindner's Free Democratic Party withdrew from the ruling coalition government forcing Scholz to call for a confidence vote to be held on 15-Jan with new elections likely by the end of March.

U.S. Q3 Productivity (preliminary) rose 2.2%, below expectations of +2.6%, versus a negative revised +2.1% in Q2 (was +2.5%). ULCs fell to a +1.9% pace, above expectations of +1.1%, versus a sharply upward revised +2.4% in Q2 (was +0.4%).

U.S. Initial Jobless Claims rose 221k in the week ended 02-Nov, below expectations of +225k, versus a revised +218k in the previous week (was +216k). Continuing jobless claims increased 39k to 1,892k in the 26-Oct week from 1,853k in the previous week.

U.S. Wholesale Sales rose 0.3% in September, above expectations of +0.1%, versus a positive revised +0.2% in August (was -0.1%). Wholesale inventories fell by 0.2%.

U.S. Consumer Credit is expected to print a $14.0 bln increase later today.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$7.67 (+0.29%)
5-Day Change: -$48.41 (-1.76%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +38.77

Gold is retracing some of yesterday's sharp losses, attempting to regain the $2,700 level. With U.S. election results behind us, the focus today is on the anticipated Fed rate cut and the forward guidance. Yields and the dollar have moderated from yesterday.



Rate cuts by the BoE and Riksbank today indicate that the overarching bias of the world's major central banks remains toward easing. This is a positive for gold.

Markets, including gold, will continue to make adjustments as the new Trump administration trots out its policy priorities in the weeks ahead. As of this morning, the Republican Party is seven seats shy of a majority in the House with 34 races yet to be called.

Even as political uncertainty in the U.S. moderates, uncertainty in Germany has spiked after the Finance Minister was sacked, fracturing the coalition government. The German government is now likely to be hamstrung until after a confidence vote in January which could lead to new elections in March.

Choppy consolidative trading is likely to prevail in the short term, although the underlying trend is still perceived to be bullish. A trade above $2,702.41 would clear the way for additional retracement to the halfway back point of the correction at $2,719.07. Penetration of the latter would bode well for a retest of the record high at $2,789.68.

While it's premature to suggest the corrective low is in place at $2,648.46 (today's Asian low), I like that Fibonacci support at $2,645.79 (78.6% retrace of the leg up from $2,606.62 to $2,789.68) and $2,639.70 (50-day moving average) remains intact. These are the levels to be watching on the downside.

Silver is trading higher in the lower half of yesterday's range. While the midpoint of yesterday's range was slightly exceeded the downside remains vulnerable as traders hash out the medium to longer-term potential in light of yesterday's seismic shift in the U.S. political picture.



With the presidential race designated as 'too close to call' into election day, a Trump victory was always a possibility. However, I think the odds for a Trump win plus Republican majorities in both houses of Congress were pretty long.

Commodities are likely to remain volatile as the market debates the merits and likelihoods of President-elect Trump's trade and fiscal policies.   

A close today back above the 50-day moving average at $31.338 would be mildly encouraging to the bull camp. Gains above $32 would bode well for a retest of the 20-day moving average and chart resistance at $32.805/860.

Penetration of the latter would return confidence to the underlying uptrend and call for renewed tests above $34 with potential back to the 12-year high at $34.853 (22-Oct).

Failure to sustain today's gains would mean the $30.856 low from 15-Oct remains vulnerable to a test. The recent lows at $31.921/903 provide an intervening barrier.

More substantial support is marked by last month's low and the 100-day moving average at $30.264/229.


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