11/13/2024

Gold and silver remain defensive

OUTSIDE MARKET DEVELOPMENTS: Markets continue to process the U.S. election outcome. The trade implications of the second Trump Presidency seem to be the biggest area of concern.

On the campaign trail, President-elect Trump claimed that he didn't need Congress to enact his trade policies. Many beg to differ. While his hardline on trade could just be a negotiating tactic, U.S. trade partners are understandably worried.

Bundesbank President Joachim Nagel worries that Trump tariffs could have a -1% impact on German GDP. With Europe's largest economy already stagnant that could lead to a recession. "If the new tariffs actually materialise, we could even slip into negative territory," said Nagel.

Shares of Japanese automakers have been hit hard over the past week. Japan's auto exports to the U.S. are more than three times as large as its domestic market. 

The IMF forecasts Japan's GDP to be just +0.3% this year, and +1.1% in 2025. Japan's export-driven economy would be hard-hit by tariffs.

Trump appears to really have it in for China, threatening them with tariffs of 60% to 100%. However, China holds a trump card in the form of more than $800 bln in U.S. debt. Retaliation could turn the bond market ugly in a hurry.

With more than $1 trillion in U.S. debt, Japan certainly has the means to retaliate as well.

Reduced trade could also hasten de-dollarization and lead to weaker demand for Treasuries. That being said, our trading partners want and need access to U.S. consumers. There's plenty of room for negotiation in most instances.

Increasing optimism about the U.S. economy and the wealth effect of high-flying stocks could set the stage for the best Christmas buying season in years. Many Americans may be planning purchases of imported goods such as electronics before tariffs are applied.

My 18-year-old who has been kicking tires for several weeks is keen to get a car bought "before prices go up." I love that he's thinking about such things... 

U.S. MBA Mortgage Applications rose 0.5% in the week ended 08-Nov, versus -10.8% in the previous week. Purchases were up 1.9%, while refis fell 1.5%. New 17-week highs in the 30-year mortgage rate pose a headwind.

U.S. CPI +0.2% in October, in line with expectations, versus +0.2% in September; +2.6% y/y, up from 2.4% in September. Core CPI rose 0.3% on expectations of the same, versus +0.3% in Sep; +3.3% y/y, unchanged from September.

I call today's inflation reading fairly benign. Despite the slightly hotter annualized headline CPI print, the odds for a December Fed hold fell today to 17.7% from 41.3% yesterday.

Treasury Budget for October comes out this afternoon. Median expectations are -$242.5 bln. 

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$12.37 (+0.48%)
5-Day Change: -$51.04 (-1.92%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +29.99

Gold started the U.S. session with a bit of a bid, as prices not seen in September and an oversold condition prompted some bargain hunting and perhaps some short covering.  However, upticks could not be sustained and the yellow metal has subsequently fallen to fresh eight-week lows.



Yesterday's breach of chart/trendline support at $2,606.62/$2,604.16 (10-Oct) leaves the downside vulnerable to the next tier of support at $2,549.18 (18-Sep low). The rising 100-day moving average comes in modestly lower at $2,540.84 today.

Despite Fed funds futures showing more favorable odds for another 25 bps rate cut in December, the dollar remains on the bid. The dollar index extended to 12-month highs and continues to weigh on gold.

Losses since the $2,789.68 record high was set on 30-Oct have exceeded $200 (7.5%). The short-term trend remains down, but I still see it as corrective within the longer-term uptrend.

Today's earlier high at $2,614.77 marks first resistance. Yesterday's high at $2,625.32 and the 50-day moving average at $2,649.75 protect the halfway back point of the decline at $2,684.54.

The IMF is being urged to sell 4% of its gold holdings to replenish its Catastrophe Containment Relief Trust (CCRT) and help poor countries deal with climate-related catastrophes. The IMF currently has 90 Moz of gold so a 4% sale would equate with 3.62 Moz.

Such a sale strikes me as unlikely and is probably not contributing meaningfully to today's losses in gold. The IMF hasn't sold gold since the tail-end of the global financial crisis in 2009/10.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.164 (+0.53%)
5-Day Change: -$0.289 (-0.93%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +28.49

Silver ticked briefly back above the $31 level in early U.S. trading, but these gains could not be sustained as the dollar went back on the bid and gold fell to eight-week lows. While silver is back trading lower on the day, yesterday's low at $30.228 remains protected thus far.



If silver does set new cycle lows below $30.229/228 it would shift focus to $29.705 (61.8% retracement of the leg up from 26.524 to $34.853). A minor intervening chart point is noted at $29.850.

Today's intraday high at $31.021 marks initial resistance. More substantial resistance is noted at $31.503/536 where Monday's high corresponds closely with the 50-day moving average. The halfway-back point of the decline thus far is well protected at $32.540.


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