11/14/2024

Gold and silver bounce from two-month lows but the short-term trend remains bearish

I'm in Baltimore for the Whitman Winter Expo. I'm going to make today's commentary short and sweet so I can get to the show.

If you're at the show, look for a handsome guy in a grey Zaner polo and a black Tornado ball cap, and be sure to say hello!

OUTSIDE MARKET DEVELOPMENTS: U.S. PPI rose 0.2% in October, in line with expectations, versus unch in Sep; +2.4% y/y, up from +1.8% in September. Core +0.3%, also in line, versus +0.2% in September; +3.1% y/y, versus +2.8% in September.

The month-on-month gains in PPI were in line with expectations, but hotter-than-expected annualized rates of producer inflation bolster the narrative of a less-dovish Fed.

The market continues to favor a 25 bps rate cut in December, but chances for a December hold have edged up to 24.3% from 17.5% yesterday.

I think the Fed is going to hold its cards close to the vest until the Trump administration and the new Congress are in place and actually try to enact some of the policies that have been bandied about throughout the campaign and post-election. Until then, the Fed will follow through on its vow to focus on the incoming data.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$19.31 (-0.75%)
5-Day Change: -$152.09 (-5.62%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +26.28

Gold continues to be pressured by post-election risk-on repositioning. The yellow metal has traded lower for five straight sessions, eight of the last eleven.



However, today's post-PPI rebound off the 100-day moving average is at least modestly encouraging for the bulls, particularly in light of the oversold condition that worsened with the overseas drop to new two-month lows.

While the short-term trend is bearish, I still see it as corrective within the longer-term uptrend. The magnitude of the correction since the all-time high is just under 9%. Strategists at JP Morgan see the post-election sell-off as "a stumble not a sea change."

At this point, I'm inclined to agree but it's premature to suggest the low is in. Bears are likely to view a bounce as a selling opportunity and undoubtedly there are still longs in the market contemplating bailing.

Fresh lows from here would shift focus to the next level of significant support at $2,482.74, which is 38.2% retracement of this year's rally.

There are still plenty of bullish fundamentals in support of the long-term uptrend, but for now, the market's focus is squarely on the seismic shift in the U.S. political landscape.

Optimism about the U.S. economy and stocks is attracting foreign investment flows that have driven the dollar to 13-month highs. The inverse correlation between gold and the dollar has re-exerted itself and has proven to be a major headwind over the past week.

In the near term, I see gold finding a bottom somewhere between the present low and $2,482.74 and then choppy range trading is likely to prevail into year-end.

Silver fell to a two-month low below $30 in overseas trading. However, the white metal has subsequently rebounded and is trading higher on the day.



The $29.705 Fibonacci level (61.8% retracement of the leg up from $26.524 to $34.853) was confirmed as a downside target with last night's convincing breach of the 100-day moving average. While $29.705 was approached it successfully contained the downside.

A close today back above the 100-day ($30.344) would be mildly encouraging, but really $32 must be regained before I would have any confidence that the low is in.


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