11/19/2024
Gold extends gains on haven bid after Ukraine fires U.S.-made weapons into Russia
OUTSIDE MARKET DEVELOPMENTS: Ukraine reportedly fired six U.S.-made ATACMS missiles at a Russian military installation in the Bryansk region of Russia. Moscow reports that five missiles were shot down, the sixth was damaged, and there were no casualties.
The attack occurred just days after President Biden gave the green light for Ukraine to use U.S. weapons to hit targets on Russian soil. President Putin warned in September that “This will mean that NATO countries – the United States and European countries – are at war with Russia."
Putin lowered the threshold for the use of nuclear weapons in response to Biden's decision. "The Russian Federation reserves the right to use nuclear weapons in the event of aggression with the use of conventional weapons against it," said a Kremlin spokesman.
The escalation of the conflict has put markets on edge awaiting Putin's response. Post-election risk-on flows that have dominated the past two weeks have been tempered and perhaps reversed. President-elect Trump has pledged a negotiated peace deal even before he moves into the White House. Uncertainty and risks abound.
The haven bid has buoyed Treasuries and gold. The dollar index remains off the 13-month high set last week, but the downside is seen as limited from here.
U.S. Housing Starts contracted to a 1.311M pace in October, below expectations of 1.330M, versus a revised 1.353M in September (was 1.354M). Building Permits slid to a 1.416M pace from 1.425M in September. Housing Completions tumbled to 1.614M versus 1.688M.
FedSpeak is due from KC Fed President Jeffrey Schmid (centrist) this afternoon.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$17.05 (+0.65%)
5-Day Change: +$39.37 (+1.52%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +30.57
Gold has extended to the upside lifted by safe-haven demand after Ukraine wasted no time in using U.S. weapons after receiving permission to do so from President Biden. Just over 38.2% of the two-week decline has now been retraced.
Further escalation in Ukraine should lead to further upside retracement. Russia's use of tactical nuclear weapons or the direct involvement of NATO forces could almost certainly send gold soaring to new record highs and beyond.
My position has been that the decline off the $2,789.68 record high (30-Oct) is a correction within the long-term uptrend. The high-to-low magnitude of the drop has been just shy of 9% thus far. I was also heartened by the fact that the 100-day moving average survived last week's challenge.
Nonetheless, it's premature to suggest the corrective low is in. My preferred scenario was that a range would develop and choppy consolidative trading would prevail into year-end.
Heightened risks associated with the war in Ukraine could absolutely reignite the dominant uptrend. Markets are nervously awaiting Putin's response to today's missile attack.
The next resistances I'm watching are $2,656.21 (50-day moving average) and $2,665.55 (50% retracement). Penetration of the latter would go a long way toward confirming that the corrective low is in place at $2,541.42.
If President-elect Trump, or some other party, can get Russia and Ukraine to the negotiating table geopolitical tensions could moderate pretty quickly. That would likely put gold back on the defensive.
A negotiated peace would almost certainly require Ukraine to cede territory to Russia, something they appear loathe to agree to. After 1,000 days of Russian aggression within Europe, is it even possible for the U.S. and its allies to put NATO expansion back on the table?
Failure to sustain the recent gains back above $2,600 would favor a test of the halfway back point of the rally at $2,589.86. A breach of the latter would leave the 100-day moving average and last week's low vulnerable to further tests.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.115 (+0.37%)
5-Day Change: +$0.671 (+2.18%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +28.73
Silver extended to new highs for the week in early U.S. trading, buoyed by strength in gold and helped by a generally neutral dollar. However, the white metal has since slipped back into negative territory leaving the price confined to last week's range.
With last week's high at $31.503 intact, the 50-day moving average at $31.722 is protected. Penetration of these levels is needed to shift focus to the more important $32.048/294 zone where good chart resistance corresponds with the halfway back point of the four-week decline.
A move above $32.294 would strongly suggest that the corrective low is in place at $29.736 (14-Nov).
The Silver Institute released a report today highlighting the benefits of a silver allocation for diversification and risk reduction. "Historically, silver has proven its value during economic and geopolitical crises, serving as a reliable hedge against inflation, currency devaluation, and systemic financial instability," according to the report.
New intraday lows below $31.099 would return focus to a pivot point at $30.890 with potential back to $30.600 (50% retrace of the rally from last week's low).
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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