11/22/2024

Gold and silver poised for first weekly gain in four as geopolitical risks mount 

OUTSIDE MARKET DEVELOPMENTS: Russia fired a new advanced hypersonic ballistic missile at the Ukrainian city of Dnipro on Thursday in the latest escalation of the conflict. The Oreshnik missile system is nuclear-capable and carries multiple independently guided warheads. The missile is said to travel at ten times the speed of sound and is maneuverable in flight making it all but impossible to be intercepted.

The Kremlin confirmed that the use of the Oreshnik missile was retaliation for Ukraine’s use of U.S.- and UK-supplied missiles against targets inside Russia. "We consider ourselves entitled to use our weapons against the military facilities of those countries that allow their weapons to be used against our facilities," said Russian President Putin.

The stakes are extraordinarily high and continue to drive safe-haven flows. Gold is benefitting but so is the dollar. The dollar index has set a new two-year high at 108.07.

The greenback is also being boosted by euro and sterling weakness following dismal PMI data indicative of heightened recession risks. These risks also set the stage for accelerated easing from the ECB and BoE. The euro is trading at levels last seen in Nov'22 against the dollar, while cable reached a six-month low.

The comparatively resilient U.S. economy and higher yields make for an attractive investment environment. When foreign investors buy U.S. shares and Treasuries, the transaction starts with converting their local currency to dollars.

That being said, I still anticipate the Fed will cut rates by another 25 bps in December. However, Fed funds futures continue to suggest there is about a two in five chance of a hold.

U.S. S&P Flash Global Manufacturing PMI rose 0.3 points to a five-month high of 48.8 in November, below expectations of 48.9, versus 48.5 in October.

U.S. S&P Flash Global Services PMI surged 2.0 points to a 32-month high of 57.0 in November, well above expectations of 55.0, versus 55.0 in October.

Employment fell for a fourth straight month. Prices for goods and services "rose only very modestly in November."

"The prospect of lower interest rates and a more probusiness approach from the incoming administration has fueled greater optimism, in turn helping drive output and order book inflows higher in November," said S&P's Chris Williamson.

U.S. Michigan Sentiment Final was adjusted down to 71.8 for November, below expectations of 73.8, versus a preliminary read of 73.0 and 70.5 in October. The revised print is still a seven-month high. Inflation expectations ticked down to 2.6%.

The University of Michigan notes that the "stability of national sentiment this month obscures discordant partisan patterns." Not surprisingly, Republicans are more optimistic, while Democrats turned more pessimistic. This reflects "the two groups’ incongruous views of how Trump’s policies will influence the economy."

FedSpeak is due from Governor Michelle Bowman (centrist/hawk) this afternoon. Her topic is AI, and she may not comment on monetary policy.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$29.10 (+1.09%)
5-Day Change: +$131.67 (+5.14%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +34.39

Gold continues to retrace recent losses driven by rising geopolitical tensions. The yellow metal is poised for its first higher weekly close in four.



Gold has now retraced more than 61.8% of the entire decline from $2,789.68 (30-Oct high) to $2,541.42 (14-Nov low). Gold is also back above all the major moving averages.

Considerable credence has been returned to the long-term uptrend. I still think a period of choppy consolidation is possible within the $2,789.68/ $2,541.42 range if calmer heads in both Russia and the West prevail. If tensions continue to escalate I expect gold to resume its trend toward $3,000 and beyond.

The next levels I'm watching on the upside are $2,736.55 (78.6% retrace) and a minor chart resistance at $2,745.93/$2,748.72. Beyond the latter, confidence would be high for a retest of the record peak at $2,789.68.

On the downside, the 20-day moving average at $2,675.20 protects today's overseas low $2,668.84. 

Just as we noted that the historic inverse correlation between gold and the dollar was re-exerting itself, both are sharply higher today. Besides haven flows, the greenback is also being helped by euro and sterling weakness.

The strength of the dollar makes gold more expensive for buyers using other currencies. This could potentially reduce overseas demand unless they view the potential gains as outweighing their price sensitivity.  

The Reserve Bank of India (RBI) added about 28 tonnes of gold to reserves in October, bringing YTD purchases to 78 tonnes. Total RBI gold holdings are now 882 tonnes, accounting for about 10% of total reserves.

Record high XAU-INR prices in October clearly didn't dissuade the RBI  from adding to reserves. I suspect that will continue to be the case for many central banks.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +0.460 (+1.49%)
5-Day Change: +$0.885 (+2.93%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +27.26

Silver is probing above $31.00 once again, but remains below Monday's high at $31.465 and within last week's range. Like gold, the white metal is positioned to notch its first higher weekly close in four.



Gold's strength is helping to underpin silver, but two-year highs in the dollar and mounting growth risks in Europe and the UK are a counterbalance for the largely industrial metal.

A report released by The Silver Institute earlier this week makes a pretty compelling case for silver as a safe-haven asset. In the wake of some key geopolitical events silver actually outperformed gold.

With gold approaching record territory once again, it might be worth considering at least a partial allocation to silver as a hedge against mounting geopolitical risks.

A breach of last week's high at $31.503 would clear the way for a challenge of the $31.718/$31.795 zone where the 20-day moving average has converged with the 50-day. Penetration of the letter would 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).

An intraday chart point at $31.032 marks first support. More substantial support is found at $30.750/680


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