11/26/2024

Gold and silver remain defensive after Monday's losses

OUTSIDE MARKET DEVELOPMENTS: A ceasefire between Israel and Hezbollah appears imminent. As part of the deal, Hezbollah would vacate positions along Israel's northern border allowing the IDF to return its full attention to eradicating Hamas.

The prospect of a truce dialed down global geopolitical risks somewhat stoking risk appetite over the past 24 hours. However, the Israel-Hezbollah conflict is just one part of a complex web of risks. Arguably the recent escalation of the war in Ukraine has greater and far-reaching global implications.

Market enthusiasm over President-elect Trump's nomination of Scott Bessent for Treasury Secretary also contributed to the surge in U.S. risk-on sentiment. Bessent is a highly respected hedge fund manager who will provide sober counsel to President Trump and perhaps smooth some of the rough edges of his trade policies.

Trump is threatening America's largest trading partners with significant tariffs, including 25% on all products coming from Canada and Mexico, and an additional 10% on China. Markets are understandably concerned about a potential trade war and heightened inflation risks.

The President-elect has indicated that the tariffs are a penalty for failing to address the flow of illegal immigrants and drugs into the U.S. This suggests to me that Trump is leveraging access to the world's most desirable consumer market as a negotiating tool to further his broader agenda.

“One tariff would be followed by another in response, and so on until we put at risk common businesses," worried Mexico's President Claudia Sheinbaum. “I think we are going to reach an agreement,” she said.

Nonetheless, the threats of tariffs will foster a sense of global uncertainty and market angst at least through inauguration day. At that point, we'll see if the incoming President moves to impose those tariffs or if "agreements" are quickly achieved.

Scott Bessent is known to be a deficit hawk and if approved by the Senate he'll have his work cut out for him from the get-go. The deficit surged during the COVID crisis and while it moderated subsequently it remained generally larger than pre-COVID levels and is growing once again.

With the national debt now over $36 trillion and debt servicing expenses surging, the new Congress should at least consider reestablishing the debt ceiling to show of commitment to addressing this issue. 

U.S. Case-Shiller Home Price Index (nsa) fell 0.3% to 333.6 in September, versus a revised 334.8 in August. It was the first back-to-back monthly decline since January as prices moderated from the 335.8 record high in July. The annualized pace of home price appreciation slowed to 4.6% versus 5.2% y/y in August.

U.S. FHFA Home Price Index jumped 0.7% to a record high of 430.3 in October, above expectations of +0.3%, versus a revised 427.4 in September. It was the fifth consecutive monthly gain, as tight supply continues to override the headwind posed by high mortgage rates.

U.S. New Home Sales plunged 17.3% to 0.610M in October, well below expectations of 0.723M, versus 0.738M in September. Affordability remains a huge issue as prices continue to rise and mortgage rates remain elevated. Two major hurricanes in late September and early October adversely impacted sales as well.

U.S. Consumer Confidence rose 2.1 points to a 16-month high of 111.7 in November, above expectations of 111.4, versus a positive revised 109.6 in October (was 108,7). Consumers are optimistic about the incoming government. While the assessment of the family's current financial situation slipped, consumers had more favorable expectations for the labor market, inflation, and the stock market.

FOMC Minutes from the November 6-7 meeting and M2 come out later today.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$6.81 (+0.26%)
5-Day Change: +$0.23 (+0.01%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +26.62

Gold extended this week's losses in overseas trading to $2,609.76 before stabilizing somewhat. The yellow metal notched its biggest one-day loss in four years on Monday as hopes for an Israel-Hezbollah ceasefire and cheer over Trump's pick for Treasury spurred risk appetite.

Yesterday's optimism has been tempered somewhat today as markets digest Mr. Trump's latest threats of tariffs. There seems to be some consensus that tariffs will reignite inflation and perhaps prompt central banks to leave rates at restrictive levels.

If that proves to be the case, will gold react as the classic inflation hedge, or will it be weighed by its non-yielding status if interest rates rise? I'd lean toward the former based on gold's solid performance during Fed tightening cycles, including the most recent one.

I'd show you Fed fund with a gold price overlay but for some reason, the Fed removed the gold data set from FRED a couple of years ago. I guess it was inconvenient...

The short-term bias is to the downside, but I suspect that buying interest will resurface somewhere ahead of the $2,541.42 cycle low. We can consider support mentioned in yesterday's commentary at $2,610.94/$2,609.54 intact. This level is defined by the low from 19-Nov and 61.8% of the rally off the low.

A test back below $2,600 can not be ruled out, but I think the $2,580/$2,575 zone will contain the downside. Again, I believe choppy range trading will prevail into year-end.

The 20- and 50-day moving averages have converged at $2,662.22/$2,665.90 which is the resistance level to watch on the upside. Penetration would bode well for renewed tests above $2,700.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +0.236 (+0.78%)
5-Day Change: -$0.600 (-1.92%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +20.22

Silver continues to test below the 100-day moving average but price action remains confined to the range established two weeks ago between $31.503 and $29.736. Today's intraday low at $30.087 provides an intervening barrier ahead of the cycle low.



The short-term bias remains to the downside and tests back below $30 can not be ruled out. A breach of the $29.736 low from 14-Nov would shift focus to the rising 200-day moving average at $29.007.

The 20- and 50-day MAs are at $31.347 and $31.781 today. This area is bolstered by solid chart resistance at $31.417/465 and must be cleared to set a more favorable tone within the range.


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