12/9/2024

Gold firms on Middle East tensions, rate cut expectations, return of PBoC buying

OUTSIDE MARKET DEVELOPMENTS: Rebel forces in Syria seized the capital of Damascus, forcing President Bashar Assad to flee the country. Assad was granted asylum in Russia.

President Biden called Assad's ouster a “fundamental act of justice,” but warned it was also “a moment of risk and uncertainty.” The power vacuum created could lead to even greater turmoil in the region similar to what happened in Iraq and Libia.

Israel moved quickly to temporarily seize a buffer zone in the Golan Heights amid the heightened uncertainty. The IDF also struck chemical weapons sites and long-range rocket installations within Syria to prevent those weapons from falling into the wrong hands.

Chinese stocks and bonds rallied after policymakers signaled that more accommodations would be forthcoming to support the economy. The Politburo pledged to boost demand, and stabilize property and stock markets by pursuing "more proactive" fiscal policies, "moderately loose" monetary policy, and "extraordinary counter-cyclical policy adjustments."

In the wake of Friday's U.S. nonfarm payrolls report, the market is increasingly convinced that the Fed will continue its easing campaign when the FOMC meets next week. Payrolls modestly beat expectations, but the unemployment rate ticked up to 4.2%.

Fed funds futures currently reflect an 86% probability for a 25 bps rate cut at the last policy-setting meeting of the year. At this point, the market is leaning toward a hold in January.

The Fed's focus this week will be on U.S. CPI data for November. The market is expecting a headline increase of 0.2% m/m and +0.3% for core.

The global easing trend remains highlighted. The BoC is expected to deliver another 50 bps cut on Wednesday. The ECB and SNB are expected to cut rates by 25 bps on Thursday. The ECB may contemplate a larger cut amid weak growth and despite hotter inflation in November. 

U.S. Wholesale Sales fell 0.1% in October, below expectations of +0.2%, versus a positive revised +0.5% in September (was +0.3%). Wholesale inventories rose 0.2%, versus -0.2% in September.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$23.62 (+0.90%)
5-Day Change: +$29.51 (+1.12%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +30.45

Gold is up more than 1% to start the new week, buoyed by heightened geopolitical tensions in the Middle East, expectations of central bank rate cuts, and news that the PBoC bought gold in November. Despite today's gains, the yellow metal remains well within the well-defined $2,789.68/$2,541.42 that has dominated for more than three weeks.



The collapse of the Assad regime in Syria has stoked geopolitical risks in the region, prompting Israel to take preemptive actions.  Expectations that a number of major central banks will move to ease policy over the next two weeks are providing additional lift to gold.

China's central bank resumed buying gold for reserves in November after a six-month hiatus. Official data showed an increase of 160,000 ounces in gold reserves.

"The resumption will send a signal that the PBoC has grown accustomed to these record high price levels and is prepared to build reserves regardless," Saxo Bank's Ole Hansen told Reuters.

The RMB price of gold was up 28% through November. The high price and ongoing economic uncertainty dented Chinese jewelry demand this year, but investment demand for bars, coins, and ETFs were offsetting forces.

Global ETF holdings fell 8.2 tonnes in the week ended 06-Dec. It was the first net decline in three weeks and all regions were sellers.

The COT report for last week showed net speculative long positions increased by 9.4k to 259.7k contracts, versus 250.3k in the previous week. The second consecutive weekly increase puts spec-long positioning at a five-week high.

CFTC Gold speculative net positions

The breach of chart resistance at $2,650.65/$2,655.48 and the probe above the 50-day moving average at $2,668.31 set a more favorable tone within the broader range. Scope is seen for short-term tests above $2,700, but the late-November highs at $2,714.94/$2,719.75 look well protected.

Former resistance at $2,655.48/$2,650.65 now marks initial support. This level protects more important supports at $2,631.10/$2,628.79 (20-day MA and today's overseas low) and the lows from the past two weeks at $2,617.65/$2,609.76.

More choppy range trading into year-end remains favored.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$0.304 (+0.97%)
5-Day Change: +$1.590 (+5.21%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +33.33

Silver surged more than 4% intraday to trade above $32 for the first time in four weeks. The white metal was lifted by pledges for more Chinese stimulus, heightened Middle East tensions, and an easier tone in the dollar.



Net speculative long positioning in silver futures rose 0.5k to 43.3k contracts last week, versus 42.8k in the previous week. While the rise was modest, it broke a string of five weeks of consecutive contractions in long positioning.

CFTC Silver speculative net positions
 

While silver could not sustain probes above $32, today's gains confirm the double bottom at $29.736/$29.703. The move back above the 50-day moving average lends additional confidence to a bullish scenario that favors a move into the upper half of the $34.853/$29.703 range.

The midpoint of that range is at $32.278. Penetration of this level would clear the way for an upside extension to $32.886, the 61.8% retracement level of the decline off the late-October peak. The measuring objective off the double bottom targets $33.194.

Former congestive resistance at $31.454/291 now provides support. This level protects the more important $30.900/788 zone, where today's Asian low corresponds closely with the 20-day moving average.

Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
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