12/11/2024
Gold reached five-week highs on geopolitical tensions and easing expectations
OUTSIDE MARKET DEVELOPMENTS: The Bank of Canada (BoC) slashed its policy rate by 50 bps to 3.25%, as was widely expected. While the BoC signaled a more gradual easing path moving forward, "the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook."
The ECB will announce policy tomorrow. A 25 bps cut is anticipated, but a larger 50 bps cut is likely under consideration based on mounting growth risks. The SNB is expected to ease as well.
While U.S. CPI came in a little warmer than expected, it does not take next week's expected rate cut off the table. In fact, Fed funds futures now put the probability of a 25 bps cut at 94.7%, up from 88.9% yesterday and 78.1% last week.
Israel has conducted hundreds of attacks across Syria, hitting strategic weapons stockpiles, launchers, airfields, and warships. IDF ground troops have been deployed into the demilitarized zone and by some accounts beyond.
Other Arab nations are accusing Israel of taking advantage of the turmoil in Syria, raising the temperature in the region. Israel's ambassador to the UN maintains these are “limited and temporary measures to counter any further threat to its citizens.”
China is said to be considering allowing the yuan to weaken in 2025 to offset some of the price pressures expected from the Trump administration's threatened tariffs. A weaker yuan would be consistent with the Politburo's pledge of "appropriately loose" monetary policy as a means to underpin the floundering economy.
U.S. MBA Morgage Applications rose 5.4% in the week ended 06-Dec, versus +2.8% in the previous week. This was a refi-driven move as 30-year mortgage rates edged lower for a fourth week from a 19-week high of 6.9%
U.S. CPI rose 0.3% in November, above expectations of +0.2%, versus +0.2% in October; +2.7% y/y, up from 2.6% in October. Core was in line with expectations at +0.3% m/m, steady at 3.3% y/y.
U.S. Treasury Budget for November comes out later today. The market is expecting the deficit to increase to -$365.5 bln from -$257.5 bln in October.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$2.38 (+0.09%)
5-Day Change: +$65.80 (+2.48%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +33.62
Gold is trading back above $2700 for the first time in two weeks, buoyed by rising Middle East tensions and expectations of further monetary easing from several key central banks. The yellow metal has tested the late-November highs at $2,714.94/$2,719.75, which have capped the upside thus far.
While gold has become rather overbought on a short-term basis, there should be some stops up here that the bull camp is going to want to run. I expect additional gains to $2,736.55 (78.6% retracement of the decline off the record high) and possibly as high as $2,748.87 (high from 05-Nov).
Barring a severe escalation on the geopolitical front, I continue to think the range for the remainder of the year is in place. That being said, at this point, we're less than $70 away from the record high.
The underlying trend remains decisively bullish and price action since the $2,789.68 high was established on 30-Oct has all the indications of a continuation pattern. I'm just thinking the trend won't resume until after the first of the year, but each new uptick eats into my confidence on that call.
On the downside, initial support is noted at $2,700.00/$2,694.64. A retreat below this level would favor a pullback to the 50-day moving average at $2,670.08 and further consolidation.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.188 (-0.59%)
5-Day Change: +$0.839 (+2.68%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +33.54
Silver continues to be underpinned by recent strength in gold. The white metal has probed back above $32, but Monday's high at $32.255 remains intact thus far.
Industrial metals continue to be suspicious of the stimulus pledges offered by Chinese policymakers. Investors are also uncertain about the implications of President-elect Trump's proposed tariffs, particularly regarding China which is the world's biggest consumer of these resources.
Monday's confirmation of the double bottom at $29.736/$29.703 favors the upside. A breach of $32.255/278 is needed to perpetuate the two-week uptrend and shift focus to the next tier of Fibonacci resistance at $32.886 (61.8% retracement level of the decline off the late-October peak).
On the downside, I'm watching the 50-day moving average at $31.723 on a close basis. Secondary support is marked by the overseas low at $31.582. More substantial support at $30.900/788 is presently considered well-protected.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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