12/19/2024

Gold remains defensive after the post-Fed plunge, but the range is intact

OUTSIDE MARKET DEVELOPMENTS: Yesterday's FOMC decision was widely anticipated to be a 25 bps  'hawkish cut," but the forward guidance was more hawkish than expected. Members halved their projections for additional easing in 2025 from 100 bps to just 50 bps.

"From here, it's a new phase and we're going to be cautious about further cuts," said Fed Chairman Powell. Fed funds futures are now suggesting the Fed is on hold until June.

The dollar surged, while Treasuries, stocks, and precious metals tumbled. While some markets retraced a portion of yesterday's moves, the greenback remains on the bid.

In other central bank news: The BoJ refrained from another rate hike. The BoE and Norges Bank held steady. Sweden's Riksbank cut by 25 bps. All of these moves were in line with expectations.

Markets will shift into holiday mode after tomorrow's economic releases but traders will continue to ruminate on the Fed's forward guidance and the implications for interest rate differentials through the upcoming holiday weeks. I think they will conclude that this week's events are generally favorable for the dollar.

Philly Fed Index tumbled 10.9 points to a 20-month low of -16.4 in December, well below expectations of 2.5, versus -5.5 in November. New orders and shipments indexes fell into negative territory but "indicators for future activity continue to suggest widespread expectations for growth over the next six months," according to the report.

Q3 GDP (3rd report) was revised to 3.1%, above expectations of 2.9%, versus 2.8% in initial reports and 3.0% in Q2. This bolsters the Fed's assessment that the economy remains resilient.

Initial Jobless Claims fell 22k to 220k in the week ended 14-Dec, below expectations of 231k, versus 242k in the previous week. Continuing claims fell 12k to 1874k in the week ended 7-Dec from 1886k in the previous week.

Leading Indicators rose 0.3% to 99.7 in November, above expectations of -0.1%, versus -0.4% in October. It was the first monthly rise since Feb'22.

Existing Home Sales jumped 4.8% to 4.150M in November, above expectations of 4.092M. versus 3.960M in October. The median sales price dipped $700 to $406,100 versus a revised $406,800 in October. Prices are down $20,800 from June's record high of $426,900.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$30.18 (+1.17%)
5-Day Change: -$79.16 (-2.95%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +24.08

Gold tumbled to a four-week low of $2,585.51 after the Fed's forward guidance for next year came in less dovish than expected. The yellow metal staged a pretty respectable rebound in overseas trading today, but sellers came back in above $2620. While gold is still up 25% YTD hopes for a 30%+ annual gain have been dented.



So far, the well-defined $2,789.68/$2,541.42 range remains intact. My favored scenario called for range trading to prevail into year-end. That's still a possibility but a more bearish tone has emerged, leaving the $2,541.42 low vulnerable to a test.

The violations of the 100-day and 20-week moving averages are troubling for the bull camp. Gold hasn't been below these indicators for more than a year. Dollar strength also poses a significant headwind.

If the $2,541.42 low is penetrated, focus would shift to the $2,482.74 Fibonacci level (38.2% retracement of the rally from $1,986.16 to the $2,789.68 record high). This support is bolstered by the rising 200-day moving average, which is at $2,470.34 today.

Despite recent price action, the long-term trend remains bullish. JPMorgan Chase recently projected that gold could reach $3,000 in 2025. Central bank gold demand has been a major driving force behind the rally and  Goldman Sach doesn't see that slowing down,

A rebound back above the midpoint of the range at $2,665.55 would ease pressure on the downside. That would put gold back above the 20-day moving and close to the 50-day MA ($2,670,07 today).

Silver plunged to three-month lows on Wednesday, weighed by a less dovish Fed and the resulting strength in yields and the dollar. With today's downside extension, the white metal has traded lower in six of the past seven sessions.



With the range violated and silver trading below the 200-day moving average for the first time since March. As noted in yesterday's commentary, the next level of significant support is the $28.306 Fibonacci level (78.6% retrace of the rally from $26.524 to $34.853). Below that, the September low at $27.732 would be the attraction.

Short-term upticks are likely to be viewed as selling opportunities. It would take a rebound above $30 to shift back to a more neutral tone, and a rise above $32 to set a more favorable tone within the old range. That seems unlikely heading into the holiday weeks.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
[email protected]
www.ZanerPreciousMetals.com
www.TornadoBullion.com
X: @GrantOnGold
X: @ZanerMetals
Facebook: @ZanerPreciousMetals

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.