Gold underpinned by haven interest, as silver outperforms

OUTSIDE MARKET DEVELOPMENTS: Despite the release of generally favorable U.S. economic data this morning, risk appetite is subdued. Signs of a resilient economy and a nine-week low in jobless claims have prompted the trade to trim Fed easing expectations.

Prospects for 50 bps of additional easing by year-end have fallen to 65.1% from 73.3% yesterday and 82.1% a week ago. This has the dollar on the bid, with the dollar index trading at three-week highs.

The Fed has stressed that the policy path remains data-dependent. There is a host of FedSpeak today and tomorrow, which may provide some additional clarity on the central bank's intentions.

Republicans and democrats are digging in their heels ahead of a potential partial government shutdown next week. The Office of Management and Budget said agencies that would lose funding should start preparing to cut jobs. The Trump administration has indicated that some may be permanent reduction in force firings, rather than temporary furloughs.

Fiscal worries will continue to weigh on market sentiment. Besides the potential government shutdown, the national debt stands at $37.4 trillion, about 123% of GDP. The CBO projects the U.S. could reach the $41.1 trillion debt ceiling as early as late 2026. 

Durable Orders rebounded 2.9% in August, well above market expectations of -0.4%, versus a revised -2.7% in July (was -2.8%). Transportation orders surged 7.9%, versus -9.4% in July.

Initial Jobless Claims plunged 14k to a nine-week low of 218k in the week ended 20-Sep, inside expectations of 234k, versus a revised 232k in the previous week (was 231k). Continuing claims edged down to 1,926k from 1,928k in the previous week.

Q2 GDP was revised up to +3.8% in the third report, above expectations of +3.3%, versus +3.3% previously and -0.6% in Q1.

Trade Balance narrowed to -$85.5 bln in August, inside expectations of -$92.5 bln, versus a revised -$102.8 bln in July (was -$103.6 bln).

Existing Home Sales edged down to a 4.00M pace in August, above expectations of 3.96M, versus 4.01M in July.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$20.86 (+0.56%)
5-Day Change: +$92.07 (+2.53%)
YTD Range: $2,607.16 - $3,790.90
52-Week Range: $2,541.42 - $3,790.90
Weighted Alpha: +44.10

GOLD

Gold is consolidating Wednesday's corrective losses, with price activity confined to yesterday's range. Dovish Fed expectations ebbed somewhat today after some generally favorable U.S. economic data came out, lifting the dollar index to three-week highs.



Despite today's dollar strength, the yellow metal is displaying some resilience amid persistent haven interest associated with geopolitical, trade, and fiscal worries. Gold remains very much within reach of Tuesday's record high at $3,790.90.

Gold ETFs saw a solid 35.5 tonnes of inflows last week. It was the fourth consecutive week of net inflows. Investor interest remains strong, particularly among those in North America.

Short-term focus remains on a true test of the $3,800, with scope for an eventual push to $4,000. Further out, $5,000 is looking increasingly attractive.

Today's intraday low at $3,722.51 bolsters Wednesday's low at $3,717.65. If the latter is penetrated, Monday's low at $3,684.09 would be in play, with potential to the rising 20-day moving average, which is at $3,633.78 today.

Buying into dips is likely to remain favored. That could get derailed temporarily if PCE inflation comes in hotter than expected tomorrow, as it would further erode dovish Fed expectations.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$1.089 (+2.48%)
5-Day Change: +$2.983 (+7.13%)
YTD Range: $28.565 - $45.073
52-Week Range: $28.565 - $45.073
Weighted Alpha: +53.13

Silver remains well bid, having set new 14-year highs just ahead of today's U.S. open. Strong durable orders in August, along with a robust revision to Q2 GDP provide solid underpinnings to industrial demand expectations.



Haven interest remains strong as well, with new record highs in gold, making silver an increasingly appealing alternative. The strong technical picture is bolstered by weakness in the gold/silver ratio, which fell to a nine-month low of 83.276 today. This suggests silver is likely to continue outperforming.

A more convincing breach of $45 would lend additional confidence to the bullish scenario that calls for a challenge of record highs around $50. An intervening barrier is marked by the $47.973 Fibonacci objective, which corresponds closely with the $48.105 high from May 2011.

Today's early U.S. low at $44.211 protects the low for the day at $43.784. More substantial support marked by the lows from Wednesday and Tuesday at $43.679/651, which stands in front of the low for the week at $43.035.

Look for setbacks to continue attracting buying interest.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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.