Gold struggles above $4,000 despite a weaker dollar

OUTSIDE MARKET DEVELOPMENTS: The government shutdown drags on as Senate Democrats continue to block the House-passed continuing resolution. In the wake of Tuesday's election results, hopes for a bipartisan deal to reopen the government have seemingly been dashed as Democrats have dug in even harder on their demands for healthcare concessions before they would consider ending the filibuster.

Ultimately, Congress has a Constitutional and statutory obligation to pass a budget each fiscal year. Both parties have shirked this fundamental obligation for almost 30 years. The last time Congress passed all required appropriations bills (funding the full federal discretionary budget) on time – enacting them into law before the start of the new fiscal year on October 1 – was for fiscal year 1997. Since then, it's just been one CR or omnibus package after another for decades!

There is a lot of FedSpeak slated for today, but the gist thus far is one of caution. Cleveland Fed President Hammack said the central bank is carefully balancing its dual mandate of maximum employment and price stability on an "economic tightrope." Chicago Fed President Goolsbee warned that he's "even more uneasy" about front-loading further rate cuts due to the government shutdown creating a "blackout" on critical inflation data.

We're also going to miss another jobs report tomorrow due to the shutdown. This week's jobs data from private sources has been mixed. Wednesday's ADP survey beat expectations, but today's Challenger Layoffs print was higher than expected.

Perceived weakness in the jobs market has been an important contributing factor to recent Fed dovishness. The probability of a December rate cut edged up to 69.9% from 62% yesterday, but uncertainty prevails.

Recent gains in the dollar index were successfully capped by the 200-day moving average, prompting a retreat back below 100. Today's setback is reflective of the rebound in dovish Fed expectations.

Challenger Layoffs surged to a seven-month high of 153.1k in October, above expectations of 73k, versus 54k in September. It is the largest October gain in announced job cuts since 2003.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$38.95 (+0.98%)
5-Day Change: -$39.42 (-0.98%)
YTD Range: $2,607.16 - $4,381.21
52-Week Range: $2,541.42 - $4,381.21
Weighted Alpha: +50.94

Gold climbed back above $4,000 in overseas trading, buoyed by a revived haven interest associated with the ongoing shutdown and fresh worries about the legality of Trump's tariffs. A softer dollar, stemming from an uptick in December rate cut expectations, provides some additional lift.



However, gains above $4,000 could not be sustained in U.S. trading. Recent choppiness is suggestive of a market trying to form a bottom, but I'm not convinced that the corrective low is in yet.

The World Gold Council acknowledged that gold experienced a "momentum flush out" in October. They note that technical analysis "points to a much-needed pause but no damage to gold’s trend, which remains supported by solid fundamentals."

The WGC outlook is consistent with my own. The dominant trend is still bullish, making the October losses corrective in nature. Subsequent consolidation continues to relieve the overbought condition that developed after successive record highs throughout the year.

We may still see a test of the 50-day moving average, but that could come from the 50-day catching up to the market at or near its current level. The indicator is already within $20 of the corrective low thus far at $3,887.03 (28-Oct). That's going to fortify that support level.

Intervening barriers are marked by lows from earlier this week at $3,930.59/29.37 and the 30-Oct low at $3,915.82.

I would view a close above the 20-day moving average at $4,083.01 as compelling evidence that the low is in. The 20-day continues to correspond closely with the 38.2% retracement level of the correction at $4,075.81.

A breach of the 30-Oct high at $4,045.01 would put $4,075.81/$4,083.01 in play. Above the latter, focus would shift to the halfway back point of the decline at $4,134.12.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.692 (+1.44%)
5-Day Change: -$0.798 (-1.63%)
YTD Range: $28.565 - $54.465
52-Week Range: $28.565 - $54.465
Weighted Alpha: +63.23

Silver is also struggling to sustain upticks today, despite improved hopes for another rate cut and weakness in the dollar. Uncertainty prevails on the trade and government shutdown fronts.



If Trump's tariffs are ruled to be illegal, will global trade start flowing as it was before April, or does the Trump administration have new measures queued up? It seems unlikely that President Trump will just fold.

Like gold, I see the October losses in silver as corrective within the dominant macro trend. All of the fundamental factors that drove silver to record highs are still in place, although, as mentioned in Tuesday's comment, there are some who believe regulatory action in China may ease the multi-year supply deficit. 

I'm watching the 20-day moving average for silver as well. The 20-day is at $49.530 and is protected by today's intraday high at $48.793 and the 31-Oct high at $49.359. A short-term close above the 20-day would bode well for a move back above $50 with potential to the $51.064 Fibonacci level.

On the downside, lows from earlier this week at $46.885/910 and the 50-day moving average at $46.147 protect the   $45.563 low from last week. The fact that the 50-day has climbed above the cycle low is significant, but here too, I'm not entirely convinced the low is in.

I expect the long-term bulls to continue to test the long side of the market when limited-risk opportunities are presented. 


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.