8/27/2024
Gold and silver consolidate recent gains
OUTSIDE MARKET DEVELOPMENTS: With everyone seemingly in agreement that the Fed will begin easing in September, market focus is now on the size of that first cut. This morning, the probability of a larger 50 bps cut stands at 29.5%.
Fed funds futures continue to predict 100 bps of easing by year-end. With only three FOMC meetings remaining this year, at least one upsized cut would be required to meet that expectation.
Given the Fed's cautiousness in the lead-up to this first move, I think they'll start with a 25-bps cut. They claim to be data-dependent, and August jobs data will be a determining factor, but are they looking at asset prices?
The Dow Jones Industrial Average closed at a record high on Monday. This morning, the S&P/Case-Shiller Home Price Index for June printed at an all-time high.
Lower rates will drive asset prices even higher. However, ever-higher housing prices threaten to undermine the Fed's efforts to get inflation back to its 2% target.
News that Libya would take its oil production offline amid a dispute between rival governments initially sent oil prices higher. Libya produces 1.2 million barrels of oil per day, most of which is exported to Europe.
Given the revenue generated by oil – regardless of which government is in charge – I don't imagine the supply disruption will last very long. Nonetheless, the situation has the potential to drive up energy prices ahead of upcoming central bank policy decisions.
U.S. Consumer Confidence rose to a 6-month high of 103.3 in August, above expectations of 100.5, versus an upward revised 101.9 in July (was 100.3). The year-ahead inflation index fell to a 4-year low. However, it wasn't all rosy: The job strength diffusion index fell to a 41-month low, a level not seen since the pandemic.
The Richmond Fed Manufacturing Index slid to a 4-year low of -19 in August, below expectations, versus -17 in July. The employment component fell 10 points to -15, the weakest print since May 2020.
Today's data indicate some downside risk for August payrolls.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$9.11 (-0.36%)
5-Day Change: -$1.45 (-0.06%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +31.42
Gold continues to consolidate recent gains and is trading just off the all-time high set last week at $2,529.57. Corrective activity since that record was set has been minimal, favoring further tests of the upside.
The technical outlook remains unchanged. The next upside target is $2,539.77 (Fibonacci) with $2,529.57 marking the intervening barrier. Beyond the former, a measuring objective at $2,597.15/$2,600.00 attracts.
The dollar remains defensive, which is also helping gold. The dollar index hit a 13-month low on Monday and scope is now seen for a test of the 99.58 low from July 2023.
Net gold ETF inflows were 8 tonnes last week, most of which was attributable to North American buyers. European investors bought 4.4 tonnes, while Asia accounted for 3.7 tonnes of outflows. ETF flows remain broadly supportive.
Initial support is marked by the overseas low at $2,506.22. Friday's low at $2,484.53 protects more substantial support at $2,474.31 (22-Aug low) and the rising 20-day moving average that comes in at $2,464.24 today.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.011 (-0.04%)
5-Day Change: +$0.540 (+1.83%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +27.67
Silver continues to probe above $30, but price action remains confined to yesterday's range thus far. A breach of yesterday's 6-week high of $30.164 would confirm the breach of the $30.142 Fibonacci level, clearing the way for additional retracement to $30.584 (18-Jul high).
A more convincing breach of $30.142 would also highlight the next Fibonacci level which comes in at $31.126 (78.6% retracement of the May/Aug decline). Further out, the May highs above $32 are looking increasingly attractive.
India's demand for silver is on pace to nearly double this year, driven largely by demand for solar panels and consumer electronics. H1 imports have already exceeded the 3,625 tonnes of total imports in 2023. The CEO of a leading Indian silver importer told Reuters he believes imports could be as high as 7,000 tonnes this year.
This would offset concerns about demand destruction associated with the faltering Chinese economy. The IMF is forecasting 5% growth in China this year, and 7% growth in India.
India slashed import duties on gold and silver to 6% from 15% previously. That's a pretty substantial effective price drop, which is further stoking demand.
In terms of support. the overseas low at $29.821 now protects Monday's low at $29.665. More substantial support is marked by last week's lows at $28.950/$28.781. The 50- and 100-day moving averages provide intervening barriers at $29.227 and $29.127 respectively.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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