9/5/2024
Gold and silver retrace recent losses and await jobs data
OUTSIDE MARKET DEVELOPMENTS: Heightened growth risks continue to weigh on global stocks. Most of the major overseas indices were lower once again today. U.S. shares are called lower today.
The ADP Employment Survey showed private payrolls rose by just 99k in August, well below market expectations of 148k, versus a negative revised 111k in July (was 122k). This is the weakest print since Jan 2021 and adds to whispers of a potential nonfarm payrolls miss tomorrow.
Challenger Layoffs surged 50k to 75.9k in August, a 193% increase over July. That's the highest August print in 15 years.
Initial jobless claims fell 5k in the week ended 31-Aug to 227k, below expectations of 232k, versus a revised 232k in the previous week. Continuing claims dipped 22k to 1,838k, versus a downward revised 1,860k in the previous week.
U.S. Q2 productivity was revised up to +2.5% on expectations of +2.4%, versus +2.3% preliminary read. Unit Labor Costs were slashed to +0.4%, below expectations of +0.8%, versus +0.9% preliminary read.
U.S. S&P Global Services PMI was revised up to 55.7 from a preliminary read of 55.2. It was the 19th consecutive month above 50, and the highest print since March 2022.
U.S. Services ISM rose to 51.5 in August, above expectations of 51.0, versus 51.4 in July. Prices rose to 57.3 from 57.0 in July. Employment fell 0.9 points to 50.2 retracing some of the strong 5-point gain seen in July.
While the services sector continues to show strength, signs from the labor market are raising concerns about the economy. Traders have boosted expectations for a 50 bps Fed rate cut this month to 45%. That's up from 34% a week ago, but down significantly from 85% a month ago.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$22.26 (+0.89%)
5-Day Change: -$3.30 (-0.13%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +32.31
Gold has rebounded to new highs for the week, buoyed by an uptick in bets that the Fed will be more aggressive in cutting rates this month and a weaker dollar. The record high at $2,529.57 (20-Aug high) is suddenly back within striking distance.
I don't see gold setting new highs before tomorrow's nonfarm payrolls report. However, if payrolls miss expectations, 50 bps rate cut bets would increase, the dollar will weaken further, and gold will be back on track for attainment of previously established objectives at $2,539.77 (Fibonacci) and $2,597.15/$2,600.00 (measuring objective).
While the low from 22-Aug at $2,474.31 was slightly exceeded yesterday, I'm going to call this level technically intact. I'm also encouraged by gold's inability to sustain tests below the 20-day moving average on a close basis.
Global gold ETFs saw inflows of 14.3 tonnes last week as the yellow metal was consolidating just off its record high. North American investors accounted for the vast majority of that interest (11.6 tonnes).
Gold ETFs notched a fourth monthly net inflow in August. Inflows totaled 28.5 tonnes for the month with North American investors responsible for 17.2 tonnes of buying interest.
UBS Global Research claimed in August that the uptrend in gold has legs and could continue for the next couple of years. The report went on to say that "Gold models are unable to explain the bulk of gold’s rally," even though aggressive official sector (central bank) buying is heavily featured.
Jan Nieuwenhuijs of the Gold Observer believes the PBoC hasn't paused its gold buying at all. Covert PBoC gold buying is hidden in plain sight in global customs data according to Nieuwenhuijs. It's a great piece of research that goes a long way toward explaining what UBS models can not.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.542 (+1.92%)
5-Day Change: -$0.693 (-2.36%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +24.42
Silver has rebounded smartly to test back above $29 as choppy trading prevails ahead of Friday's payrolls report. New highs for the week have been established and more than 50% of the pullback from last week's high at $30.164 has been retraced.
The 50- and 100-day moving averages come in at $29.123 and $29.160 today and have successfully capped the upside thus far. The market now awaits the jobs data.
If job growth is weaker than expected, silver should follow gold higher on heightened expectations of a 50 bps rate cut on 18-Sep and a weaker dollar. Secondary resistance is noted at $29,583/635.
A short-term breach of last week's highs at $30.082/164 would put the yellow metal back on the path for a challenge of the July high at $31.652 and eventually the 11-year highs from May at $32.379.
A beat on the jobs front would likely send the precious metals back down into their ranges as rate-cut bets are pared. A decisive swing back in favor of a 25 bps Fed rate cut would support the dollar.
Minor intraday support is noted in silver at $28.655, which protects the lows from Wednesday and Tuesday at $27.791/779.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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