9/11/2024

Gold and silver fade after CPI print further erodes chances for 50 bps Fed cut

OUTSIDE MARKET DEVELOPMENTS: U.S. CPI rose 0.2% in August, in line with expectations, versus +0.2% in July. The annualized rate of consumer inflation slid to 2.5% from 2.9% in July.

Core CPI came in at +0.3%, above expectations of +0.2%, versus +0.2% in July. Core consumer inflation held steady at 3.2% y/y.

Markets have been waiting for confirmation that inflation is still heading in the right direction and that the Fed should now focus on supporting the labor market via easier monetary policy. Today's data favors that rotation and prospects for a larger 50 bps rate cut have fallen to 21%. That's down from 34% yesterday, 44% a week ago, and 51% a month ago.

 


We'll get August PPI data tomorrow. The market is expecting a 0.2% m/m rise. Import/export prices come out on Friday.

BoJ policymaker Junko Nakagawa suggested a rate hike is still on the table a day after a Bloomberg article reported the central bank sees little need to raise rates again next week. The yen surged in reaction, pushing the USD-JPY rate to a new low for the year of 140.72.

The ECB is widely expected to trim rates by 25 bps tomorrow. Eurozone Q2 GDP was revised down to -0.2% q/q, versus a preliminary print of +0.3%. Government spending continues to rise as fixed investment tumbles.

This prompted former ECB chief Mario Draghi to warn that steps must be taken to correct this, or Europe will face a "slow agony." A 25 bps rate cut won't be enough. Draghi is advocating for up to €800bn a year in investment to pull the EU back from the brink.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$5.30 (+0.21%)
5-Day Change: +$27.74 (+1.11%)
YTD Range: $1,986.16 - $2,529.57
52-Week Range: $1,812.39 - $2,529.57
Weighted Alpha: +31.90

Gold set a new 2-week high at $2,527.18 following the benign CPI print, but has since retreated into the range, leaving the record high from 20-Aug at $2,529.57 intact. Focus now shifts to tomorrow's PPI data.



Dimmed prospects for a larger 50 bps rate cut are keeping the dollar underpinned, providing a bit of a headwind for the yellow metal. The dollar index eked out a new high for the week, despite today's strength in the yen.

Choppy consolidative trading within the range is likely to continue at least through tomorrow's PPI report. The market seems to want to be 100% sure that inflation is in check before committing to a direction.

There is at least one near-certainty: The Fed will launch its easing campaign next week, most likely with a 25 bps cut. The trade will be very interested in the forward guidance and will start speculating about the size of cuts in November and December.

Initial support is a zone from $2,507.93 (20-day SMA) down to yesterday's low at $2,500.63. Secondary support at $2,487.11/06 protects the short-term range lows at $2,474.31/08.

On the upside, the $2,539.77 and $2,597.15/$2,600.00 objectives remain valid, contingent on a move to new all-time highs.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.417 (+1.47%)
5-Day Change: +$0.627 (+2.23%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +24.25

Silver traded as high as $28.842 in post-CPI trading before fading into the range once again. Resistances marked by the 20-, 50-, and 100-day moving averages at $28.930, $29.010, and 29.188 were left intact, leaving last week's high at $29.125 well protected.



Yesterday's low at $28.08 defines first support, protecting the recent lows at $27.791/732. Below the latter, I'm watching $27.505 and $27.237.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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