Zaner Daily Precious Metals Commentary

10/3/2024

Gold and silver display resilience in the face of dollar gains 

OUTSIDE MARKET DEVELOPMENTS: The IAF struck Hezbollah's intelligence headquarters in Beirut as Israel continues to degrade the terrorist organization's ability to wage war. IDF forces continue to conduct ground operations in southern Lebanon.

BoE Governor Bailey warned that the situation in the Middle East could lead to a 1970s-style oil shock. So far, oil gains have been limited and Bailey senses there is "a strong commitment to keep the market stable" from counterparts in the region.

If inflation continues to moderate, Bailey said the central bank could be “a bit more activist” in its policy decisions. Solid UK PMI readings with "improving order books accompanied by cooling inflationary pressures" suggest the BoE may indeed have room for more aggressive rate cuts. 

The prospect for accelerated BoE easing sparked a rally in Gilts and Sterling came under pressure. Cable tumbled to a three-week low, providing an additional tailwind for the dollar. The dollar index extended to a six-week high of 102.08.

Ongoing weakness in the Eurozone economy revealed by the latest PMI readings, has the market leaning toward another ECB rate cut in October. While inflation remains above target, the ECB's Mario Centeno worries that keeping policy restrictive for too long could result in inflation undershooting the 2% target.

ECBSpeak in general has tilted more dovish this week, raising the likelihood of another 25 bps cut this month. The euro is under pressure, reaching a three-week low against the dollar.

The U.S. Challenger report saw announced layoffs fall 3.1k to 72.8k in September, versus 75.9k in August. 
Announced hirings surged 397.8k to 403.9k led by the retail and transportation sectors that are looking ahead to seasonal holiday hiring needs.

U.S. initial jobless claims rose 6k to 225k in the week ended 28-Sep, above expectations of 223k, versus a revised 219k in the previous week. Continuing claims fell 1k to 1,826k in the week ended 21-Sep.

U.S. services PMI for September was revised down to 55.2, versus 55.4 flash and 55.7 in August. However, further solid expansions in output and new orders were noted. Price pressures increased to 54.6 from 52.9. Business confidence "dropped markedly due to concerns of a slowdown in the economy."

U.S. services ISM rose 3.4 points to 54.9 in September, above expectations of 51.7, versus 51.5 in August. That's the highest reading since February 2023. The sector has expanded in 49 of the last 52 months. Prices jumped to 59.4 from 57.3 in August.

U.S. factory orders fell 0.2% in August to $590.4 bln, below expectations of +0.2%. This modest setback comes on the heels of the 4.9% rise in July, the largest one-month percentage gain in more than four years.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$12.11 (-0.46%)
5-Day Change: -$27.67 (-1.04%)
YTD Range: $1,986.16 - $2,684.45
52-Week Range: $1,812.39 - $2,684.45
Weighted Alpha: +43.71

Gold continues to consolidate within the confines of Tuesday's range. The upside is being hindered by heightened expectations of more aggressively dovish policy paths for both the BoE and ECB, which has pushed the dollar index to six-week highs.



Scope for another aggressive 50 bps Fed cut in October has waned over the past week. Fed funds futures put the current probability at 33.3%, down from 35.2% yesterday and 49.3% a week ago. This too is providing a tailwind for the dollar.

However, the yellow metal is proving to be quite resilient in the face of this dollar strength. The last time the dollar index was this high was on 19-Aug and gold closed at $2,586.83 that day.

Global central banks reported just 8 tonnes of net gold purchases in August according to the World Gold Council. While it was the fifteenth consecutive monthly net gain, it was the smallest since March. Poland was the largest buyer in August at 6 tonnes, followed by Turkey and India at 3 tonnes each.

The WGC's Marissa Salim notes that "sales have not increased which may signal a likely wait and see approach rather than a change in trend." They believe that all of the drivers of central bank gold demand remain in place, although demand this year will be weaker than in 2023.

First support at $2,642.77 protects the more substantial $2,633.48/$2,627.20 area. The important 20-day moving average is at $2,598.89 today.

On the upside, sights remain set on the $2,700.00/$2,709.14 objective. Beyond that, psychological barriers at $2,800 and $2900 stand in front of the longer-term target at $3,000.

Silver continues to probe above the $32 level but remains confined to yesterday's range thus far. The white metal is also displaying impressive resilience in the face of today's dollar strength.

 

A breach of yesterday's high at $32.259 would clear the way for a retest of last week's 12-year high at $32.657. Beyond that, I have targets at $33.00 and $33.972.

An intraday level at $31.887/80 now protects the low for the day at $31.451. The importance of the $31 zone has been reinforced by buying interest that emerged in this area.

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