Zaner Daily Precious Metals Commentary

10/30/2024

Gold nears $2,800 on strong demand picture 

OUTSIDE MARKET DEVELOPMENTS: Western intelligence sources say there are already a small number of North Korean troops embedded with Russian forces inside Ukraine. According to reports, there are approximately 10,000 North Korean troops training in Russia that will presumably be deployed to fight in Ukraine.

South Korea has thus far refrained from sending weapons to Ukraine, but combat-hardened DPRK troops may be cause for concern. “While we have maintained our principle of not directly supplying lethal weapons, we can also review our stance more flexibly, depending on the level of North Korean military activities,” said South Korean President Yoon Suk Yeol.

The U.S. Q3 GDP report showed an advance print of +2.8%, below expectations of +3.0%, versus 3.0% in Q2. Consumer and government spending remain robust contributors to economic growth.

PCE increased 3.7%, the strongest reading since Q1'23, and accounted for 2.46% of overall growth. That's up from 1.90% in Q2.

According to the Bureau of Economic Analysis report: "Within goods, the leading contributors were other nondurable goods (led by prescription drugs) and motor vehicles and parts. Within services, the leading contributors were health care (led by outpatient services) as well as food services and accommodations."

Government consumption expenditures and gross investment were the second biggest contributors at 0.85%, up from +0.52% in Q2. Defense spending at +0.51% was the biggest subcategory within GCE.

The PCE price index dropped a full percentage point from 2.5% in Q2 to 1.5% in Q3. The core chain price index fell to 2.2%, compared to 2.8% in Q2. September PCE data come out tomorrow and the market expects a scant 0.1% m/m rise in the headline price index.

The U.S. ADP Employment Survey blew away expectations, with a private payrolls gain of 233k in October, more than double the median expectation of +114k, versus an upwardly revised 159k in September (143k). This strong number, despite two hurricanes and several significant strikes, is generating whispers of a potential NFP beat on Friday (expectations +125k).

U.S. Pending Home Sales Index rebounded 7.4% to 75.8 in September, above expectations of 71.9, versus 70.6 in August and a record low of 70.2 in July. Lower mortgage rates in September spurred buying but rates are back on the rise more recently with 30-year fixed rates back above 7%.

Decent economic growth, moderating inflation, and a resilient labor market lend considerable credence to the soft landing scenario. The data support the Fed continuing with the easing cycle into 2025.

The Fed is widely expected to cut rates by 25 bps on 07-Nov. While the market still favors an additional 25 bps cut in December, chances for a hold persist and actually rose today. Fed funds futures now put the probability of steady policy in December at 28.7%, compared to 25.5% yesterday.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$6.27 (+0.23%)
5-Day Change: +$71.44 (+2.63%)
YTD Range: $1,986.16 - $2,788.53
52-Week Range: $1,812.39 - $2,788.53
Weighted Alpha: +43.21

Gold continues its march higher, establishing new record highs and baring down on $2,800. The yellow metal is up nearly 1.5% this week and it has been three weeks since consecutive lower closes have been seen. The uptrend continues to look very strong.



The World Gold Council reports Q3 gold demand rose 5% y/y to 1,313 tonnes, a record for a third quarter. The corresponding rise in the price drove the value of this demand beyond $100 bln for the first time ever. "Falling interest rates, geopolitical uncertainty, portfolio diversification and momentum buying were among the key drivers," according to the WGC.

While bar and coin demand and central bank buying moderated, investors finally jumped on board in Q3 leading to 94.6 tonnes of ETF inflows. That's a marked shift from nine consecutive quarters of outflows. "Q3 was the first positive quarter since Q1’22, with a y/y swing from hefty (-139t) Q3’23 outflows," said the WGC.

The WGC is optimistic about the remainder of the year saying, "resurgent professional flows combined with solid bar and coin investment will offset weaker consumer demand and slower central bank buying."

On the supply side, mine production rose 5.8% to 989.8 tonnes. With diminished adds from net producer hedging and recycling, total supply was exactly in balance with total demand at 1,313 tonnes.

The next resistance level is at $2,800.00/$,2,804.73 based on a range extension target. However, scope remains for a test of the $2,810.38 Fibonacci objective.

The overseas low at $2,773.20 protects former resistance at $2,757.95. Additional support levels are noted at  $2,748.17/$2,747.38 and $2,740.53 (29-Oct low).

Silver slipped back below $34, weighted by a slightly weaker than expected initial read on Q3 GDP. However, fresh record highs in gold and hopes for more Chinese stimulus should continue to limit the downside.



Support marked by yesterday's low at $33.627 was slightly exceeded but the white metal subsequently rebounded back into the range. While silver remains lower on the day, a close above $34 would be encouraging for the bull camp.

If a close above $34 can not be generated, Monday's low at $33.268 might be the short-term attraction before renewed buying interest surfaces. More substantial support is at $33.109/$33.000.

The PGMs have corrected sharply on diminished expectations for additional Russian sanctions.


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