12/16/2024
Gold and silver remain consolidative, awaiting Fed decision
OUTSIDE MARKET DEVELOPMENTS: This week's focus is squarely on the two-day FOMC meeting that begins tomorrow. Fed funds futures are fully pricing a 25 bps cut for Wednesday's announcement.
It's the forward guidance and the central tendencies for 2025 that the market is most interested in. Easing expectations for the year ahead have ebbed in recent weeks amid signs of a resilient economy and some warmer inflation readings.
I suspect the policy statement and Powell's comments will lean toward a more cautious rate path in 2025 that will likely begin with a January hold. At this point, the market continues to reflect a bias for slightly less than 100 bps in cuts next year.
A less-dovish Fed and more-dovish tilts from some other major central banks are underpinning the dollar. The dollar index reached a two-week of 107.19 last week and remains well-bid to start the new week.
Before the market shifts into holiday mode, we'll also get U.S. retail sales for November (Tuesday) and the Fed's favored measure of inflation (Friday). Median expectations for retail sales are +0.5%. The PCE chain price index is expected to rise 0.2% m/m.
ECB President Christine Lagarde signaled further interest rate cuts are in the offing. While inflation remains elevated, she's seeing some encouraging signs. "If the incoming data continue to confirm our baseline, the direction of travel is clear, and we expect to lower interest rates further," said Lagarde.
Moody's cut France's credit rating to Aa3 from Aa2 based on a view that "the country's public finances will be substantially weakened over the coming years." Fitch and S&P had already made similar downgrades.
Members of South Korea's General Assembly voted on Saturday to impeach President Yoon Suk Yeol after he angered policymakers by declaring martial law earlier in the month. Yoon's presidential powers have been suspended while the Constitutional Court decides if he will be removed or reinstated.
U.S. Empire State Index plunged 31 points to 0.2 in December, below expectations of 9.8, versus 31.2 in November. “On the heels of a strong November, manufacturing activity held steady in New York State in December. The pace of price increases moderated, and employment declined modestly. Firms were fairly optimistic about future conditions,” said Richard Deitz, Economic Research Advisor at the New York Fed.
U.S. Flash Manufacturing PMI fell 1.4 points to 48.3 in December, versus 49.7 in November. "...output is falling sharply and at an increased rate, in part due to weak export demand," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
U.S. Flash Services PMI rose 2.54 points to 58.5, versus 56.1 in November. “The service sector expansion is helping drive overall growth in the economy to its fastest for nearly three years..." said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$14.65 (+0.55%)
5-Day Change: +$0.33 (+0.01%)
YTD Range: $1,986.16 - $2,789.68
52-Week Range: $1,812.39 - $2,789.68
Weighted Alpha: +27.99
Gold remains range-bound near the 20-day moving average. The yellow metal managed to close 0.6% higher last week, despite the failure to sustain gains above $2,700. Consolidative trading is likely to prevail into year-end. 
Ongoing geopolitical tensions, expectations for a 25 bps Fed rate cut on Wednesday, and ongoing dovishness from other major central banks are providing support for gold. On the other hand, an anticipated tilt by the Fed to a less-dovish bias and the resulting firmness in the dollar pose a headwind.
A sustained move above $2,700 is needed to set a more favorable tone within the broader range. The $2,719.75/$2.723.70 area now provides a formidable barrier ahead of the $2,789.68 record high.
A short-term trendline off the $2,541.42 cycle low has contained the downside thus far today, but the retreat seen late last week leaves the lows from the past three weeks at $2,628.79/$2,617.65/$2,609.76 vulnerable to a challenge.
Gold ETFs saw net outflows of 1.7 tonnes in the week ended 13-Dec. It was the second consecutive net weekly outflow. Selling by North American investors eclipsed small inflows from Europe and Asia.
CFTC Gold speculative net positions
The COT report for last week saw net speculative long positions increase by 15.9k to 275.6k contracts, versus 259.7k contracts in the previous week. It was the third straight weekly increase in spec longs.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$0.123 (+0.40%)
5-Day Change: -$1.127 (-3.54%)
YTD Range: $21.945 - $34.853
52-Week Range: $20.704 - $34.853
Weighted Alpha: +23.91
Silver is consolidating at the low end of Friday's range after failing once again to sustain gains above $32 last week. While the white metal was encouraged by the most recent Chinese stimulus pledges, the lack of specifics has disappointed once again.
With silver confined to the lower half of the broad $34.853/$29.703 range, I see a modest downside bias. A breach of Friday's low at $30.347 would suggest potential for tests below $30, although the cycle low at $29.703 is likely to remain protected as the market shifts to holiday trading at the end of this week.
A sustained push above $32 is needed to set a more favorable tone within the range. The recent highs at $32.255/306 reinforced the range midpoint at $32.278.
CFTC Silver speculative net positions
Net speculative long positions in silver futures declined 2.1k to 41.2k contracts, versus 43.3k in the previous week. It was the sixth weekly decline out of the last seven.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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