Precious Metals Week in Review 05/08/2024

Here are your Short-Term Support and Resistance Levels for the upcoming week.

                               Gold                                     Silver

Support                   2348/2311/2269                   27.07/26.25/25.06

Resistance              2430/2469/2506                  30.08/30.27/31.09

                                Platinum                              Palladium

Support                   916/897/868                        878/856/820

Resistance              964/993/1012                      935/971/993

This is not a solicitation to purchase or sell.

1. The stock market rally is in its most fragile state in months ahead of Wall Street's busiest week of the summer. The S&P 500 and Nasdaq Composite recently had their worst single day drops since 2022 as the indexes struggled to recover losses during a Friday rally. All three major averages closed the final week of July lower. The S&P 500 was down more than 1%, while the Nasdaq fell over 2.3%. Meanwhile, the Dow Jones Industrial Average rose about 0.6%. In the week ahead, a Federal Reserve meeting, the July jobs report, and earnings from Big Tech stalwarts Apple, Amazon, Microsoft, and Meta will drive the direction of markets to kick off August. Updates on job openings, activity in the services and manufacturing sectors, and consumer confidence are also on the calendar.

2. Gold and silver prices are sharply higher in early U.S. trading Friday, following another downbeat economic report that falls squarely in the camp of the monetary policy doves, who want the Federal Reserve to lower interest rates sooner rather than later. The marketplace just now is factoring in a better than 70% chance for a 50 basis-point cut by the Fed at the September FOMC meeting. December gold was last up $34.40 at $2,514.70, at a two-week high and not far below the contract and record high. September silver was up $0.668 at $29.155. Gold is also seeing safe haven demand amid heightened Middle East tensions. Iran has vowed to attack Israel after a top Hamas official was killed on Iranian soil. Gold has also benefited from a dovish lean by the Federal Reserve this week. Financial markets suffered a reversal of fortune on Thursday as Wednesday’s gains were erased in a brutal downturn for asset prices, with cryptos, stocks, and oil recording steep losses. The surge in selling pressure came Thursday afternoon as a sharp sell-off in chip stocks wreaked havoc on the major indices, while weaker-than-expected economic data amplified the downturn.

3. AI might still be dominating financial headlines, but investors should take heed when too much of the narrative for these stocks is focused on euphoria and explosive growth potential. At least that’s according to Drew Pettit, the director of U.S. equity strategy for Citigroup. Petitt, who warned about an AI stock pullback in early July, says simple warning signs for investors include “when a stock’s price moves very, very, very fast.” The recent highs for tech stocks feel more like a distant memory, serving as a lesson to investors. The Nasdaq Composite has shed about 6.5% since mid-July on fears of excess valuation in AI names and mixed earnings results from the likes of Alphabet and Microsoft. AI darlings such as Nvidia and AMD are off by 15% and 17%, respectively, during that timeframe. That ripple effect in tech could make for some troubled waters in the coming months and quarters for investors more broadly, and betting on AI and tech might prove just as troubling. A pullback in the stocks brings us closer to financial and valuation reality, per Pettit, who said we’re not in a bubble just yet since companies continue to beat and raise guidance. “I get the sense when it comes to AI, most investors have no clue what these companies do,” he told Editor Brian Sozzi on his Opening Bid podcast.

4. Most Federal Reserve watchers don’t expect the central bank to ease monetary policy this week in Washington DC, but what they do expect is that policy makers will set the stage for an interest rate cut at their next meeting in September. Fed officials have said they are getting closer to having confidence inflation is sustainably dropping to their 2% goal. They have also said they are paying more attention to rising unemployment, another sign that cuts may be nearing. But most Fed watchers say the central bank still needs just a bit more time to be sure, while also preparing the markets for significant action to come. The latest reassurance that a cut could be nearing came Friday when a new reading of the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, showed its lowest annual gain in more than three years. The 2.6% annual increase in the month of June was the same level as May and down from 2.8% in April. At a three-month annualized rate, core PCE dropped back to 2.3% from 2.9%. Another factor that could influence when the Fed cuts is a cooling in the labor market. The unemployment rate has ticked up for two consecutive months to 4.1% — above where some Fed officials predicted the rate would be at the end of this year. This is important because the Fed has a dual mandate to maximize employment in the U.S. while maintaining stable prices. Fed Chairman Jerome Powell had made it clear the central bank is focusing more on the labor side of that mandate as inflation comes down.

5. Another recession indicator is close to flashing red. The Sahm Rule, developed by economist Claudia Sahm, says that the U.S. economy has entered a recession if the three-month average of the national unemployment rate has risen 0.5% or more from the previous 12-month low. The rule has successfully predicted recessions 100% of the time since the early 1970s. If Friday's July jobs report reveals the unemployment rate rose to 4.2% during the month (UPDATE: it did, coming in at 4.3%), the Sahm Rule would be triggered. But economists, including Sahm herself, are cautious about such an outcome being used to conclude a recession is imminent for the economy given the current economic backdrop. "The rise in the unemployment rate is not as ominous as it would normally seem," Sahm wrote. Even with the creator of the rule and others pointing that a trigger of the Sahm rule from the July jobs report may not be the end all be all, market participants still think it could be significant to Friday's market action.

6. U.S. single-family home prices were unchanged in May and the annual increase was the smallest in 10 months as higher mortgage rates stifled demand, boosting housing supply. The unchanged reading in house prices followed a 0.3% month-on-month rise in April, the Federal Housing Finance Agency said on Tuesday. In the 12 months through May, house prices increased 5.7%. That was the smallest year-on-year advance since July 2023 and followed a 6.5% gain in April. A surge in mortgage rates in spring depressed sales, pushing existing homes inventory to the highest level in nearly four years in June. New single-family housing supply jumped to the highest level since February 2008.

7. The number of Americans filing new applications for unemployment benefits increased to an 11-month high last week, suggesting some softening in the labor market, though claims tend to be volatile around this time of the year. Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 249,000 for the week ended July 27, the highest level since August last year. Economists polled had forecast 236,000 claims for the latest week. The slowdown in the labor market is being driven by low hiring as the Federal Reserve's interest rate hikes in 2022 and 2023 dampen demand.

8. Crude oil futures fell 2% on Thursday, as anxiety about the economy overshadowed red-hot tensions in the Middle East. The manufacturing sector contracted in July for a fourth consecutive month and jobless claims surged last week, renewing fears that the U.S. economy could tip into a recession. West Texas Intermediate September contract: $76.31 per barrel, down $1.60, or 2.05%. Year to date, U.S. crude oil has gained 6.5%. Brent October contract: $79.52 per barrel, down $1.32, or 1.63%. Year to date, the global benchmark has gained 3.2%.

9. The selling bias in the Greenback gathers extra pace after the U.S. economy created fewer jobs than initially estimated in July. EUR/USD climbs to near the round-level resistance of 1.0900 in Friday's North American trading hours. The major currency pair rallies as the United States Nonfarm Payrolls (NFP) report for July showed signs of significant cracks in resilient labor market conditions.

10. USD/JPY extended its weekly slide and touched its weakest level since March near 147.00 on Friday. At the time of writing, USD/JPY was trading at 147.80, where it was down 1% on a daily basis. The broad-based selling pressure surrounding the dollar on dismal labor market data caused USD/JPY to push lower in the early American session. Reflecting the USD weakness, the Dollar Index was last seen losing 0.85% on the day at 103.46.

Stock shares across the world tumbled Friday - as investors panicked over signs of weakness in the U.S. economy. Japan's benchmark Nikkei 225 suffered its second largest points drop in history and was down a staggering 5.8 percent overnight. The economy added fewer jobs than expected in July while the unemployment rate unexpectedly rose to its highest level in nearly three years. Data from the Bureau of Labor Statistics released Friday showed the labor market added 114,000 nonfarm payroll jobs in July, fewer additions than the 175,000 expected by economists. Meanwhile, unemployment rose 4.3%, up from 4.1% in June. The unemployment rate is now at its highest level since October 2021. July's job additions came in lower than the 179,000 jobs added in June. The Dow Jones Industrial Average lost 917 points, and the Nasdaq composite fell 496 points. All three benchmark indices also had sunk the day before after a batch of weaker-than expected reports on the economy on Thursday. The sell-off is a blow to Americans retirement savings since 401(K)s are heavily invested in stocks.

A gauge of pending U.S. existing-home sales rose in June for the first time in three months, as buyers looking to relocate or upgrade their houses braved elevated prices and borrowing costs. The index of contract signings from the National Association of Realtors increased 4.8% to 74.3 in June, reflecting increases in all four major regions. The gain well exceeded the highest estimate in a survey of economists. The gauge is coming off a record low in data back to 2001 as the housing market tries to break out of a protracted slump. Mortgage rates have declined somewhat recently, encouraging more homeowners to list their properties which should eventually translate to greater sales activity. “The rise in housing inventory is beginning to lead to more contract signings,” and more supply should hit the market in the coming months, NAR Chief Economist Lawrence Yun said in a statement. “Multiple offers are less intense, and buyers are in a more favorable position.” That should help improve housing affordability, which is near the worst level in about 40 years, according to NAR’s index. Figures issued Tuesday by S&P CoreLogic Case-Shiller showed a gauge of national home prices rose 5.9% in May from a year ago to a fresh record.

Jerome Powell made it clear Wednesday that he is ready for the inevitable political blowback if the Federal Reserve does in fact cut rates at its September meeting, just seven weeks before election day. When asked at a press conference if the Fed could in fact remain apolitical in taking such an action, he said "I absolutely do." The collision of Fed monetary policy and a red-hot election season is now officially in play after Powell signaled the Fed could cut rates at its next meeting on Sept. 17-18 if inflation continues to cool. "We think the time is approaching," Powell said in response. When asked if there was a growing sense of confidence on the Fed's Federal Open Market Committee that a cut could be made in September, he added, "yes," if the data supported such an outcome.

Volatility should be expected to remain high as investors will be closely watching for hints on upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil. Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.

Trading Department – GCILBullion