Precious Metals Week in Review 09/10/2023

The Precious Metals Week in Review

09/10/2023

1. Oil rallied an average of 28% last quarter. Yet don't expect crude to stay at those elevated levels, say analysts at Citi. During Monday's session West Texas Intermediate pared earlier gains to trade just below $90 per barrel. Brent International futures hovered just above $91 per barrel. "We hold a bearish view on oil where we forecast Brent to average $82 in 4Q, and $74 for 2024," wrote Citi's global head of commodities research Ed Morse. Oil prices have been on an upward trend following OPEC+ production reductions and supply cuts by Saudi Arabia and Russia through year-end. Prices have also been supported by Russia limiting exports. This has driven "oil higher in a prolonged bull run, but 4Q’23 is set to move lower, with further 2024 downside," reads the note. "The Saudi appetite to withhold oil from market, supported by Russia maintaining a certain level of export constraint, points to higher prices in the short-term, all else equal, but $90 prices look unsustainable given faster supply growth," wrote Morse and his team. Citi forecasters say production is growing among non-OPEC+ members like the US, Brazil, Canada, and Guyana. Even Venezuelan and Iranian exports have grown. The recent rise in oil prices has fuelled speculation of $100 per barrel oil in the coming months, including Goldman Sachs, which recently raised its price target to reach that level within the next 12 months.
2. Just a day after surging to a historic 23-year high, 30-year mortgage rates plummeted almost three-tenths of a point last Friday to record their biggest one-day drop since early March. Rates on 30-year new purchase mortgages fell a dramatic 29 basis points, dropping the average to 7.81% after it had surged into 8% territory the day before. The drop was the largest single-day decline since March 10, and was also the largest decrease of the day across all loan types. Other dramatic movers were the FHA 30-year average, which subtracted 23 basis points, and the 20-year average, which gave up 27 points. Rates on 15-year loans also moved down Friday, but by a lesser 11 basis points to 7.22%. The previous average of 7.33% was the highest level for 15-year rates since 2001. Jumbo 30-year rates declined similarly Friday, dropping 12 basis points to 7.15%. Though daily jumbo averages are not available before 2009, it's estimated that the recent 7.27% peak was the most expensive level for jumbo 30-year loans in at least 20 years. The only new purchase averages to decline by single digits Friday were 5/6 ARM loans, which shed 8 basis points on average, and the 7/6 ARM average, which dipped just 4 points.
3. Hedge funds using computers to trade equities are expecting to start selling to the tune of $20 billion to $30 billion in the next two weeks given retreating stock markets, a UBS note shows. Hedge funds using algorithms to follow market trends have turned neutral from bullish on stocks. The bank anticipates as much as $30 billion of outflows will soon hit markets, potentially exacerbating the downward move in shares, as these hedge funds start selling stock to follow the recent negative performance. This will be the first time these hedge funds will be net short equity markets since November 2022, the bank said. U.S. stocks fell 3.6% in the July-September period, their first quarterly decline of 2023, as investors grappled with the prospects of interest rates remaining higher for longer and rising oil prices added to inflation worries.
4. Throwing the word "AI" around isn't what it used to be. The biggest names in tech drove the stock market's surge this year, pivoting from the cold afterglow of cost-cutting layoffs to riding high on the exuberance of AI. But the mega-cap stocks that led the way won't be what takes the S&P 500 higher on its next journey upward. It will be the other 493 companies with much lower valuations but higher potential to outperform, without the baggage of inflated valuations or the pain from the tumble after the AI run-up. Opportunities for value stocks, cyclicals, and beaten-down industries lie in the S&P's weighting. The market caps of the Magnificent Seven stocks, Apple, Microsoft, Amazon, Alphabet (Google), Nvidia, Tesla, Meta — account for 28% of the index, highlighting how top-heavy the index has become. The S&P 500 is essentially a high school basketball team right now with a few 6-footers and a lot of 5-foot-3 kids. The stocks that haven't had a growth spurt yet are in a good position to compete for Most Improved Player. As tech stocks slid, so did the index. The S&P in September suffered its worst performing month so far this year. But those losses could inspire smaller-cap stocks to flourish with gains spread in a healthier distribution across the market, instead of in a concentrated few. Still, even as analysts see smaller names eventually leading the charge on Wall Street, when that rotation will arrive is less clear. Unlike that basketball team, there are no guarantees of growth spurts and a stock can have more than one.
5. Federal Reserve Governor Michelle Bowman again said that multiple interest-rate hikes may be required to get inflation down to the central bank’s goal even after data for August showed some of the slowest price increases since 2020. “I continue to expect that further rate increases will likely be needed to return inflation to 2% in a timely way,” Bowman said in remarks to bankers in Banff, Canada. “I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months.” U.S. central bankers left the benchmark lending rate unchanged last month in a range of 5.25% to 5.5%, a 22-year high, while their latest quarterly forecasts showed one more increase this year. The core personal consumption expenditures price index, which strips out the volatile food and energy components, climbed 0.1% in August from a month earlier, according to the Bureau of Economic Analysis report. A key gauge of services costs watched closely by the Fed also posted the smallest monthly advance since 2020. Bowman said Sept. 22 that further rate hikes would be needed to return inflation to 2% “in a timely way.” Today’s remarks suggested that she is unpersuaded that the inflation readings for August represent a sustainable step-down in price increases.
6. Bowman also reiterated a call for an independent, third-party review of this year’s bank failures. She noted that while internal reviews, including one released last week by the Fed’s inspector general, have shed some light on what happened with Silicon Valley Bank and others, they have been limited in their scope. She warned that supervisory practices have already started changing, now taking on a more “heavy-handed approach” and relying more on regular filings, including so-called call reports, which detail a bank’s financial data, without direct interaction with the bank. While some changes to bank regulations were proposed earlier this year, nothing has been formally approved and the process generally takes months or years.
7. The trial of disgraced FTX founder Sam Bankman-Fried began on Tuesday, nearly one year after the collapse of his crypto exchange following an alleged fraud totalling $10 billion dollars. The 31-year-old former billionaire will face a jury in a Manhattan court on accusations that he embezzled from FTX customers to prop up his hedge fund Alameda Research, buy luxury properties and donate more than $100 million to U.S. political candidates. The trial is expected to last up to six weeks. The case has been likened to the trial of Theranos fraudster Elizabeth.

Holmes, who was jailed for 11 years for defrauding investors in her medical company out of $945 million. Bankman-Fried's is the highest profile case U.S. prosecutors have so far brought against a former cryptocurrency executive. The collapse of his cryptocurrency exchange helped accelerate a pullback in the value of many digital assets, burning investors that had piled into the industry during the pandemic.

8. The U.S. labour market is finally showing signs of a cooldown as private employers added just 89,000 jobs in September, new figures show. It marks the slowest pace of growth since January 2021 when lockdown was still hammering businesses and causing job losses. In the week ending September 30, the advance figure for seasonally adjusted initial claims was 207,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 204,000 to 205,000. The 4-week moving average was 208,750, a decrease of 2,500 from the previous week's revised average. The previous week's average was revised up by 250 from 211,000 to 211,250.
9. U.S. benchmark West Texas Intermediate (WTI) crude oil and international benchmark Brent crude oil are on edge as a sudden decline in prices puts traders and investors on alert. Prices have taken a nosedive, falling around 2% on Thursday. This comes on the heels of a near 6% drop in the earlier session, marking the most significant percentage loss in both Brent and WTI crude benchmarks since May. Brent futures settled at $84.07, a decline of 2.03%, while WTI came in at $82.31, down 2.3%. One of the leading culprits behind the steep fall is growing concern about fuel demand. With government data showing a sharp decline in U.S. gasoline consumption and JP Morgan analysts noting that we're at a 22-year seasonal low in U.S. gasoline usage, investors are growing increasingly wary.
10. EUR/USD turned south and declined toward 1.0500 in the early American on Friday. After the September jobs report showed an increase of 336,000 in Nonfarm Payrolls, compared to the market expectation of 170,000, the USD gathered strength and weighed on the pair.
11. The USD/JPY pair prints a fresh three-day high at 149.50 after the release of the better-than-anticipated United States Nonfarm Payrolls (NFP) report. The asset strengthens as resilient labour market conditions are expected to set a hawkish undertone for the Federal Reserve’s (Fed) monetary policy meeting in November.

Federal Reserve Vice Chair for Supervision Michael Barr on Monday said the U.S. central bank should proceed "carefully" on monetary policy, adding that his focus is less on how much higher interest rates should go but how long they should stay high. "In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals," Barr said in remarks. "I expect it will take some time." The Fed last month opted to leave its benchmark policy rate unchanged in the 5.25%-5.5% range, but most policymakers were pencilling in another interest rate hike before year's end and fewer rate cuts next year than they had earlier envisioned. Barr said his assessment of appropriate policy will take account of a range of incoming data, including "the cost and availability of credit to the economy." There's been a lot of progress on inflation, Barr said, noting that the consumer price index, which was rising at a 9% pace in June of last year, registered about a 3.75% increase in August, and inflation expectations are still anchored at the Fed's 2% target. His baseline expectation, he said, is for GDP growth to moderate to below its potential, which most Fed officials estimate at 1.8%, and for the labour market to soften further. "Given how far we have come, we are now at a point where we can proceed carefully as we determine the extent of monetary policy restriction that is needed," he said, echoing closely how Fed Chair Jerome Powell put it after September's policy setting meeting.

U.S. oil prices and energy stocks, including ExxonMobil along with Warren Buffett-backed Chevron and Occidental Petroleum, fell early Wednesday ahead of the Energy Information Administration's (EIA) weekly petroleum report. West Texas Intermediate (WTI) oil prices slipped 2.1% to $87.12 per barrel early Wednesday, after hitting $93 per barrel last week. U.S. crude inventories fell by about 4.2 million barrels last week, the American Petroleum Institute said Tuesday night, far exceeding forecasts for a 92,000-barrel draw. The EIA releases its report on petroleum crude inventories and gasoline Wednesday amid signs consumer demand is weakening. On Sept. 27, EIA data showed gasoline demand rose slightly from 8.41 to 8.62 million barrels per day. But that was below last year's demand of 8.83 million bpd during the same week in September 2022. The average price of gasoline at the pump was $3.78 per gallon Wednesday, according to AAA data. That's down less than 1% vs. last year. Retail gas prices are starting to cool after rising significantly in late summer.

The bond market’s selloff accelerated after a surge in U.S. hiring raised expectations that the Federal Reserve will need to raise interest rates again this year. The September employment data provided further evidence that the economy is remaining resilient despite the central bank’s aggressive monetary policy tightening, with employers creating twice as many jobs last month as economists predicted. The figures sent Treasury yields surging across maturities, pushing those on 30-year bonds up as much as 16 basis points to 5.05%, a 16-year high, before paring the increase. Futures traders also priced in odds of more than 50% that the central bank will increase its benchmark rate by a quarter percentage point at the December meeting after a likely pause when they gather next month. It’s “bad news for the markets and for the Fed,” Mohamed El-Erian, the chief economic adviser at Allianz SE said. “The Fed is not going to welcome this report. Over the long term this may end up being bad news for the economy as well,” he said. “Something is likely to break.”

Geopolitical, economic, and environmental uncertainty can be expected to continue in the near-term. Astute investors continue to seek out alternative investments for their portfolios to aid in diversifying them away from overexposure to any single asset class. Some are seeking out buying opportunities from temporary price dips to add more physical precious metals into their portfolios. Remember that one of the keys to profitability through the ownership of physical precious metals is to acquire the physical product and hold on to it for the long term without overextending your ability to maintain its ownership.

Trading Department – GCILBullion.

Friday to Friday Close (New York Closing Prices)

Sep. 29, 2023 Oct. 6, 2023 Net Change

Gold $ 1,849.92 $ 1,831.89 -18.03 -0.97%

Silver $ 22.19 $ 21.56 -0.63 -2.84%

Platinum $ 906.60 $ 881.71 -24.89 -2.75%

Palladium $ 1,250.42 $ 1,165.46 -84.96 -6.79%

Dow 33508.85 33401.42 -107.43 -0.32%

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

Gold                                                Silver

Support 1820/1793/1739                21.30/21.08/20.86

Resistance 1901/1954/1982           23.18/24.19/24.74

Platinum                                          Palladium

Support 872/851/830                      1151/1134/1109

Resistance 920/936/951                 1235/1278/1310

This is not a solicitation to purchase or sell.