Precious Metals Week in Review 15/07/2024

1. Gold and silver prices are lower in early U.S. trading Monday, on some routine profit-taking from the shorter-term futures traders after recent good price advances. Markets’ prices don’t go straight up or straight down, and the bulls can argue these mild corrections are healthy for future price uptrends to develop. Technically, August gold bulls have the firm overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at the June high of $2,406.70. September silver futures bulls have the firm overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the May high of $33.05. Based on historical trends and regular seasonal performance, precious metals may be significantly underpriced going into the second half of the year. Seasonal trends alone don’t form the foundation of any trade or view, but it’s usually a useful supplement to existing ideas. Gold & Silver performances in 1H’24 directionally adhered to historical seasonal price performance norms; they rallied when they were meant to rally with gold putting in average monthly gains 1H’24 of +2% and silver of +3.6%/month. The notable seasonal out-performance was due to 1) Central Banks and Asia base building (Gold) and 2) fears of inflation/war/geopolitical/dedollarization risks trumping a HFL Fed hikes & a stronger U.S. dollar (Gold, Silver). 
2. Despite the sleepy summertime doldrums, the economic data calendar continues to heat up. Following last Friday's monthly job numbers, investors will feast on the latest Consumer Price Index inflation print this Thursday, teed up by testimony from Fed Chair Jerome Powell, who delivers his semiannual testimony to the Senate on Tuesday and to the House on Wednesday. The "data-dependent" Powell will do his best not to surprise investors when assessing the Fed's twin mandates of maximum employment and stable prices. Investors can reasonably expect the Fed to stand pat at its July meeting in three weeks. But the odds of a September rate cut have been increasing, now standing at 72% — up from a 47% chance a month ago. But the unemployment rate is getting tantalizingly close to triggering a well-respected recession indicator called the Sahm Rule. Briefly stated, the Sahm Rule warns the U.S. economy is in the beginning stages of recession if the unemployment rate's three-month average has risen half a percentage point or more from the average's low over the prior twelve months. It's designed to detect an acceleration of job losses, and it successfully predicted the prior nine recessions going back to 1970. As of June, the reading is now 0.43 ppts. By the September meeting, there will be two more employment releases (for July and August). If either one of those prints is 4.2% or higher for the unemployment rate, the half-a-percent threshold for the Sahm Rule will have been met, according to calculations. 
3. Group of Seven sanctions aimed at depriving the Kremlin of petrodollars are failing in one of their key goals: driving up the cost of delivering Russian oil. The price of delivering the nation’s flagship Urals crude to customers in Asia from Russia has tumbled to the lowest since October. The slump allows Russian firms to grab a bigger slice of the revenue from every barrel of oil that they sell to customers in China and India, now by far the nation’s biggest markets since Europeans stopped buying to pressure Moscow over the war in Ukraine. The weakness may disappoint western policymakers given that dozens of tankers previously engaged in the Russian oil trade have ground to a halt in the wake of sanctions imposed on the vessels by Group of Seven nations and their allies since October. It now costs $7.2 million to deliver a million-barrel Russian Urals oil cargo to north China, down by $3.2 million since early April. Russian oil at the price of export, and by the time it reaches customers in China and India, is now well above a Group of Seven price cap of $60 a barrel. It’s at about $75 a barrel in the Baltic and Black Sea, and then about $10 more by the time it gets to China and India.  
4. Saudi Arabia reportedly let the 50-year petro-dollar agreement expire on June 9th, opting to sell oil in multiple currencies instead of exclusively using the U.S. dollar. Although there has been no official confirmation from Saudi Arabia that it’s moving away from the so-called Petrodollar, this marks a significant change in global economic dynamics and could have far-reaching implications for the dollar’s dominance in international trade. There are way more dollars outside the U.S. than inside because of stockpiling of the greenback to buy oil for 50 years. As those dollars come home and are sold back to the issuer, because no one wants to hold them anymore as they are no longer a necessity to buy oil - inflation rates would go higher and higher. As those currency units are added to the currency base, it would raise interest rates. The foundation of the petrodollar system lies in a 1974 agreement between Saudi Arabia and the United States. Under this deal, Saudi Arabia agreed to recycle its petrodollars into U.S. Treasuries in exchange for a security guarantee from the U.S., creating a strategic alliance that has significantly influenced global politics for decades. By 1975, all OPEC members had agreed to price oil in dollars and invest in U.S. government debt. If the dollar is no longer the primary payment option for oil, a potential spike in interest rates could be one of the consequences, with the situation getting quite chaotic for the U.S. 
5. With home prices historically high, inventory still tight and big commission changes coming in the second half of the year, many prospective sellers and hopeful buyers are feeling nervous about today’s housing market. The median sale price for an existing home in the U.S. hit a record-high $419,300 in May 2024, according to the National Association of Realtors. And after rising above 8 percent in October 2023, the average 30-year mortgage rate as of early July 2024 was 7.09 percent, a welcome decrease but still much higher than most homeowners locked-in rates. While home prices rose or held firm in 2023, the volume of home sales softened considerably. That has continued so far in 2024: Existing-home sales in May were down both month-over-month and year-over-year. However, these trends may pivot if mortgage rates continue to dip. “Housing demand has been steady but slightly below one year ago due to historically low housing affordability conditions,” says NAR chief economist Lawrence Yun. The continued combination of high mortgage rates, steep home prices and low inventory levels appear poised to ensure that the rest of 2024 is a challenging market for both buyers and sellers.  
6. The number of Americans filing new applications for unemployment benefits dropped more than expected last week, but volatility around this time of the year as automobile manufacturers idle plants for retooling makes it harder to get a clean read on the labour market. Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 222,000 for the week ended July 6, the lowest level since late May. Economists polled had forecast 236,000 claims in the latest week. 
7. U.S. crude oil held firm on Friday as a combination of falling inventories and consumer prices raised hopes that demand may pick up. The recent oil rally has stalled out with West Texas Intermediate largely flat this week, down 0.48%, after booking four straight weeks of gains. But U.S. crude oil has found some momentum as the week ends, rising for a third day after June consumer inflation eased to around its lowest level in more than three years. West Texas Intermediate August contract: $82.82 per barrel, up 20 cents, or 0.24%. Year to date, U.S. oil has gained 15.5%. Brent September contract: $82.80 per barrel, up 6 cents, or 0.07%. Year to date, the global benchmark is ahead 10.93%. 
8. EUR/USD extends its weekly rally and trades above 1.0900 in the American session on Friday. Following a modest recovery attempt seen after strong producer inflation data from the US, the USD stays under bearish pressure as risk flows dominate the markets. 
9. The Japanese Yen edges lower as the U.S. Dollar improves due to higher Treasury yields. Japanese Chief Cabinet Secretary Yoshimasa Hayashi has expressed readiness to utilize all available measures concerning forex matters. Fed’s Goolsbee stated that the U.S. economy appears to be on track to achieve 2% inflation.  

Gold and silver prices are solidly higher in early U.S. trading Thursday, with gold hitting a six-week high and back above $2,400.00, in the wake of another tame inflation report that suggests the Federal Reserve will cut interest rates sooner rather than later. August gold was last up $28.00 at $2,408.10. September silver was up $0.626 at $31.665. The just-released and highly anticipated June consumer price index saw a rise of 3.0%, year-on-year. The June CPI was seen coming in at up 3.1% and compared to the May report reading of up 3.3%. The “core” CPI (excluding food and energy) was up 3.3% annually and compares to forecasts for up 3.4% and compares to up 3.4% seen in the May report. Technically, August gold bulls have the firm overall near-term technical advantage. Bulls’ next upside price aim is to produce a close above solid resistance at the May contract high of $2,477.00. September silver futures bulls have the firm overall near-term technical advantage. Silver bulls' next upside price aim is closing prices above solid technical resistance at the May high of $33.05.  

The gold-silver ratio indicates how many ounces of silver it takes to buy one ounce of gold given the spot price of both metals. In other words, it tells you the price of gold in ounces of silver. The current gold-silver ratio is hovering just about 76-1. That means it takes 76 ounces of silver to buy one ounce of gold. The ratio remains historically high, meaning that silver is underpriced compared to gold, but there are some signs the trend is in the initial stages of reversing. In the modern era, the gold-silver ratio has averaged between 40-1 and 60-1. When the gold-silver ratio gets far above the high end of that historical average, it tends to return to the mean with a vengeance. Three months ago, the gold-silver ratio climbed as high as 87-1. Two months ago, the ratio fell to around 73-1, below the 13-year support level. It briefly rallied, climbing back to 80-1, but it did not regain 13-year support before dipping over the last five days to the current level. Given that the scenario still looks bullish for gold with the likelihood of a rate hike this fall increasing, silver could be set up for a significant bull run.  

After Thursday’s soft CPI, this morning’s PPI seems somewhat 'less than' but in fact it is key to the ongoing disinflationary trend. After May's month over month (MoM) deflationary impulse (thanks to a plunge in energy costs), June was expected to see a modest 0.1% rise. Sure enough, headline PPI printed HOT at +0.2% MoM (and May was revised higher), pushing the year over year (YoY) print up to 2.6%- well above the 2.3% that was expected. Core PPI rose by 0.4% MoM (double the 0.2% exp), sending the YoY price rise by 3.0%, also the hottest since March 2023.  

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 – Trading Department GCIL

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

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