Precious Metals Week in Review 18/09/2023
The Precious Metals Week in Review
- It’s mentioned often how central banks are one of the pillars of support when it comes to gold prices. Lately, though, it seems that they’ve taken on an even more prominent role in the market. JP Morgan’s analysis recently said that global gold investment has reached the highest level since 2012. They downplayed the role of central banks, noting that individual investors and traders have become increasingly active in the gold market. And it’s hard to argue that gold, increasingly, is becoming a mainstream rather than an “alternative” asset. But it seems we can’t check the headlines anymore without seeing a report of central bank gold buying. It wasn’t that long ago that it would have been strange to find an active central banker talking about gold. Yet today, we find central banks aren’t just hoarding gold themselves, they’re actively encouraging gold ownership among their citizens.
- More interest rate hikes are still on the table for the Federal Reserve. But that's not priced into the stock market, according to Oppenheimer's Chief Investment Strategist John Stoltzfus. "We persist in suggesting that investors curb their enthusiasm for a long rate pause or even a rate cut and instead right size expectations," Stoltzfus wrote in a note on Monday. Stoltzfus made no mention of moving down his year-end target for the S&P 500 of 4,900 but notes inflation is still too far off the Fed's 2% goal. Expectations are for the latest Consumer Prices Index reading on Wednesday morning to show prices rose 3.6% over the prior year in August, an increase from the 3.2% rise seen in July. On a "core" basis, which strips out the volatile food and energy categories, CPI (Consumer Price Index) is expected to rise 4.3% over last year in August, a slowdown from the 4.7% increase seen in July. In our view even as the Fed appears to be nearing an end to the current rate hike cycle the stickiness evidenced in food, services, energy and other prices warrants the Fed still being vigilant along with a potential for one more hike this year and perhaps another next year. As of Monday morning, markets had priced in a 93% chance the Fed would hold interest rates steady at the conclusion of its September 19-20 meeting, according to data from the CME Group.
- After staving off recession for longer than many thought possible, the U.S. consumer is finally about to crack, according to the latest survey. More than half of 526 respondents said that personal consumption, the most important driver of economic growth, will shrink in early 2024. And that would be the first quarterly decline since the onset of the pandemic. Another 21% said the reversal will happen even sooner, in the last quarter of this year, as high borrowing costs eat into household budgets while Covid-era savings run down. The finding is at odds with the optimism that’s permeated U.S. equity markets for most of the summer, as cooling inflation and low unemployment bolstered hopes for a so-called soft landing. Should the economy stop growing, a scenario that’s quite likely if consumer spending contracts, it could mean more downside for stocks, which have already slipped from late-July highs. “The likelihood of a soft landing, falling inflation, an end to Fed tightening, a peak in interest rates, a stable dollar, stable oil prices — all those things helped drive the market up,” says Alec Young, chief investment strategist at
MAPsignals. “If the market loses confidence in that scenario, then stocks are vulnerable.” Right now, the U.S. economy appears to be speeding up rather than stalling. Growth is forecast to accelerate in the third quarter on the back of a recent pickup in household spending, which jumped in July by the most in six months. To some analysts, it looks a bit like a last hurrah. The enduring strength of the job market has propped up household spending in the face of the biggest price increases in decades. It’s led some analysts to push out their expectations for a recession, or even scrap them altogether. Economists at Goldman Sachs Group Inc. expect the consumer to outperform yet again in 2024, and keep the economy growing, amid steady job growth and pay hikes that beat inflation.
- The deteriorating relationship between the world’s two most populous countries is threatening to set back the BRICS currency project and undermine the bloc’s de-dollarization goals. As Indian Prime Minister Narendra Modi prepares to host world leaders at the G20 summit in New Delhi this weekend, relations with China, which have been tense for some time, appear to have deteriorated further. Earlier this week, China announced that President Xi Jinping would not be attending the G20 and would instead send Premier Li Qiang in his place. This is the first G20 that Xi has skipped since he came to power in 2013, and no explanation for his absence was given. Russia will now assume the chair of BRICS in the new year, and no country on Earth is more motivated to accelerate the ongoing process of de-dollarization and to follow through on the creation of a new financial infrastructure for international trade and settlement, including a new commodity-backed currency to supplant the U.S. dollar. But a gold-backed BRICS currency will never take off without the full support of the world’s second- and fifth-largest economies. While China’s $18.3 billion-dollar economy trails only the United States and is double those of the other BRICS nations combined, India’s $3.5 billion is still much larger than Russia’s $2.1 billion. And while Russia’s economy is in decline after 18 months of sanctions over the Ukraine war, and China’s economy continues to slow, India’s is projected to grow by 6.1 percent this year. Speculation that China and Russia may be setting aside some of their massive gold production to back the new BRICS currency may prove to be true. China and India now account for nearly 50% of the total demand for gold, and both are likely to continue as major players on the precious metals buying side as well. But security nearly always trumps economy, and alliances, borders, technology, trade, and demographics are increasingly pushing India and China apart.
- One of the most consequential antitrust trials in decades begins Tuesday as federal and state prosecutors try to prove that Google illegally stifled competition in the world of online search. A lot is on the line for both sides. The lawsuit against Google is a supreme test for the U.S. government, which is trying to use a 133-year-old law to rein in several of the country’s most dominant tech giants. That drama will unfold over the next nine weeks before a federal district Judge and he will decide whether Google broke the law and what any consequences might be for the company. The case closely resembles the government's attempts to rein in Microsoft during the late 1990s, when the U.S. alleged that the tech giant boxed out rivals by making its browser the default on its dominant Windows operating system. It resulted in a settlement that opened the door to broader competition in the internet browser software market. The government now argues Google broke the law as it became the dominant way most people searched for information on the web, abusing its power through contracts that secured its search engine as the default on computers and mobile devices. One keyway it did this, the government alleges, was by paying various companies to make Google the default choice on their devices, including Apple’s iPhones and computers. That made it more challenging for consumers to find other search engines. In exchange for the placement, according to government prosecutors, Google pays Apple through an ad revenue-sharing agreement that nets Apple $8 billion-$12 billion. That revenue accounted for 15% to 20% of Apple’s worldwide net income the year prior to the Justice Department's suit.
- In the week ending September 9, the advance figure for seasonally adjusted initial claims was 220,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 216,000 to 217,000. The 4-week moving average was 224,500, a decrease of 5,000 from the previous week's revised average. The previous week's average was revised up by 250 from 229,250 to 229,500.
- Oil prices climbed to their highest level of the year this week, extending a rally that has put a return to $100 a barrel sharply into focus. The rally comes as OPEC data shows the industry faces a supply shortfall of 3 million barrels per day next quarter. "The math is simple, declining supply and rising demand equal higher prices," Adam Turnquist, chief technical strategist for LPL Financial, recently wrote in a note to investors. Indeed, some analysts believe crude prices could hit this milestone before year-end. International benchmark Brent crude futures traded 0.3% lower at $93.46 a barrel on Friday afternoon in London, while U.S. West Texas Intermediate futures stood little changed at $90.09. Both Brent and WTI settled at their highest respective levels of the year on Thursday. The oil contracts are sharply higher month to date and remain firmly on track to notch their third consecutive positive week.
- EUR/USD reached fresh daily highs above 1.0660 after the release of a worse-than-expected US consumer confidence report. The US Dollar Index is correcting to the downside, while the Euro is recovering, after tumbling yesterday on the back of the ECB (European Central Bank) dovish rate hike.
- USD/JPY holds ground near 147.50, gaining 0.02% on the day. The upbeat US data on Thursday indicated that the U.S. economy remains resilient, and inflation rebounded in August. BOJ (Bank of Japan) said a pivot would not be considered if wage and inflation data do not reach its forecast.
Inflation in the U.S. has accelerated for a second consecutive month to a 3.7 percent annual rate - up from 3.2 percent in August. Prices rose 0.6 percent month-on-month to August, driven mainly by a jump in gas prices, which accounted for over half of the increase. The average price of a gallon of regular gasoline was $3.84 in August compared with $3.60 in July, according to OPIS, an energy-data and analytics provider. Shelter costs also contributed to the rise, which went up for the 40th consecutive month. The consumer price index report comes a week before the Federal Reserve's two-day policy meeting. But despite the acceleration in inflation, the Central Bank is expected to hold interest rates steady while deciding whether a further rate hike later in the year will be needed to combat inflation. Core inflation, which strips out volatile prices including food and energy and is considered a better gauge of long-term trends, stayed mostly mild.
Higher interest rates are intended to curb inflation and stabilize the economy. But this monetary tightening has come with unintended consequences, particularly for the backbone of the U.S. economy: small businesses. According to "Shark Tank" star Kevin O'Leary, small businesses are having a hard time getting financing. "The regional banks don't know yet what their capital.
requirements are going to be. So, their loan books have closed like a turtle in a shell," O'Leary said in a recent interview. "And what's it doing to small business? Killing them right now." O'Leary pointed out that for businesses generating under $500 million in sales, accessing the banking market can be challenging these days. "You're going to the shadow market now primarily for things like factoring receivables. If you're a company that's selling to a big-box retailer, you can get factored at about 17% to 18%. That means you can turn your receivable into cash and buy more inventory." O'Leary added that there are nonregional bank lenders in the market, such as hedge funds, family offices and private entities. But this could have grave consequences. "What I anticipate is going to happen here, while we still have full employment, which is remarkable — and you don't put any capital into the small business sector, which is 60% of the jobs in America, you're going to start to see some real chaos come September, October, November," he said. Monetary policy is in the hands of the Federal Reserve. But according to O'Leary, the issue extends beyond the central bank. "This is an issue for Congress. It's quite simple," he said. "They gave all their money to S&P 500 in two acts, the Chips and Science Act and the other, Inflation Reduction Act. Not a dime for small business. A trillion for the big boys, nothing for the small guys. And the small guys run America, so it must be rebalanced somewhere. I was on the Hill yesterday. I was banging the drum up and down the halls saying, ‘Everybody, let's wake up to what's happening to my small companies.' I got 34-plus companies. They can't raise a dime. There's no Bidenomics for them. They have no capital."
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.
Here are your Short-Term Support and Resistance Levels for the upcoming week.
Support 1891/1868/1852 23.12/22.03/21.47
Resistance 1947/1970/1995 24.85/25.48/26.55
Support 934/924/915 1209/1193/1172
Resistance 972/1015/1045 1245/1265/1281
This is not a solicitation to purchase or sell.
Trading Department: GCILBullion