Precious Metals Week in Review 18/12/2023
1. Stocks were little changed on Monday morning, signalling a muted start to a week packed with a crucial inflation update and the Federal Reserve's last policy decision of the year. The cautious mood comes as investors brace for two events that could set the tone for stocks going into 2024: November's reading on consumer inflation and the Fed's interest rate decision. Jobs data on Friday bolstered hopes the Fed could score a "soft landing" for a U.S. economy burdened with historically high borrowing costs. Now the focus is shifting to the Consumer Price Index data due Tuesday, which could put that optimism to the test. Signs of cooling in inflation have cemented expectations that the Fed will put a pause on rate hikes this week, while bets are growing for a rate cut before the summer.
2. Consumer prices met expectations in November as a drop in energy prices dragged down headline inflation, according to the latest data from the Bureau of Labour Statistics released Tuesday morning. The Consumer Price Index (CPI) the final reading released in 2023, showed prices ticked up slightly at 0.1% over last month and rose 3.1% over the prior year in November, a slight deceleration from October's 3.2% annual gain in prices. Economists had expected prices to come in flat month-over-month and rise 3.2% year-over-year, according to data. As expected, lower energy costs led the headline figures to a smaller gain with energy prices dropping 2.3% month-over-month, driven by lower gas prices, which dropped 6.0% during November. On a "core" basis, which strips out the more volatile costs of food and gas, prices in November climbed 4.0% over last year — matching the annual increase seen in October. Monthly core prices climbed 0.3%, slightly higher than October's 0.2% monthly rise. Economists had expected core prices to come in at those levels.
3. The gold market is holding support above $2,000 an ounce as producer inflation pressures cools slightly more than expected in November. Wednesday, the U.S. Labour Department said its Producer Price Index (PPI) was unchanged last month following October’s revised increase of 0.4%. According to consensus forecasts, the data was significantly in line with expectations. In the last 12 months producer inflation rose 0.9%. However. Core PPI, which strips out volatile food and energy costs, was also unchanged in November. The data was weaker than expected as economists forecasted a 0.2% increase. The gold market is not seeing much reaction to the leading inflation data as the market tries to recover from last week’s significant selling pressure.
4. Market watchers expecting the U.S. Federal Reserve to cut interest rates soon may be disappointed. Jim Grant, who's been editing ‘Grant's Interest Rate Observer’ expects Fed chair Jerome Powell to be cautious as inflation still is above the central bank's target level. "I think that chairman Powell is still mortified at the Fed's failure to identify the upsurge in inflation that began in 2020 and 21, and the last thing he wants to do is declare a preliminary and premature victory," Grant said on Tuesday. In 2021, the Fed described high inflation as "transitory," but price increases continued and hit a four-decade high of 9.1% in June 2022 before easing. "Inflation is not transitory," Grant said. "It is permanent in that you never regain the purchasing power you have lost to inflation." Grant did not say when he expects the Fed to start cutting rates but said the move would likely be gradual and "later than the market is hoping" as it holds out for inflation to fall to the region of its 2% target. UPDATE: The Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%, the highest in 22 years, but signalled they will likely cut interest rates by a total of 75 basis points, or 0.75%, in the year ahead.
5. It was exactly one year ago on Tuesday when authorities arrested FTX founder Sam Bankman-Fried, alleging the billionaire defrauded customers, investors, and lenders. His criminal trial became one of the biggest financial stories of 2023. The 31-year-old entrepreneur was a prime beneficiary of the crypto world's meteoric rise in 2021 and the face of its fall in 2022 as digital assets collapsed and FTX's $32 billion empire imploded. He then became the most prominent target of a widespread government crackdown on crypto's biggest players that will likely remake the industry for years to come. Several of his rivals, including Binance CEO Changpeng Zhao, were also hobbled by law enforcement dragnets this year. What the Justice Department ultimately alleged, and set out to prove at trial, was that the deficit existed because Bankman-Fried had deliberately stolen as much as $14 billion in FTX customer deposits. "He spent his customers' money, and he lied to them about it," prosecutor Nicolas Roos said during the trial. Bankman-Fried carried out this scheme, prosecutors said, with three of his top executives: Alameda CEO Caroline Ellison, FTX co-founder Gary Wang, and FTX engineering director Nishad Singh. The group allowed Alameda "secret" backdoor access to FTX’s customer deposits. Ellison, one of Bankman-Fried’s top deputies and his onetime romantic partner, testified that Bankman-Fried "directed" her to steal billions from customers of his cryptocurrency exchange and that she lied repeatedly at his request. He testified that poor business decisions and management screwups, and not fraud, were to blame for the undoing of his cryptocurrency exchange. It didn't sway the jury, which found him guilty on all seven criminal charges after just four hours of deliberation. He faces up to 110 years in prison, plus fines and restitution.
6. Home sellers have no choice but to slash asking prices to entice buyers who are deterred by high interest rates. Some 23 percent of homes on the market in November had had their price cut since first being listed, according to property site Zillow. Researchers said the number was 'abnormally high' for the time of year. The number of new home sales fell 15.9 percent between October and November, according to the report released this week. Sales were also 4.6 percent down in November last year. The findings come after it was revealed that the average monthly mortgage payments are now nearly double what they were when Biden took office. Higher interest rates are used to tame red-hot inflation in the hope they will curb consumer spending and bring prices back into check. But cooling inflation - which is currently hovering at an annual rate of 3.2 percent - has allowed the Fed to hold rates steady for two consecutive meetings since July. As a result, mortgages have also finally started to fall. The latest data from Government-backed lender Freddie Mac shows the average rate on a 30-year fixed-rate mortgage fell to 7.03 percent, its lowest level since early August. But homeowners who bought in the last few years still face paying around an extra $1,000 a month for a new home. At today's rate, a buyer purchasing a $400,000 home would face mortgage payments of $2,536 on a 30-year mortgage. This analysis assumes a five percent deposit. But just two years ago - when rates were 3.10 percent, the same buyer would have paid just $1,623 a month.
7. In the week ending December 9, the advance figure for seasonally adjusted initial claims was 202,000, a decrease of 19,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 220,000 to 221,000. The 4-week moving average was 213,250, a decrease of 7,750 from the previous week's revised average. The previous week's average was revised up by 250 from 220,750 to 221,000.
8. Crude oil prices began trading this week with a gain, extending Friday’s rally as news emerged that the U.S. federal government is buying up to 3 million barrels for the strategic petroleum reserve. So far, the government has bought 9 million barrels of crude in batches of three, the first steps in the refilling of the SPR after drawing over 180 million barrels last year to stabilize fuel prices. Crude oil prices have been falling for seven weeks in a row, even as OPEC+ announced added, deeper production cuts to the total tune of 2.2 million bpd, beginning from January, set to last to at least the end of March. The failure of this move to prop prices up came from a perception of oversupply from traders and expectations that oil demand growth in China is going to slow down next year. As of the time of writing, Brent crude is $76.96 per barrel with WTI at $71.78 per barrel.
9. EUR/USD came under pressure and declined toward 1.0900 on Friday. NY Fed President John Williams said that they were not talking about rate cuts and provided a boost to the USD. Nevertheless, the pair remains on track to post weekly gains. The U.S. Dollar (USD), measured by the DXY index, is trading at 102.40, posting daily gains but marking its worst weekly performance in over a month.
10. The Dollar remains vulnerable, with upside attempts capped below 142.50. Fed's dovish pivot is still weighing on the U.S. Dollar. Next week's BOJ monetary policy decision might provide some support to the pair. The Japanese Yen (JPY) reverses intraday losses and trades near the top end of its intraday range against the U.S. Dollar (USD) during the first half of the European session on Friday. Growing acceptance that the Bank of Japan (BOJ) may exit the negative rate policy early next year continues to act as a tailwind for the JPY. The USD, on the other hand, plunged to over a four-month low in the wake of the Federal Reserve's (Fed) dovish pivot earlier this week. This, in turn, prompts fresh selling around the USD/JPY pair, reaffirming the recent breakdown through a technically significant 200-day Simple Moving Average (SMA).
U.S. stocks gained on Thursday, as investors continued to celebrate a dovish shift by the Federal Reserve that helped propel the Dow to a new all-time closing high. That message surprised and thrilled investors, who welcomed the Fed's forecast of further cooling in inflation and no sharp rise in unemployment. Bonds rallied alongside stocks and precious metals, sending the yield on the 10-year Treasury down below 4% on Thursday, for the first time since August. Eyes are also on central bank decisions elsewhere on Thursday, for signs of a worldwide move to easing. The Bank of England kept its interest rates steady, as did the Swiss National Bank and the European Central Bank, though Norway's policymakers raised the benchmark rate in a surprise move.
U.S. consumer prices unexpectedly rose in November as a decline in the cost of gasoline was more than offset by increases in rents, further evidence that the Federal Reserve was unlikely to pivot to interest rate cuts early next year. The report from the Labour Department on Tuesday also showed prices for used cars and trucks rebounded last month after five straight monthly decreases, helping to boost underlying inflation. U.S. consumers also paid more for healthcare and motor vehicle insurance. The slightly firmer inflation readings followed data last Friday showing job gains accelerated in November and the unemployment rate fell to 3.7% from nearly a two-year high of 3.9% in October. Officials from the U.S. central bank began a two-day policy meeting on Tuesday. "Ongoing housing price pressures and their outsized influence on inflation overall tell a large part of the story of why calls for early and rapid Fed monetary policy easing should be viewed with significant scrutiny," said Kurt Rankin, senior economist at PNC Financial. "The Fed will not cut rates until inflation's drivers are well and truly tamed." The consumer price index (CPI) edged up 0.1% last month after being unchanged in October. Gasoline prices decreased 6.0% after dropping 5.0% in the previous month. But natural gas costs more as does electricity. Food prices rose 0.2% after gaining 0.3% in October. Grocery food prices ticked up 0.1% amid rises in the costs of cereals and bakery products as well as fruits and vegetables. Meat, fish, and eggs, however, cost less. In the 12 months through November, the CPI increased 3.1% after rising 3.2% in October.
Gold recently achieved a new nominal record close, its first in several years. This pivotal technical milestone is super-bullish, unleashing widespread interest in this leading alternative sector. Trader's love chasing upside momentum, and the financial media’s enthusiastic coverage of new records returns gold to their radars. The last time gold forged into record territory; this self-feeding-buying dynamic fuelled a monster up leg. Gold is expected to be the best-performing asset in the precious metals sector in 2024 as the world faces a potential recession, forcing investors to look for safe-haven assets, according to a European precious metals firm. Commodity analysts at Heraeus Precious Metals released their 2024 outlook, and they see gold trading in a range between $1,880 and $2,250 an ounce in the new year as a slowing economy forces the Federal Reserve to cut interest rates. The analysts noted that gold has held up relatively well as the Federal Reserve has aggressively raised interest rates, providing solid support for the U.S. dollar, and pushing bond yields to multi-year highs. "The fact that non-yielding bullion has performed this well despite what have historically been strong headwinds could provide a set-up for new all-time highs in 2024 as the case for the loosening of monetary policy builds," the analysts said in the report.
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.
Here are your Short-Term Support and Resistance Levels for the upcoming week.
Support 1953/1907/1812 22.97/22.50/21.95
Resistance 2094/2185/2235 24.92/26.87/27.86
Support 905/896/885 931/915/885
Resistance 950/985/1001 1095/1210/1250
This is not a solicitation to purchase or sell