Precious Metals Week in Review

 02/01/2024

1. Against the backdrop of high inflation rates and geopolitical uncertainty, states are increasingly enacting measures that encourage saving in precious metals and even using gold and silver as money. With five bills signed into law in 2023, sound money reforms are gaining momentum across the United States. Twenty-five states considered 50 pieces of legislation this year aimed at ending taxes on the monetary metals, strengthening state finances by investing reserve funds in physical gold, establishing in-state depositories, and more. Many states have now dropped taxes on the purchase of precious metals. In 2023, Mississippi became the 43rd state to do so, following the recent examples set by Ohio and Arkansas in 2021 and Tennessee in 2022. That leaves just seven sales tax states: New Mexico, Hawaii, Wisconsin, Kentucky, Maine, New Jersey, and Vermont. Of these seven states, five considered legislation in 2023 to end the tax. New Jersey hopes to become the 44th sales-tax-exempt state. Assembly Bill 5294 passed unanimously through the State Assembly by a vote of 74-0, and a Senate committee unanimously passed the bill this week. And finally, Governor Ron DeSantis signed H 737 to exclude precious metals dealers in Florida from onerous regulations, including mandates for long holding periods on acquired inventory and requirements to make burdensome, privacy-destroying government filings. The progress achieved in 2023 gives us reasons to be optimistic. With each legislative victory, we move one step closer toward the goal of potentially restoring sound money in America. 

2. Stocks rose on Tuesday morning, riding the momentum of a year-end rally in which hopes of a soft landing are strengthening and more optimistic reads on 2024 are taking hold. The surge in stocks arrives as Wall Street expects the Fed to soon end its tightening campaign, in a striking signal that the central bank's battle against inflation has taken a decisive and positive turn. The year began with widespread worries of pricing pressures and the potentially destructive consequences of the Fed raising interest rates. But as the final days of the year have arrived, the narrative has shifted to talk of the Fed cutting rates, surprise at how much inflation has cooled, and the resilience of the job market. Many market watchers thought job growth would have been pummeled as a result of the central bank trying to tamp down the economy. But unemployment remains below 4%. 2024 will bring its own challenges. The recession that many thought was coming this year could still muscle its way in. Fed Chair Jerome Powell has emphasized that the timing of rate cutting isn't set in stone, and if the economy comes roaring back, inviting yet another climb in inflation, more rate hikes or a delay in cuts could be the next phase of the Fed's policy action. 

3. Home prices in the U.S. rose for a ninth straight month, reaching a fresh record as buyers battled for a stubbornly tight supply of listings. A national gauge of prices rose 0.6% in October from September, according to seasonally adjusted data from S&P CoreLogic Case-Shiller. A seasonally adjusted measure of prices in 20 of the largest cities also rose 0.6%. “U.S. home prices accelerated at their fastest annual rate of the year in October,” Brian Luke, head of commodities, at S&P Dow Jones Indices, said in a statement. “We are experiencing broad-based home-price appreciation across the country, with steady gains seen in 19 of 20 cities.” The index measures a period when 30-year mortgage rates were climbing toward 8%, shutting out increasing numbers of would-be homebuyers. Many are current owners who are postponing moves while clinging to the cheap loans they landed when borrowing costs were at historic lows. Their reluctance to sell has left the market starved for listings, keeping prices high for people determined to seal a deal for one of the few available choices. On a year-over-year basis, price gains accelerated, climbing 4.8% in October, compared with a 4% annual increase in September. Detroit had the biggest increase, at 8.1%, followed by San Diego with 7.2% and New York with 7.1%. Portland, Oregon, was the only one of the 20 cities where prices fell year over year. Pressures may ease a bit in the coming months. Mortgage rates now have dropped below 7% and many economists expect them to slide further as the Federal Reserve winds down its inflation-fighting efforts. Lower rates would give house hunters a boost in purchasing power, and may encourage more owners to list their properties, potentially leading to a softening in prices. 

4. When it comes to rare-earth elements (REEs), lithium stands out because of its usefulness and potential value. That's why the Department of Energy (DOE) was jumping for joy when it discovered what is believed to be the world's largest supply of lithium beneath California's Salton Sea. The estimated 18-million-ton motherlode could be worth up to $540 billion and meet America's demand for decades to come. Lithium is a key component of the rechargeable batteries that power things like electric cars. Production of other important consumer products like cellular phones and solar energy panels also requires large amounts of lithium. A global rival such as China controlling the world's supply of lithium runs counter to America's strategic and economic interests. That's why the DOE has been funding the exploration of lithium sources inside the United States. The estimated 18 million tons of lithium would put America firmly in the lead in terms of supplying the global market. It could turbocharge EV and solar production and has the potential to give the United States an unprecedented level of energy independence.

 5. Sales growth for electric vehicles has begun to slow in the U.S., in a trend that is troubling carmakers that bet big on the emerging technology. Last month, EV sales were up 42 percent from one year ago, but that growth rate marked a decline from the 76 percent annual sales growth seen in April 2022. Further, fewer EVs will likely qualify for the tax credits in 2024 because of rules that will limit buyers from claiming a full credit if they purchase cars with battery materials from China or other countries that are considered hostile to the United States. But so far in 2023, Americans have bought a record 1 million-plus hybrids - up 76 percent from the same period last year, according to Edmunds. As recently as last year, hybrid purchases were below 2021 levels. True EVs still account for only about 7 percent of all U.S. auto sales, and their popularity varies widely from state to state, with coastal states far outstripping the Midwest and Plains for market share. Weather may also play a role: in colder climates, EV battery range tends to diminish noticeably, a downside that savvy car buyers consider. The national slowing of EV sales growth has raised concern among automakers that buyer interest is faltering. Some companies are cutting production and scaling down plans for new battery or assembly plants. In October, Ford said it would postpone about $12 billion in EV investments, including delaying its second battery plant in Kentucky. 

6. Oil markets could see more big shifts into 2024 as supply concerns run on in the industry, experts have warned. Crude prices have seen a wild year so far, with Brent crude, the international benchmark, having fallen around 35% from its highs last summer. That's largely because U.S. oil production has continued to boom, notching a new record in September. Markets, though, could see some big shifts coming next year, particularly as Middle Eastern producers try to claw back more of their market share. The cartel has vowed to slash its crude production by 2.2 million barrels a day in the first quarter of next year. And top members have said those cuts could be extended deeper into next year. OPEC+ has already slashed its production multiple times over the past year in a bid to prop up oil prices. But markets have shrugged off the supply cuts, in a possible sign that OPEC's control over the oil market could be fading. Domestic production will average 13.3 million barrels a day next year, according to Rapidan Energy. That's up from this year's average of around 13 million barrels a day. Major energy giants, like Exxon Mobil and Chevron, have already ramped up their capital expenditure budgets with the intention of stepping up their production next year. However, Saudi Arabia could end up flushing the oil market with supply in a bid to send oil prices crashing. That swing could force U.S. producers to pull back and surrender some market share. But some strategists say that scenario is unlikely. 

7. More Americans applied for unemployment benefits last week, but not enough to raise concern about the labour market or broader economy. Jobless claims rose to 218,000 for the week ending Dec. 23, an increase of 12,000 from the previous week, the Labour Department reported Thursday. The four-week average of claims, which smooths out week-to-week ups and downs, fell by 250 to 212,000. Overall, 1.88 million Americans were collecting jobless benefits during the week that ended Dec. 16, an increase of 14,000 from the previous week. Weekly unemployment claims are a proxy for layoffs. They have remained at extraordinarily low levels in the face of high interest rates. 

8. On Friday, oil climbed after falling 3% the previous day as more shipping firms prepared to transit the Red Sea route. Major firms had stopped using Red Sea routes after Yemen's Houthi militant group began targeting vessels. Brent crude futures were up 72 cents, or 0.9%, at $77.87 a barrel at 1420 GMT, the last trading day of 2023, while U.S. West Texas Intermediate (WTI) crude futures were up 76 cents, or 1.1%, at $72.53. Yet the two benchmarks are on track for their lowest year-end levels since 2020, when the pandemic battered demand and sent prices nose-diving. 

9. EUR/USD did rally this week, but it really didn’t leave a lasting impression. In fact, we are forming something close to a shooting star, and even though we are above the 200-week EMA, this doesn’t necessarily look overly bullish anymore. It’s not to say that it can’t go to the 1.1250 level. But the question then becomes what happens once we approach it. The 61.8% Fibonacci retracement level is there. And it’s an area of previous resistance as well as support. 

10. USD/JPY continues to experience declines, driven by the weakening U.S. Dollar influenced by subdued bond yields. This trend is likely attributed to the dovish outlook of the Federal Reserve in the first quarter of 2024. As of the early European session on Friday, the USD/JPY trades lower around 141.20. The immediate resistance is noted at the 141.50 level, with the next barrier at the 142.00 level. 

The U.S. economy will slip into recession next year – and that'll lead to the Federal Reserve bringing in steep interest-rate cuts, according to one top European bank. UBS said back in November that it's expecting the Fed to respond to falling inflation and an economic slump by slashing rates by an eye-popping 275 basis points, nearly four times the 75-basis-point reduction the market is currently expecting, per the CME Group's Fedwatch tool. "One of the key features of UBS's forecast is the very pronounced Fed easing cycle seen unfolding from March 2024 onwards," a team led by economist Arend Kapteyn and strategist Bhanu Baweja said in a research note published mid-November, adding that they expect rates to plunge to just 1.25% in the first half of 2025. The Fed's cuts would be "a response to the forecasted U.S. recession in Q2-Q3 2024 and the ongoing slowdown in both headline and core inflation," UBS added. That tightening campaign would be expected to weigh on the economy, but the U.S. has avoided a recession so far. The country's gross domestic product expanded 4.9% in the third quarter, for its highest growth rate in two years. Meanwhile, the jobs market has also held up in the face of the Fed's interest-rate hikes, with the unemployment rate creeping up in recent months but still hovering below 4%. The recession prediction laid out by Kapteyn and Baweja appears to clash with a separate outlook shared by UBS's head of asset allocation for the Americas. 

Oil headed for the biggest annual drop since 2020 as war and OPEC+ production cuts failed to propel prices higher in a year dominated by supply growth outside of the grouping. Oil ended lower on Thursday after official data showed that stockpiles at the key Cushing, Oklahoma, storage hub expanded for the 11th week to hit the highest since August. U.S. crude production has been running at a record clip. Crude is capping a tumultuous year, with prices aided by the outbreak of the Israel-Hamas war, as well as speculation that the Federal Reserve is done with hiking interest rates as inflation wanes. Still, despite repeated cuts to supplies from the Organization of Petroleum Exporting Countries and its allies, rising production from nations outside the cartel, coupled with concerns about slowing demand growth, have combined to drive crude futures lower. 

Catalyx, a Canadian cryptocurrency exchange that was founded in 2018, has halted all services following the detection of a security breach by the platform’s owner/operator, Calgary-based CataX CTS Ltd. According to a press release, the management of the company “discovered a security breach on the platform in connection with the holding of crypto assets on behalf of clients,” and “suspects that this security breach, which may involve an employee, has resulted in the loss of a portion of the crypto assets held by Catalyx on behalf of its clients.” On Dec. 21, the exchange and its co-founder Jae Ho Lee were issued a cease trade order from the Alberta Securities Commission, and the regulator also announced the launch of an investigation into the matter. “Due to the Loss, all crypto and fiat currency withdrawals from the Platform and all trading activities on the Platform have been temporarily suspended,” the release said. “The Company will provide an update to its customers upon the conclusion of Deloitte LLP's investigation.” On Thursday, India’s Financial Intelligence Unit announced that it has issued compliance notices to nine foreign virtual digital asset service providers for allegedly operating illegally and violating Anti-Money Laundering regulations. The list of crypto exchanges includes Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex. 

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 GCILBullion.

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

                           Gold                                               Silver

Support               2022/1992/1967                          23.68/23.19/22.72

Resistance          2077/2101/2131                         24.63/25.09/25.58

                            Platinum                                         Palladium

Support               960/950/937                                1101/1075/1050

Resistance         1005/1030/1055                           1234/1266/1285

This is not a solicitation to purchase or sell.