Precious Metals Week in Review
The Precious Metals Week in Review
January 8th, 2024
1. Happy New Year! The first week of trading in 2024 will instantly put the recent stock market rally to the test with a crucial December jobs report slated for release on Friday morning. The economic calendar will also feature meeting notes from the Federal Reserve, the latest update on job openings and fresh data on activity in the manufacturing and services sectors. Increased bets that the U.S. economy could achieve the vaunted "soft landing," where inflation retreats to the Fed's 2% goal without a recession drove the stock market rally to end 2023. A key piece of that narrative has been that the labour market has held up more than many expected. Notable parts of that storyline include an unemployment rate hovering near the same levels as when the Fed began its rate hiking cycle, the ratio of unemployed workers to job openings hitting its lowest level in more than two years, and minimal upticks in layoffs as tracked by weekly jobless claims. To some economists, all of this shows a labour market that's cooling enough that cash-flush consumers won't send inflation higher but isn't so weak that a recession may be inbound. Projections for the December jobs report reflect a similar narrative. The report is expected to show 168,000 nonfarm payroll jobs were added to the U.S. economy last month while the unemployment rate ticked higher to 3.8%, according to data. In November, the economy added 199,000 jobs while the unemployment rate unexpectedly declined to 3.7%.
2. Gold and silver prices were slightly higher in early U.S. trading Tuesday. Some modest safe-haven demand is featured, as well as buying interest from the technical traders as the charts remain bullish for both metals. However, a solid rally in the U.S. dollar index to start 2024 is limiting the upside for the precious metals markets. Risk appetite in the marketplace is less robust on this first trading day of 2024. Reports say merchant ships in the Red Sea are still coming under attack from Iranian-backed Houthi rebels. The U.S. Navy sunk three Houthi boats on Sunday, killing its occupants. That has prompted some mild safe-haven demand for gold and silver. Technically, the gold futures bulls have a solid overall near-term technical advantage. First resistance is seen at the overnight high of $2,088.10 and then at $2,100.00. First support is seen at $2,071.40 and then at $2,058.20. The silver bulls have the overall near-term technical advantage. Silver bulls' next upside price objective is closing March futures prices above solid technical resistance at $26.00. The next downside price aim for the bears is closing prices below solid support at the December low of $22.785. First resistance is seen at the overnight high of $24.335 and then at $24.50. Next support is seen at $24.00 and then at last week’s low of $23.76.
3. Billions of dollars in loans on office buildings that are about to come due could play havoc with the economy after interest rates soared. About $117 billion worth is expected to be due this year and needs to be repaid or refinanced, according to the Mortgage Bankers Association. A sizable chunk of it is at risk of defaulting and costing banks and developers huge sums, sending some into insolvency. Owners of office space around the country took out their loans when interest rates were half what they are now and may not be able to refinance them at higher ones. Commercial mortgages, unlike home loans, are almost always paid interest-only, leaving the original price to be paid at the end, or refinanced to start the process again. Economists last month found 40 per cent of office loans on bank balance sheets were underwater - owing more than the property is worth. Smaller regional banks who loaned the money to buy them could themselves be at risk if the loans default as they are not big enough to handle the losses. The light at the end of the tunnel for office space owners is that the Federal Reserve is expected to start cutting interest rates earlier than predicted.
4. Contract signings for U.S. existing homes remained unchanged in November from the previous month even as mortgage rates scaled back from 23-year highs. The index for pending home sales stayed at 71.6 in November, the National Association of Realtors released Thursday. The index reading was the lowest since the index’s founding in 2001. The results were below the 0.9% increase that economists polled had estimated. Overall activity in the resale market remained below year-ago levels with pending transactions down 5.2%. “Although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest,” Lawrence Yun, NAR chief economist, said in a press statement. “With mortgage rates falling further in December, leading to savings of around $300 per month from the recent cyclical peak in rates – home sales will improve in 2024.” After peaking at 7.79% in October, the average rate on the 30-year fixed mortgage fell from 7.76% in the first week of November to 7.22% in the last one, according to Freddie Mac. Since then, rates have fallen over a full percentage point from October’s peak.
5. The number of electric vehicle models eligible for a consumer tax credit of as much as $7,500 fell sharply as new rules from the Biden administration kicked in on Jan. 1. Narrower criteria reduced the number of qualifying models to 13 from about two dozen, according to federal data. The new rules exclude from the tax credit vehicles that use battery components made by Chinese manufacturers. Treasury Department rules unveiled last month target battery components made by any company that is subject to Chinese jurisdiction or is at least 25% owned by the Chinese government. In 2025, the restrictions will expand to include suppliers of key raw materials for batteries, such as nickel and lithium. Depending on factors such as battery component and part manufacturing location, vehicles can either qualify for a $7,500 or $3,750 tax credit. Among the vehicles still eligible for the full or partial consumer credit are the Model Y by Tesla Inc., Rivian Automotive Inc.’s R1T pickup truck, Stellantis NV’s Jeep Wrangler 4xe and Ford Motor Co.’s F-150 Lightning pickup truck.
6. In the week ending December 30, the advance figure for seasonally adjusted initial claims was 202,000, a decrease of 18,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 218,000 to 220,000. The 4-week moving average was 207,750, a decrease of 4,750 from the previous week's revised average. The previous week's average was revised up by 500 from 212,000 to 212,500.
7. Oil prices are set to finish this week with a slight gain after Middle Eastern tensions helped recoup losses after U.S. inventory data. Despite a hefty 5.5-million crude stock draw, believed to be the usual year-end clearing of inventory, the immediate reaction was a slight downward correction after both gasoline and diesel posted huge stock builds. At the time of writing, the WTI benchmark traded at $73.61 per barrel on the day, gaining almost 1%. Brent crude traded at $78.63 per barrel.
8. EUR/USD gathered bullish momentum and climbed above 1.0950 following the disappointing ISM Services PMI data. Earlier in the day, the pair fell below 1.0900 with the immediate reaction to the stronger-than-forecast Nonfarm Payrolls growth.
9. The Japanese Yen drifts lower for the fourth straight day and hits a three-week low against the USD on Friday. Reduced bets for a hawkish BOJ pivot in January weigh on the JPY and lift USD/JPY beyond the 145.00 mark. Traders now look to the closely watched U.S. monthly jobs data (NFP) for some meaningful directional impetus.
Stocks moved in both directions at the opening bell on Friday, setting up an end to a nine-strong run of weekly wins, as investors digested stronger labour market data that will play into expectations for interest-rate cuts. The major indexes split paths after the release of the December U.S. jobs report, which showed the economy added 216,000 jobs in December, higher than the 175,000 expected by economists. The unemployment rate was unchanged at 3.7%. Stocks have slumped in the first week of 2024 in a marked reversal of a rally powered by high hopes the Federal Reserve will soon start easing monetary policy. But doubts have set in about whether policymakers are prepared to pivot, and traders have scaled back bets on a March rate cut. After the release of Friday's payrolls report, investors' bets on a rate cut by the Fed's March meeting were roughly 50-50, according to data from the CME Group, down sharply from last month.
Pros spend a lot of time thinking about potential risks. At the beginning of 2023, it seemed like strategists and economists were dwelling on the downside. And most ended up being too pessimistic about the outlook for growth. In part, they expected the Fed’s interest rate hikes would choke off economic activity, a prediction that proved to be incorrect. Now, the market is pricing in six interest rate cuts this year. Once again, investors could be wrong, a key risk as we kick off 2024. The gap between what the Fed says and what the market hears isn’t new. And as it has been in the past, it could prove to be a painful, and volatile process for the two to get on the same page. That said, investors are aware of this risk. Some raise the possibility that the Fed will begin to cut rates later and by less than the market is pricing in this year. Indeed, according to Bank of America’s monthly fund manager survey, investors cite “high inflation keeps central banks hawkish” as the second-most-likely tail risk. Of course, those aren’t the only risks out there. JPMorgan’s Dubravko Lakos-Bujas, one of the most bearish strategists on Wall Street, sees potential geopolitical instability, a reversal in pricing power, and softening consumer trends against a backdrop of rich equity valuations. If 2024 unfolds like 2023, the stock market machine may steamroll all of these concerns. But it’s not a terrible idea to follow the pros and keep one’s eyes open.
The gold market is not seeing much reaction to the latest employment data as prices recover from Wednesday’s sharp selloff. Spot gold last traded at $2,043.20 an ounce on Thursday morning, nearly unchanged on the day. “Job gains rose for the fourth straight month, led by a healthy bump in leisure and hospitality hiring. Construction held strong in the face of high interest rates, but manufacturing continued to struggle, notching another month of losses,” the report said. Although the U.S. economy continues to create more jobs than expected, the report noted that wage inflation is becoming less of a threat to the economy. "We're returning to a labour market that's very much aligned with pre-pandemic hiring," said Nela Richardson, chief economist, ADP. "While wages didn't drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared." Some analysts have described the latest employment data as a “goldilocks scenario” as employment remains robust, but inflation continues to ease. However, some analysts have said that the report doesn’t support an imminent rate cut from the Federal Reserve.
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 2048/2033/2013 23.00/22.90/22.84
Resistance 2083/2103/2117 23.65/23.75/24.00
Support 950/928/904 1120/943/925
Resistance 1013/1035/1056 1178/1256/1296
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