The Precious Metals Week in Review
Here are your Short-Term Support and Resistance Levels for the upcoming week.
Support 2020/1992/1971 22.57/21.98/21.49
Resistance 2069/2090/2118 23.65/24.13/24.72
Support 895/885/863 940/936/932
Resistance 927/949/975 951/955/975
1. U.S. stocks fell on Wednesday to signal no let-up in a rough January, as investors' optimism for interest rate cuts got a reality check and worries grew about China's economy. Stocks have struggled as policymakers push back against persistent bets that central banks will cut rates early and often in 2024. ECB president Christine Lagarde on Wednesday joined the likes of Federal Reserve Governor Chris Waller in warning that expectations of imminent loosening are too high. Another knock back came from disappointing GDP data suggesting that China's growth is flagging despite stimulus measures. Oil prices fell amid fears of a pullback in demand from the world's second biggest economy. Also on Wednesday, the December retail sales report showed consumer spending remains resilient. Retail sales grew 0.6% in December, according to Census Bureau data. Economists had expected a 0.4% increase, according to the data. Regional bank fourth quarter results are in focus in the morning after earnings from Wall Street's big lenders got a mixed reception.
2. Crypto's latest big moment is worthy of one big reminder too. The U.S. dollar is still the U.S. dollar, and crypto is, well, just an investment vehicle. Said reminder comes compliments of the International Monetary Fund, one of the foremost global authorities on payments and financial stability. "Our view is that we have to differentiate between money and assets. When we talk about crypto, we are actually talking about an asset class. It could be backed up and, in that sense, more secure and less risky, or it could not be backed up and therefore a riskier investment. But it is not exactly money. It's more like a money management fund," IMF managing director Kristalina Georgieva said recently. Georgieva's comments came mere hours before the SEC paved the way for the debut of new spot bitcoin-backed ETFs (Exchange Traded Fund) last week. Regulators gave the all-clear sign to financial institutions such as Cathie Wood's Ark and BlackRock to debut these new ETFs. 11 spot bitcoin ETFs were approved. It's a big moment for the crypto industry, which has endured boom and bust periods the past five years and the downfall of onetime prominent leaders in FTX's Sam Bankman-Fried and Binance's CZ. Despite the latest bitcoin hoopla, the IMF's Georgieva doesn't think the day is nearing that crypto will rival the dollar in stature. "Look, this day, if it exists, is so far in the future that I think it is not very useful to talk about it. Why is the dollar today a dominant currency? Because of the size of U.S. economy and most importantly, the depth of the capital markets in the U.S.," Georgieva explained. "So, I, for one, am not in a rush to turn my dollars into another currency. It doesn't mean that you shouldn't, you know, diversify. But I wouldn't worry too much about bitcoin rivalling the dollar. There are things that make me lose sleep — that's not one of them."
3. Would be homebuyers are once again coming out of hibernation, this time prepared to strike a deal before competition heats up. The volume of applications for a mortgage increased 9.9% from one week earlier on a seasonally adjusted basis for the week ending Jan. 10, according to the Mortgage Bankers Association. Some of that activity was driven by purchase applications, which increased 6% from the previous week, as buyers capitalized on the year-end decline in rates and a small boost in inventory levels. For rate-sensitive buyers who have been waiting on the side-lines, these first few weeks of the year could offer a window to purchase, experts said. Still, any relief in affordability could be short-lived. Bidding wars are already erupting in some areas of the U.S., which could drive up home prices among the few attractive listings. Additionally, new economic data this week could sway the Federal Reserve to postpone its planned rate cuts, keeping rates higher for longer. "Prices here are all over the board. If your house is updated with the most recent home trends, you’re going to get offers," St. Louis-based Stayce Mayfield, a Redfin premier agent said. "We’re still getting bidding wars with anywhere from 20-30 offers — though it still depends on the location and condition." According to Redfin, mortgage-purchase applications were up 3% compared to a month ago during the first week of January. Redfin agents also reported requests for tours were up 5% from this time in December, and there were 9% more new listings on the market in the four weeks ending Jan. 7 compared to a year ago.
4. While there is no shortage of metrics investors are using to try to gain an edge on what might happen next with the stock market, it's the Federal Reserve Bank of New York's recession probability tool that appears to offer the biggest clue. The New York Fed considers the spread (i.e., difference in yield) between the 10-year Treasury bond and three-month Treasury bill to determine how likely it is that a U.S. recession will take shape within the next 12 months. Normally, the Treasury yield curve slopes up and to the right. In other words, bonds that mature a long time from now will sport higher yields than bills set to mature in mere months. The longer your money is tied up in a security, the higher the yield should be. Trouble arises when the Treasury yield curve inverts. A yield-curve inversion, where short-term T-bills have higher yields than longer-dated T-bonds, signals concern about the U.S. economic outlook. Although not every yield-curve inversion is followed by a recession, every recession following World War II has been preceded by a yield-curve inversion. Think of it as a necessary "ingredient" to a potential downturn in the economy. To be fair, the Treasury spread has incorrectly forecast a recession once before. In October 1966, the probability of a U.S. downturn briefly surpassed 40%, but no recession ever materialized. But since 1966, the New York Fed's forecasting tool has been as trustworthy as the sun rising in the east. If the probability of a U.S. recession has surpassed 32% since 1966, a recession has, without fail, always followed. Considering that the probability of an economic contraction is nearly 63%, the writing appears to be on the wall that a recession is in the cards for 2024.
5. Electric cars lose as much as half of their value after just three years on the road, new figures show, as the rate of depreciation far outstrips conventional equivalents. Research from Auto Trader said there were “unsustainable levels of depreciation” in the electric car market, with used prices of battery-powered vehicles dropping by 23pc in the last year alone. The online vehicle marketplace said a motorist buying a £50,000 electric car could expect to lose £24,000 in value over three years, while a similarly priced petrol car could lose £17,000. The value of used electric cars has dropped dramatically in the last 12 months after Covid-related supply shortages eased and as rising electricity prices hit demand. New electric cars are still more than a third more expensive than their petrol or diesel equivalents. Electric car sales in Europe suffered their first fall since April 2020 last month, as a drop-off in government subsidies drove down demand. New figures show a 16.9pc reduction in the sales of electric battery vehicles in December, as just 160,700 were sold across the month.
6. In the week ending January 13, the advance figure for seasonally adjusted initial claims was 187,000, a decrease of 16,000 from the previous week's revised level. This is the lowest level for initial claims since September 24, 2022, when it was 182,000. The previous week's level was revised up by 1,000 from 202,000 to 203,000. The 4-week moving average was 203,250, a decrease of 4,750 from the previous week's revised average. The previous week's average was revised up by 250 from 207,750 to 208,000.
7. Watching China for a sense of where oil prices are heading has become standard practice among analysts in the past decade—and with a good reason. The Asian powerhouse has become a weathervane for global oil demand as it has become the top importer and second-largest consumer of the most traded commodity in the world. And despite nagging doubts, last year was another when China did not disappoint. Earlier this month, customs authorities reported that oil imports had broken the previous record, reaching 11.28 million bpd last year. This was an 11% improvement in 2022 prompted by healthy fuel demand at home and abroad. At the time of writing on Friday, Brent crude was trading for $78.51 per barrel with WTI trading for $73.50 per barrel.
8. EUR/USD is holding steady below 1.0900 in European trading on Friday. A modest uptick in the U.S. Dollar alongside the Treasury bond yields, amid a cautious mood, is weighing on the pair. ECB Lagarde's speech and U.S. data awaited.
9. USD/JPY finds support near 148.00 as bets favouring a rate-cut decision by the Fed are fading away. Fed Daly is expected to support the ‘restrictive interest rates’ narrative amid stubborn inflation. Soft inflation data could force the BOJ to delay loose-policy exit plans.
Across the world’s biggest markets, traders are finally paying heed to warnings from central banks and winding back bets on aggressive interest-rate cuts this year. The latest leg of the repricing kicked off Wednesday after the UK reported a surprise acceleration in inflation, the first in almost a year. Within minutes of the release, the market had moved to price in just four quarter-point Bank of England reductions this year, down from as many as six last month. For days, officials from the European Central Bank and the Federal Reserve have been striking a more cautious tone about the outlook for monetary policy easing. The UK number may just be a blip in a long-run downward trend, but it’s helped policymakers in their efforts to sell that message and rein in some of the rate-cut enthusiasm. Traders are now paying heed, betting on fewer cuts from the world’s major central banks this year. They’ve also pushed back the timing for the first moves, assigning a lower probability to reductions in the first quarter. The UK data “has provided the mood music for the concerted efforts by various central bankers to keep rate-cut expectations in check,” said Jane Foley, head of FX strategy at Rabobank. It “will reinforce expectations that the BOE is set to lag both the ECB and the Fed on rate cuts this year.” Central banker caution about rate cuts is built on a number of platforms, from the relative resilience of employment and economies to concern that price growth will prove stickier and stay above targets.
Homebuyers could soon save around $1,000 on their closing costs thanks to a new plan by a government-backed mortgage lender. Fannie Mae confirmed that it will now allow buyers to replace expensive title insurance with a lower-cost alternative. The insurance is a one-off fee that protects lenders and buyers from losses incurred if there is a mistake with a property's title deed. Going forward they can use an 'Attorney Opinion Letter' (AOL) which allows a real estate attorney to confirm there are no problems with a property's title. An AOL is on average $1,000 cheaper than title insurance, Fannie Mae said. Such letters are already used in Midwestern states such as Ohio and Indiana but until last year the government lender only accepted them on certain mortgages. In December, it confirmed AOLs will now be permitted for the majority of single-family loans it backs. The move forms part of a push to make housing more affordable after mortgage rates soared last year while house prices remained high. There are two types of title insurance: one policy bought for the homebuyer and one for the lender. While the former is optional, the latter is largely required by lenders as it protects their interest on the loan. The cost of the lenders' policy is still paid for by the buyer. Prices vary by state, but Fannie Mae said a homebuyer can expect to pay up to 1 percent of the purchase price in some instances.
Car rental giant Sixt has agreed to buy 250,000 cars from Stellantis - the automaker behind Chrysler, Jeep, and Dodge, just weeks after it severed ties with Tesla. And just last week, Hertz said it would sell about 20,000 cars in its electric vehicle fleet, most of which were Tesla Model 3s. The proceeds from those sales will be reinvested in gas cars. Rental firms like Hertz blame low demand for EVs from customers who don't want the hassle of finding charging stations on road trips and worry about range. They have also alluded to recent depreciation of used EVs which can drastically impact the value of their fleets as they appear on balance sheets. Sixt and Hertz share prices are down 13 and 52 percent respectively over the last six months. Stellantis owns a large range of brands, among them Alfa Romeo, Chrysler, Citroën, Dodge, Fiat, Jeep, Lancia, Opel, Peugeot, Ram, Vauxhall, and Maserati. “We offer a vehicle that fits practically every need, price point, and lifestyle,” said Carlos Tavares, CEO of Stellantis. The selling of the EV fleet aligns with a broader trend in the U.S. auto market in which demand for electric cars appears to have fallen. Chinese officials are reportedly cutting expansions in its electric vehicle sector based on less than satisfactory external demand for EVs.
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.co.uk
This is not a solicitation to purchase or sell.