The Precious Metals Week in Review
Here are your Short-Term Support and Resistance Levels for the upcoming week.
Support 2000/1972/1943 22.21/21.85/21.28
Resistance 2058/2087/2115 23.14/23.71/24.07
Support 890/880/865 930/914/900
Resistance 929/938/954 974/990/1005
1. U.S. stock futures trod water on Tuesday, hitting pause on a record-setting rally as focus turned to the day's stream of earnings for insight into the health of Corporate America and the economy. Stocks have bounced out of their early January slump in recent days as investors increasingly embrace the idea the Federal Reserve could nail a "soft landing" for the economy. Data showing resilience in the face of higher-than-usual interest rates has buoyed those expectations. The market is now looking to fourth-quarter results for inspiration as earnings season picks up steam — and with the release of key GDP and inflation readings still a couple of days away.
2. Bitcoin fell to a seven-week low on Monday, hovering below $40,000 for the first time since the launch of 11 spot bitcoin exchange-traded funds. Bitcoin has fallen over 20% since the Jan. 11 launch of the first exchange-traded funds investing directly in the token as speculators become more cautious about the potential impact of the products. “As bearish sentiment appears to be prevailing, the next crucial price levels for bitcoin that could provide support are estimated to be between $38,000 and $36,000,” analysts at crypto exchange Bitfinex wrote on Tuesday. “Over the past two weeks, Bitcoin has been challenged by tougher macro conditions, evidenced by rallying rates and a strengthening dollar, and significant selling pressure from traders unwinding their GBTC arbitrage positions along with the FTX bankruptcy estate offloading assets,” Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors stated. Tokens such as Ether and BNB also fell sharply along with Bitcoin, the largest digital asset, which is roughly $30,000 below its 2021 pandemic-era record of almost $69,000.
3. Gold and silver prices are slightly up in early U.S. trading Tuesday, on mild corrective bounces following recent selling pressure. Short covering (the buying back of previously sold, or short, futures positions) from the shorter-term futures traders is featured. February gold was last up $3.00 at $2,025.20. March silver was last up $0.094 at $22.39. Asian and European stock markets were mixed overnight. U.S. stock index futures are set to open mixed when the New York day session begins. The S&P and Nasdaq indexes hit record highs Monday as risk appetite in the general marketplace has up-ticked just recently. The rallying stock indexes are a bearish element for the gold and silver markets, as equities are a competing asset class. Gold prices are continuing to hold above $2,000 per ounce in the new year, and the precious metal will benefit from additional rate cuts in 2024, along with the return of investment demand, according to commodities analysts. While the investment bank still maintains that “the only structural bullish call we hold is for gold and silver,” precious metals are expected to lose some of the additional boost provided by high inflation. “Commodities are unlikely to benefit from core inflation in 2024,” said Natasha Kaneva, Head of Global Commodities Strategy at JPMorgan. “Inflation should fall to under 3%, so that, along with properly timing the business cycle, are the two conditions needed to initiate long positions, making the outlook for the sector very tactical in 2024.” Economic and geopolitical uncertainty tend to be positive drivers for gold, which is widely seen as a safe-haven asset due to its ability to remain a reliable store of value. It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress. A weaker dollar and lower U.S. interest rates also increase the appeal of non-yielding bullion. The analysts pointed out that anticipation of a Fed pivot has played a key role in gold’s recent price rally, as it has over the last three rate cutting cycles.
4. Imbalances in the global fiat credit system are enormous, with foreign ownership of dollars overhanging both foreign exchanges and securities markets. Meanwhile, Keynesian and monetarist hopes that lower interest rates can be implemented to keep things just bubbling along is blinding investors to the real risks. It is wrongly believed by nearly everyone that lower interest rates are on the way and will stay down. Other than perhaps a minor decline being a self-fulfilling prophecy, in practice the reluctance of banks to lend to businesses will keep rates high. And the redirection of bank credit from productive use to the U.S. Government financing its huge budget deficits by issuing treasury bills is highly inflationary. This is bound to lead to significantly higher interest rates in time. And higher interest rates will threaten to collapse the entire credit system. And those who think that they can protect themselves by buying gold ETFs (Exchange Traded Fund) will probably find that the underlying bullion is diverted “in the interests of the state”, leaving them with empty paper promises as their only comfort. In today’s complex markets, it is difficult for the layman to understand their workings. It has always been about central and commercial bank credit, which must never be confused with money, and which from the dawn of history has been physical metal. Today, we can say it is almost exclusively gold. But that is the medium of exchange of last resort, hoarded by individuals, and in recent decades increasingly by central banks and Asian interests. The reality is simple: if the banks restrict the expansion of credit, then borrowers face having to pay up in order to secure it. And to accommodate increased lending risk, banks widen their margins by increasing interest paid to depositors as little as possible. Does this not describe current bank credit conditions? So long as it remains the case, whatever investors and their brokers may desire interest rates will remain stubbornly high. A potential credit crisis is looming — for the moment deferred by widespread hopes that interest rates will decline this year, allowing bond yields to stabilise, it is hoped at lower levels. The moment it is realised that there is no further downside in interest rates and bond yields, a crisis in equity markets will ensue.
5. Viewing gold in its proper context seems to be difficult for most gold bugs. The excitement associated with anticipation of gold at $3000, $10,000, or higher tends to override real fundamentals and common sense. Gold is real money and a long-term store of value. It is also original money. Gold was money before the U.S. dollar and all paper currencies; and, all paper currencies are substitutes for gold, i.e., real money. The higher price of gold over time reflects the ongoing loss of purchasing power in the dollar. In other words, the price of gold tells us nothing about gold. The gold price tells us only what has happened to the U.S. dollar. The same thing is true if gold is priced in any other fiat currency. Over the past century, the dollar has lost ninety-nine percent of its purchasing power. This means that it costs one hundred times more for the things you buy today than it would absent the effects of inflation. The original fixed price of gold was $20.67 oz. Convertibility allowed exchange of $20.00 in paper money for one ounce of gold and vice versa. At $2000 oz., gold today is one hundred times higher and reflects the actual ninety-nine percent loss of USD purchasing power. The gold price only moves higher to reflect the dollar’s loss of purchasing power after the fact; never before. A much higher gold price can only present itself after further, significant loss of U.S. dollar purchasing power.
6. In the week ending January 20, the advance figure for seasonally adjusted initial claims was 214,000, an increase of 25,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 187,000 to 189,000. The 4-week moving average was 202,250, a decrease of 1,500 from the previous week's revised average. The previous week's average was revised up by 500 from 203,250 to 203,750.
7. Oil markets witnessed a significant surge this week, with WTI crude oil climbing 5.26%, its highest level since December. This rally is attributed to a combination of strong U.S. economic indicators and escalating tensions in the Middle East. Shipping disruptions in the Red Sea, intensified by recent incidents involving Maersk-operated ships and U.S. military supplies, are heightening concerns over supply chain stability. Moreover, a Ukrainian drone attack on a Russian oil refinery adds to the prevailing supply worries. At the time of writing, Brent crude was trading for $83.27 per barrel with WTI priced at $77.92 per barrel.
8. EUR/USD continues to trade in positive territory at around 1.0850 in the American session on Friday. The USD struggles to find demand and helps the pair hold its ground after the data from the U.S. showed that the annual core PCE inflation softened to 2.9% in December.
9. USD/JPY grapples to inch higher for the second consecutive session, trading near the 147.70 level during the European hours on Friday. USD/JPY could improve towards the psychological resistance at the 148.00 level. Technical indicators suggest a bullish momentum to revisit January’s high at 148.80. The USD/JPY receives upward support as the Tokyo Consumer Price Index (CPI) in Japan's national capital decelerated below the Bank of Japan's (BOJ) 2.0% target for the first time in nearly two years.
Toyota chairman Akio Toyoda predicts battery electric vehicles will only ever capture 30 percent of the car market. Hybrids, hydrogen fuel cell and gas-powered combustion engine cars will take the rest, he said during a press conference in Japan this month. Customers want choice, the grandson of Toyota's founder said - but he also pointed out that a billion people in the world don't have any access to electricity. He pointed out that outspoken advocates of battery-only electric cars, potentially hinting at the likes of Tesla - have an all-or-nothing strategy, whereas Toyota has its eggs in in multiple baskets. The chairman suggested that engine cars will 'definitely remain' and that the market should be determined by customers and not regulations or politics. Many Americans are sceptical about battery electric vehicles, largely due to fears around range and doubts around the infrastructure. Range is not an issue with hybrid models, which are also powered by gas-burning engines. Toyota has also become a leader in the development of hydrogen fuel cells, which offer an alternative means of powering electric vehicles to batteries.
The approval of bitcoin spot ETFs in the U.S. theoretically opened-up crypto markets to billions of dollars of fresh capital, but the investment case for the digital assets 'remains weak', according to UBS. It was anticipated to be the immediate trigger of a new era for the world's biggest cryptocurrency, with new investors lured by plentiful liquidity, low costs and easy access. But interest has been 'disappointing', according to a note from major private bank UBS, with $800million of net inflows to bitcoin funds since 11 January, 'as investors rotated some assets away from existing higher-cost vehicles into the bitcoin ETFs'. Its value is down by around 12 per cent since January 10th and it remains 36 per cent below its November 2021 peak. The investment bosses of UBS Global Wealth Management and Global Emerging Markets, Mark Haefele and Michael Bolliger, as well UBS strategists Jennifer Stahmer and Daisy Tseng wrote on Friday: 'While many investors view ETFs as an easier way to access and invest in digital assets, investor interest and flows have so far not lived up to pre-launch expectations. The fundamental investment case for crypto assets broadly remains weak, in our view. While access to bitcoin ETFs has helped investors, we remain unconvinced of the structural case for crypto assets.”
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.
This is not a solicitation to purchase or sell.