The Precious Metals Week in Review

13/05/2024

Support and Resistance Levels for the upcoming week.  

                               Gold                                        Silver

Support                  2270/2239/2201                      25.89/25.24/24.47

Resistance            2377/2408/2425                      28.72/28.95/29.41 

                               Platinum                                  Palladium

Support                  925/892/868                            916/885/848

Resistance            1004/1037/1070                       984/1021/1053 

1. Stocks opened higher Monday as Wall Street looked set to build on an end-of-week surge precipitated by a softer-than-expected jobs report that helped spur bets toward an earlier rate cut from the Federal Reserve. Stocks rallied at the end of last week, getting a boost from a "Goldilocks" jobs report that struck the balance in providing welcome news for both the markets and the Fed. More than two-thirds of bets are now on a September rate cut from the Fed, according to the CME FedWatch Tool. Most traders now expect at least two cuts by the end of the year. Those bets could be swung by the return of Fedspeak, now that free-speaking Fed officials are untethered from a pre-meeting blackout period. 

2. The People's Bank of China (PBoC) added to their bullion reserves for the 18th month in a row, but April also marked the second month in a row of lower quantities, suggesting that record-high prices may finally be souring the central bank on gold. While market participants speculated that the low February numbers could have been impacted by the Lunar New Year holidays, which shuttered markets and stopped most business activities between Feb. 10-17, the March figures confirmed the downward trend in China’s sovereign purchases. Still, many experts believe that the last 18 months represent a fundamental shift in the gold market away from the West and to the East, and to China in particular, and they don’t expect that overall trend to reverse any time soon. Central bank buying has been a significant driver of gold’s price gains since the Russian invasion of Ukraine in 2022, and China has led the sovereign buying during that period. The World Gold Council noted that central banks bought more gold in Q1 2024 than during any other first quarter on record. “Q1 saw no let-up in the pace of central bank gold buying,” the WGC wrote in their Gold Demand Trends Q1 2024 report. “290t (net) was added to official holdings, only part of which is currently reflected in IMF data.” China’s consumer market has also shown robust gold demand even as prices set new highs. According to the China Gold Association, the country’s gold consumption was 5.94% higher in the first quarter of 2024 than during the same period in 2023, which they attributed to surging demand among the citizenry for safe haven assets. 

3. Warren Buffett, CEO of Berkshire Hathaway, has mixed feelings about artificial intelligence. "It has enormous potential for good and enormous potential for harm," Buffett said at Berkshire’s annual shareholders meeting on Saturday. He shared a personal experience with AI that had him shook. "Fairly recently, I saw an image in front of my screen," he said. "It was me, and it was my voice and wearing the kind of clothes I wear. My wife or my daughter wouldn't have been able to detect any difference. And it was delivering a message that in no way it came from me." He explained: "When you think about the potential for scamming people … Scamming has always been part of the American scene. If I was interested in investing in scamming — it’s going to be the growth industry of all time." 

4. A top Federal Reserve official said another interest rate hike is a possibility, raising the prospect that, instead of relief, businesses and households might see higher costs of borrowing in the months ahead. Consumers have been experiencing pain from higher rates on mortgages, auto loans, and credit cards for years now, and while most economists think rates can only go down this year, Federal Reserve Bank of Minneapolis President Neel Kashkari wouldn't rule out the possibility of another painful hike. Kashkari, one of the voting members of the Fed's monetary policy committee, said that such a scenario could occur if inflation continues to prove too stubborn, although he doesn't think that unwelcome move is too likely. Speaking at a conference in Los Angeles on Tuesday, Kashkari noted that in the first quarter of this year, inflation has failed to decline while economic growth has remained strong. He said that has led him to question whether monetary policy has had as much downward pressure on demand as he would have otherwise expected. Kashkari said the most likely scenario is "we sit here for an extended period of time," meaning that interest rates remain at their same elevated level until it is clear whether disinflation is working. He said that if inflation does start coming down, or the labor market weakens, then that might lead to cuts. Inflation is now running at 3.5% over the past year, according to the latest consumer price index data. That is well above the Fed's 2% target and a number that has ticked up, rather than down, in recent months. Late last year, investors were expecting the Fed would cut interest rates up to six times in 2024, with the first downward revision coming in March. Now, investors see the first cut coming in September or even after the November election, according to the CME Group's FedWatch tool. 

5. U.S. equity futures flipped between gains and losses on Wednesday while European stocks hit an all-time high as May’s rally in equities continued amid a clutch of solid earnings reports. As of 7:45am, S&P 500 futures traded down 0.2%, and were near session lows reversing an earlier modest gain after the underlying gauge advanced the previous four sessions. The benchmark Treasury yield rose two basis points to 4.48%. Oil fell to the lowest level since mid-March, after a mildly bearish U.S. stockpile report. The renewed plunge in the yen took the USD/JPY as high as 155.5 amid a renewed bout of impotent jawboning by Japanese officials who however have now lost all credibility. Investors saying goodbye to Q1 earnings season and enjoying a 3% S&P 500 rally in May are now uncertain what comes next, as policymakers signal bets on a pivot to easier policy may be premature. The Fed’s stubborn hawkish stance as a result of even more stubborn inflation has put it out of sync with central banks in Europe that have already embarked on easing. Earlier Wednesday, Sweden’s Riksbank kicked off its rate cutting cycle, easing policy for the first time in eight years. That followed the Swiss National Bank’s decision to leapfrog peers with an interest rate cut in March. 

6. The number of Americans applying for unemployment benefits jumped to its highest level in more than eight months last week, another indication that the red-hot U.S. labour market may be softening. Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the Labour Department said on Thursday. Economists polled had forecast 215,000 claims in the latest week. Claims had been tucked in the 194,000-225,000 range for much of the year. Some of the rise last week was likely related to seasonal issues, with school spring breaks out of the way. 

7. Oil inched higher, with a mixed outlook for the crude markets' fundamentals leaving the recent rebound largely dependent on technical support. West Texas Intermediate rose near $80 a barrel, with the 100-day moving average of around $78.29 acting as a floor for prices this week after a month-long selloff. Brent crude was trading at $83.82 per barrel. Traders are still grappling with a mixed U.S. inventory report that showed overall stockpiles dropping while signs of fuels demand lagged. “Crude is bouncing off oversold levels here after the market went through the last wave of CTAs flush out,” said Frank Monkam, senior portfolio manager at Antimo. “All eyes are now on OPEC, so we’re likely to stay rangebound over the next couple of weeks.” 

8. EUR/USD faces selling pressure near 1.0800 in Friday’s American session. The major currency pair fails to hold strength as investors expect that the European Central Bank (ECB) will start lowering its borrowing rates in June. However, ECB policymakers are divided overextending the rate-cut cycle after the June meeting. A few policymakers believe that additional interest rate cuts from the July meeting could revamp price pressures. 

9. The USD/JPY advanced steadily during the North American session, following a worse-than-expected University of Michigan (UoM) poll that showed that American consumers are becoming pessimistic about the economy. Despite that, the major trades at 155.83, up 0.24%. The UoM Consumer Sentiment Index retreated in May from 77.2 in April to 67.4, missing analysts’ estimates of 76. 

High inflation and a disappointing report on economic growth, followed by a sudden drop in stocks late last month made for a familiar economic combination. These conditions were hallmarks of the 1970s when inflation ran high, leading the Federal Reserve to hike interest rates. The central bank’s measures to tame inflation drove up borrowing costs for real estate developers and ultimately shrunk homebuyers' purchasing power. As a result, the housing market stagnated, and the decade itself became synonymous with stagflation, an economic cycle characterized by high inflation, tepid growth, and weak employment, leading to a stagnant economy. While those trends may sound familiar, the current housing market is resilient. Not to mention, job growth is solid. The major problem today: a dearth of inventory. “You could argue that there is weakness in the housing market at the moment, caused by a supply-side shock,” Mark Fleming, chief economist at First American stated. “In other words, restriction in the supply of a good, which is causing inflation. … But I wouldn’t say we are in stagflation,” noted Fleming. “The problem isn’t weak demand, it’s weak supply.”

Some good news relating to a story we have been following. Investors and customers of Sam Bankman-Fried's failed crypto currency exchange FTC are set to recover all of the money they lost following the firm's collapse, and then some bankruptcy filings revealed. FTX, which was at the heart of one of the biggest fraud cases in U.S. history, will have between $14.5 billion to $16.3 billion to pay its estimated 9 million creditors and customers back for money and assets they took. Almost all of FTX's customers and investors will receive cash payments equivalent to 118% of the assets they stored on FTX. But the recoveries will only be calculated based on the value of customers' holdings in FTX at the time of its bankruptcy in November 2022, meaning customers won't benefit from a recent surge in Bitcoin's price. Bankman-Fried, 32, appealed his federal conviction earlier this month after U.S. District Court Judge Lewis Kaplan set the prison term and ordered him to pay $11 billion in forfeiture. In return for dropping him from the civil lawsuit, Bankman-Fried would hand over all non privileged documents detailing his assets and his investment in artificial intelligence start-up Anthropc, a sworn statement certifying his net worth as negative and documents about other defendants in the wide-ranging civil litigation. Bankman-Fried has also agreed to divulge any information he can about venture capital firms that invested in FTX together with a list of accountants and lawyers that worked with the exchange.

Dallas Federal Reserve President Lorie Logan on Friday said it's not clear if monetary policy is tight enough to bring inflation down to the U.S. central bank's 2% goal, and it is too soon to be cutting interest rates. There are still good reasons that inflation will return to the Fed's 2% goal in the coming years, Logan told the Louisiana Bankers Association's annual conference. "There are also important upside risks to inflation that are on my mind, and I think there's also uncertainties about how restrictive policy is and whether it's sufficiently restrictive to keep us on this path." The U.S. central bank last week kept its policy rate in the 5.25%-5.50% range, with Fed Chair Jerome Powell noting a lack of progress on inflation so far this year means rates will likely need to stay where they are for longer than previously thought.

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.