The Precious Metals Week in Review

20/05/2024

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

                                         Gold                               Silver

Support                            2308/2257/2222             26.81/25.45/24.48

Resistance                      2430/2481/2505             31.48/31.70/31.95

                                        Platinum                          Palladium

Support                          961/929/909                    945/911/882

Resistance                     1100/1114/1134              1037/1071/1100

1. In the week ahead, a crucial April inflation reading and an update on retail sales will highlight the economic calendar. Initial jobless claims will also be in focus after the weekly data set hit a surprise nine-month high in the first week of May. Stickier-than-expected inflation reports headlined the first quarter of economic data, prompting investors to scale back expectations for Federal Reserve interest rate cuts in 2024. On Wednesday, investors will get their first look at whether this trend continued into the second quarter with the release of the April Consumer Price Index (CPI). Wall Street expects an annual gain of 3.4% for headline CPI, which includes the price of food and energy, a decrease from the 3.5% headline number in March. Prices are set to rise 0.4% on a month-over-month basis, in line with March's rise. On a core" basis, which strips out the food and energy prices, inflation is expected to have risen 3.6% year over year, a slowdown from the 3.8% increase seen in March. Monthly core price increases are expected to clock in at 0.3%, down from 0.4% in the prior month. Entering the week, markets are currently pricing in less than two interest rate cuts this year. 

2. Financial markets are about to potentially witness one of the most epic migrations of capital in history as investors rush into hard assets, warned Larry McDonald, Founder of The Bear Traps Report. With the national debt approaching $35 trillion, there are only two ways out of the situation, defaults or printing more money, McDonald said. "The only way to get out of that kind of debt hole is if you keep inflation above interest rates. That's how you monetize the debt. That is why the Federal Reserve needs a much higher inflation target. It'll be a slow, manageable default. But it's the only way out of this colossal debt hole." In order to tame inflation back to 2%, the Fed needs to keep raising rates, but it can't do that without triggering a 2008-like financial crisis. "Powell should raise rates another 150 basis points. But if you push rates up from here, you will very quickly bring on a financial crisis much worse than Lehman," he said. The Fed will have to cut rates to avoid a banking collapse and a brutal recession. However, first, it must raise the no-longer-attainable 2% inflation target. "The Fed will start circulating the white papers and working with other central bankers worldwide to pitch this in a group setting," McDonald noted. According to him, the U.S. is in a world of persistent inflation, where all asset classes will see a "dramatic" re-pricing as capital flees from financial assets into hard assets. "The moment the Fed tips its hand, this creates a really bullish scenario for hard assets," McDonald stated. A commodity bull market will dominate the financial landscape, with several metals looking at significant upside. McDonald sees gold reaching $3,000-$3,500 an ounce in the next 12-18 months. 

3. Two brothers who studied at the Massachusetts Institute of Technology have been arrested following claims they carried out a cutting-edge scheme to exploit the Ethereum blockchain's integrity and steal $25 million worth of cryptocurrency. Federal prosecutors in Manhattan called the scheme allegedly perpetrated by Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, 'novel' and said the case marked the first time that such a fraud had ever been the subject of U.S. criminal charges. Authorities believe they executed their elaborate heist in April 2023, claiming the pair stole $25 million from traders in just 12 seconds by fraudulently gaining access to pending transactions and altering the movement of cryptocurrency. “As we allege, the defendants' scheme calls the very integrity of the blockchain into question,” U.S. Attorney Damian Williams said. An indictment charged them with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering. It is believed that after carrying out the heist, the brothers rejected requests to return the funds and instead took steps to launder and hide the stolen cryptocurrency. 

4. Superpowers led by the U.S. and European Union have funneled nearly $81 billion toward cranking out the next generation of semiconductors, escalating a global showdown with China for chip supremacy. “There is no doubt we’ve passed the Rubicon in terms of the tech competition with China, particularly on semiconductors,” said Jimmy Goodrich, senior China and strategic adviser to the RAND Corp. “Both sides have basically made this one of their top strategic national objectives.” What began as concern over China’s rapid advances in key electronics blossomed into a full-scale panic during the pandemic, as chip shortages highlighted the importance of these tiny devices to economic security. At stake now is everything from the revitalization of tech manufacturing to the assertion of an upper hand in artificial intelligence to the balance of peace in the Taiwan Strait. Chips spending by the U.S. and its allies marks a new challenge to Beijing’s decades of industrial policy — albeit one that will take years to bear fruit. “Technology is moving fast,” Commerce Secretary Gina Raimondo, who’s leading the administration’s semiconductor charge, said at a conference in Washington last month. “Our enemies and competitors, they’re not moving slowly. They’re moving fast, so we have to move fast.” 

5. An emissions reduction program is forecasted to increase already soaring gas costs by as much as 50 cents per gallon in the next two years in one Democrat-led state. The California Air Resources Board Low Carbon Fuel Standard 2023 amendments impact assessment released in September found the proposed reforms would raise costs that drivers would feel at the pump. Gas prices are estimated to rise by 47 cents per gallon in 2025 and 52 cents in 2026, not including the existing gas tax in the state. They estimated diesel prices could increase by 59 cents per gallon in 2025 and 66 cents in 2026. From 2031 to 2046 the report found gasoline prices could increase by $1.15 per gallon and diesel by $1.50 per gallon. “No one knows about this. I think people just think it's a tax, so they don't know the difference between the carbon tax versus the state tax. It's almost like a tax on the tax,” California state Senator Janet Nguyen said. “The middle class, the low income, they can't afford gas to go to school, work or grocery or the doctor's office.” Soaring gas prices skyrocketed to a whopping $7.29 per gallon in some parts of California in April - which is above the current national hourly minimum wage. While the average price for a gallon of gas varies from state to state - drivers in a certain Silicon Valley town are facing particularly extortionate rates that set them back almost $150 for a full tank. 

6. Fewer Americans applied for unemployment benefits last week as layoffs remain at historically low levels even as other signs that the labor market is cooling have surfaced. Jobless claims for the week ending May 11 fell by 10,000 to 222,000, down from 232,000 the week before, the Labor Department reported Thursday. Last week's applications were the most since the final week of August 2023, though it's still a relatively low number of layoffs. 

7. Oil prices stabilized on Friday, with global benchmark Brent heading for its first weekly gain in three weeks, as economic indicators from big consumers China and the United States bolstered hopes for higher demand. Brent crude oil was up 1 cent, or 0.01%, at $83.28 a barrel by 1324 GMT. U.S. West Texas Intermediate (WTI) crude gained 5 cents, or 0.06%, to $79.28. Brent is on track for an increase of about 0.6% from last Friday, with WTI on course for a 1.3% gain. 

8. EUR/USD stays under modest bearish pressure and trades in negative territory at around 1.0850 after closing modestly lower on Thursday. In the absence of macroeconomic data releases, investors will continue to pay close attention to comments from Federal Reserve officials. 

9. USD/JPY rebounds sharply to 156.00 amid a firm recovery in the US Dollar. Fed officials one good inflation data as incapable for unwinding the restrictive policy stance. Japan’s weak GDP deepens fears of BoJ’s limited scope for policy-tightening. 

Gold’s record-setting rally may have captured the headlines this year, but it’s silver that’s running harder and faster as the precious metal benefits from robust financial and industrial demand. Silver has soared by more than a quarter this year, outpacing gold and making it one of the year’s best-performing major commodities. Yet in relative terms, silver is still inexpensive. It currently takes about 80 ounces of silver to buy 1 ounce of gold, compared with the 20-year average of 68. Spot silver rose as much as 3.3% to $30.55 an ounce as of 9:21 a.m. New York time on Friday, its highest since February 2013. Gold prices were up as much as 1.2% to $2,405.18. The two metals move largely in tandem as both offer similar macro- and currency-hedging properties. Silver has a dual character, valued both for its uses as a financial asset and an industrial input, including clean-energy technologies. The metal is a key ingredient in solar panels, and with robust growth in that industry, usage of the metal is expected to reach a record this year, according to the Silver Institute. Against that backdrop, the market is headed for a fourth year in deficit, with this year’s shortage seen as the second biggest on record. Over the next two years, the London Bullion Market Association (LBMA) stockpiles may be depleted given the current pace of demand, according to TD Securities.

Inflation pressures eased in April, but the progress was likely not enough to push the Federal Reserve to cut interest rates just yet. "It's a step in the right direction," said Bank of America economist Stephen Juneau. But "is it enough for the Fed to get too excited about? Probably not yet." In April, the Consumer Price Index on a "core" basis, which strips out food and energy prices, rose 3.6% year over year. That was in line with expectations, and it cooled from the 3.8% increase seen in March. The numbers are probably not enough to immediately alter the Fed's higher-for-longer stance, following hotter-than-expected inflation reports at the start of the year. In fact, Fed Chair Jerome Powell made it clear Tuesday he thinks the Fed will need more than a quarter's worth of data to really make a judgment on whether inflation is steadily falling towards 2%. That implies it will take more than three inflation reports for the Fed to feel confident about lowering rates from a 23-year high, putting the odds of a first rate cut in September if the data supports such a move. Following the CPI release Wednesday, markets were pricing in a roughly 53% chance the Fed begins to cut at its September meeting. That's up from about a 45% chance the month prior.

The average rate on a 30-year mortgage in the U.S. fell for the second straight week, giving some relief to home shoppers already facing sky-high prices and a shortage of supply. The average 30-year rate fell to 7.02% from 7.09% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.39%. The recent pullbacks followed a five-week string of increases that pushed the average rate to its highest level since November 30. Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, limiting homebuyers' purchasing options. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also declined this week, trimming the average rate to 6.28% from 6.38% last week. A year ago, it averaged 5.75%, Freddie Mac said. Treasury yields have largely been easing since Federal Reserve Chair Jerome Powell said earlier this month that the central bank remains closer to cutting its main interest rate than hiking it. Still, the Fed has maintained it doesn’t plan to cut interest rates until it has greater confidence that price increases are slowing sustainably to its 2% target. Until then, mortgage rates are unlikely to ease significantly, economists say.

JPMorgan Chase CEO Jamie Dimon warned that the U.S. needs to reduce its fiscal deficit sooner rather than later otherwise the issue will become “far more uncomfortable.” The billionaire banker, 68, pointed to the nation's response to the Covid-19 pandemic as the cause of the issue, as it triggered a period of rapid interest rate hikes, stimulus programs and tax hikes. Dimon said the efforts made by the government to prop up its economy have not been counter-corrected, and leaving the deficit to grow could allow it to become out of control. “Any country can borrow money and drive some growth, but that may not always lead to good growth,” he said. “So, I think America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more, and that is important for the world.” The deficit skyrocketed during the pandemic, reaching $3.13 trillion in 2020 and $2.71 trillion in 2021.

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.

This is not a solicitation to purchase or se