The Precious Metals Week in Review 11/12/2023
- Stocks pulled back on Monday as doubts crept in about the prospects for a U.S. interest rate cut, with the key monthly jobs report on the horizon. Stocks rallied last month, lifting the gauges to five weekly wins in a row, as investors stuck with the idea that the Federal Reserve would start cutting rates early next year. Those expectations have also dragged down Treasury yields in recent days, even after Fed Chair Jerome Powell pushed back against talk of an end to rate hikes. Both stocks and bonds are now in retreat on Wall Street as a growing chorus of analysts warn that the rally in those assets is overdone. The 10-year Treasury yield was up 6 basis points to about 4.28%. The November jobs report, scheduled for release Friday, could also take the wind out of the rally's sails, depending on whether the data contradicts the notion the Fed is done with hikes. Cooling in the labour market is a key factor in policymakers' decision making.
- Gold and silver prices were also lower in midday U.S. trading Monday, after gold overnight spiked to a new record high of $2,152.30, basis February Comex futures. Silver hit a seven-month high overnight. The two precious metals markets are seeing the shorter-term futures traders taking profits after the recent solid gains. Importantly, today's price action in gold and silver suggests the bulls are now near-term exhausted and that near-term (but not longer-term) market tops are in place. By this I mean that gold and silver prices have probably peaked for at least a few weeks, it not a while longer, but after that new highs are probable, likely in 2024. February gold was last down $44.10 at $2,046.00. March silver was last down $0.997 at $24.875.
- EV owners report far more problems with their cars and trucks than owners of gas-powered vehicles, according to a new survey. Vehicles in the burgeoning electric vehicle segment, from model year 2021 through 2023, encountered 79 percent more problems than those with combustion engines, according to a Consumer Reports survey of more than 330,000 car owners. The research said EV owners most frequently reported troubles with battery and charging systems. Consumer Reports noted that reliability concerns will cause additional apprehension among prospective buyers, alongside concerns about higher costs, too few charging stations and long charging times. The growth of EV sales has slowed sharply since last year, and concern has heightened that American consumers are simply not prepared to make the switch from gas-powered cars. In June 2022, EV sales were growing about 90 percent year over year. But by June of this year the 12-month growth rate had slowed to about 50 percent. Automakers have become increasingly fearful the pace will weaken further. And this week, about 3,900 auto dealers signed a letter to President Biden asking him to rethink what they described as unrealistic fuel economy and emissions requirements. ‘EV’s are not selling nearly as fast as they are arriving at our dealerships, even with deep price cuts, manufacturer incentives and generous government incentives,’ the letter said. Not a single electric vehicle charging station has been completed in the two years since the bipartisan infrastructure bill passed, after Biden urged Congress to spend $7.5 billion on constructing a national network.
- Surging mortgage rates and record-high home prices are no longer side-lining potential buyers. As of October, more than a third of prospective homebuyers are no longer willing to wait for home prices and interest rates to fall to buy a home, up from 15% in April. U.S. pending home sales fell 8.5% in October to the lowest level in 20 years, according to the National Association of Realtors, with the Northeast being the only region that saw monthly gains in pending transactions. On a year-over-year basis, all four U.S. regions recorded declines in sales. "We are in a very unique housing cycle where homeowners are unwilling to list their property because they are locked in on those lovely 3%, 4% mortgage rates," Lawrence Yun, National Association of Realtors chief economist said recently. "They're all smiling. Their monthly payments are low. Their housing wealth has risen greatly." But some relief may be coming to prospective homebuyers, just as they're looking to push forward with purchases. The survey showed that 54% of homeowners are willing to move if they find a more affordable area, even if it means paying a higher mortgage rate. Looking ahead to 2024, forecasts for a decline in borrowing rates will likely bring more buyers back to the market. Since peaking at 7.79%, the average rate on the 30-year fixed mortgage has fallen five weeks in a row to 7.22%.
- Eight Wall Street CEOs testified before the Senate Banking Committee on Wednesday, and the primary topic of discussion centred on a new proposal to raise capital requirements at these firms. The proposal, known as the Basel III Endgame, has been prescribed by financial crisis-era law Dodd-Frank for a decade to put the world on equal footing. Banks have argued the proposal would go beyond the Basel framework and require them to raise capital by 20%-25% as well as require them to hold 30% more in capital-per-loan compared with international standards. JPMorgan CEO Jamie Dimon warned Wednesday that new capital requirements could make mortgages and loans to small businesses more expensive, while also pushing up consumer prices and the cost of saving for retirement. The cost of originating and holding mortgage loans will rise, in Dimon's view, in part because the cost of securitizing them will rise for banks, non-banks, and government agencies. And banking analyst Meredith Whitney warns these rules won't just present a new challenge for the banks but could create a new headache for American homeowners. "The proposals under the Basel III Endgame are going to hurt the consumer, that's just a fact," Whitney, who is best known for her prescient calls ahead of the 2008 financial crisis, said in an interview. "The risk is for the U.S. consumer, which is that capital will be harder to come by for small businesses, and the individual, and it can be more expensive." In Whitney's view, this new difficulty in accessing capital could push mortgage rates higher by up to 30% from current levels.
- The unemployment rate unexpectedly fell in November, reflecting signs that the labour market may not be cooling as quickly as many had initially thought. Data from the Bureau of Labour Statistics released showed the unemployment rate was 3.7% for the month, down from 3.9% in October. The U.S. economy added 199,000 jobs in November, an uptick from 150,000 the previous month as striking auto workers and Hollywood actors came back to the workforce. Wages, a closely watched indicator for inflation and a gauge of how much leverage workers have in the labour market, increased 0.4% on a monthly basis and 4.1% over last year; economists had expected wages to rise 0.3% over last month and 4% over last year. The largest jobs increase in Friday's report was seen in healthcare, where 77,000 jobs were added. Employment in government rose by 49,000, reaching its pre-pandemic level. Leisure and hospitality rose by 40,000.
- U.S. gasoline futures slumped this week to the lowest level since 2021, suggesting that the average American pump price will continue to drop and end the year below $3 per gallon. The latest inventory report from the EIA showed an inventory build of 5.4 million barrels of gasoline for last week. This compared with a build of 1.8 million barrels for the previous week. At the time of writing Brent crude was trading for $75.47 per barrel with WTI selling for $70.82 a barrel.
- The EUR/USD fell decently more than 0.20% during the North American session after it dived to a daily low of 1.0723 courtesy of a slid U.S. Nonfarm Payrolls report. However, after a better-than-expected University of Michigan Consumer Sentiment report, the pair has trimmed some earlier losses. The major is trading at 1.0747. The U.S. Dollar Index (DXY), which tracks the currency’s performance against six others, registers gains of 0.40%, up at 103.07.
- The Japanese Yen (JPY) struggles to preserve its intraday gains against the U.S. Dollar (USD) and lifts the USD/JPY pair above the 144.00 mark during the early European session on Friday. Following the previous day's pullback from a two-week high, the Dollar (USD) regained positive traction in the wake of a further recovery in the U.S. Treasury bond yields. Meanwhile, a downward revision to Japan’s third-quarter GDP print, along with a generally positive risk tone, undermines the safe-haven JPY and turns out to be another factor lending support to the major.
Gold went on a run late last week, setting an all-time record high last Friday and breaking the $2,100 level for a brief time in overseas trading Sunday night. Silver also rallied but continues to lag behind gold. In fact, silver looks significantly under-priced based on both its historical relationship with gold and the supply/demand dynamics. The silver-gold ratio is currently over 81-1. That means it takes more than 81 ounces of silver to buy one ounce of gold. To put the current ratio into perspective, in the modern era, the silver-gold ratio has averaged between 40:1 and 60:1. Historically, the ratio has always returned to that mean. And when it does, it does it with a vengeance. The ratio fell to 30-1 in 2011 and below 20-1 in 1979. Geologists estimate that there are approximately 19 ounces of silver for every ounce of gold in the earth’s crust, with a ratio of approximately 11.2 ounces of silver to each ounce of gold that has ever been mined. Interestingly, the silver-gold ratio in ancient Egypt was 1:1. According to a recent forecast by Oxford Economics, silver demand for industrial applications, jewellery production, and silverware fabrication is expected to nearly double over the next 10 years. The use of silver in solar energy and electric vehicles will drive industrial offtake. According to a research paper by scientists at the University of New South Wales, solar manufacturers will likely require over 20% of the current annual silver supply by 2027, and by 2050, solar panel production will use approximately 85–98% of the current global silver reserves. Silver demand set records in every category in 2022. Meanwhile, supply was flat with mine output dropping by 0.6% to 822.4 million ounces. Record global silver demand and a lack of supply upside contributed to last year’s 237.7-million-ounce market deficit. It was the second consecutive annual deficit in a row. The Silver Institute called it “possibly the most significant deficit on record.”
Electric vehicle owners are facing repair bills that are thousands of dollars higher than those for gas cars. A lack of specially trained mechanics, extra safety measures for potentially explosive batteries and a greater need for replacement parts are to blame. Repairing an EV after a crash cost $6,587 on average last year - 56 percent higher than the $4,215 for all vehicles, according to research from auto data company CCC Intelligent Solutions. The report found that last year, on average, an electric car repair required roughly double the replacement parts compared to a standard gas car. The way that many EV parts are welded in the vehicles, he said, means the components cannot be repaired and have to be replaced instead. Cars containing lithium-ion batteries also need special storage as they can be a fire risk when damaged, which adds both time and cost to the repair process. There are also a limited number of repair shops that are able to take on this work, meaning they are able to charge a premium for services. It found the need for specialist care also means customers face longer wait times for repairs. According to the report, it takes 25 percent longer to get an EV into a body shop compared to a gas car. And once mechanics start working, it typically takes 57 days to fix, compared to 45 days for non-EVs.
Markets are pricing in at least 100 basis points of interest rate cuts next year, starting in the second quarter. One strategist thinks those bets are "overdone." "That is really aggressive," BlackRock Institute global chief investment strategist Wei Li said at a media roundtable on Tuesday. "Something will have to go seriously wrong for that to come through. So, we do think that the Fed will cut rates, probably in the second half of next year, but how many cuts they will deliver will be quite a bit less compared with the old economic cycles, old recessions." But Li says the Fed will need to hold back on aggressive cuts next year to stop "further inflationary pressure." The Fed's unpredictable path could lead to more volatility, particularly in the bond market. The 10-year Treasury yield has swung dramatically throughout the fall as investors speculate on the Fed's path. BlackRock also believes the uncertain nature of the post-pandemic economy will be a key contributor to further volatility in 2024.
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 1974/1947/1915 23.00/22.75/22.45
Resistance 2097/2123/2171 25.06/26.33/27.05
Support 920/912/903 945/920/912
Resistance 941/950/960 1022/1041/1056
This is not a solicitation to purchase or sell