The Precious Metals Week in Review

24/06/2024

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

                                            Gold                                      Silver

Support                               2299/2266/2244                    28.70/27.86/27.08

Resistance                          2353/2374/2408                    30.32/31.10/31.93

                                           Platinum                                 Palladium

Support                               947/937/929                          880/870/858

Resistance                          1001/1010/1025                    960/971/990

1. The Bank of Canada may hesitate to make aggressive rate cuts until policymakers feel assured the Federal Reserve is ready to start lowering borrowing costs. Fed policymakers last week shifted their forecasts for the path of interest rates, signaling just one cut in 2024. The Bank of Canada has already started an easing cycle, this month it became the first Group of Seven central bank to cut rates — but it may be reluctant to get too far ahead of the Fed. Canada’s role as a major commodity exporter leaves it vulnerable to currency volatility, which may factor into the central bank’s thinking, even though it doesn’t explicitly manage policy for the exchange rate. The Canadian dollar has sagged 3.7% this year versus the greenback, due to a combination of slower growth and decelerating inflation. A cut every other meeting would take the Bank of Canada’s policy interest rate down to 4.25% by the end of the year, from the current 4.75%.

 2. As mortgage rates remain near two-decade highs, the lion’s share of U.S. homes are lingering on the market, with over three in five listings remaining unsold for at least 30 days. According to data issued Tuesday, 61.9% of homes listed in May had not gone under contract after 30 days, an increase from 60% the previous year. According to Redfin, the rise in "stale" listings, fueled by high mortgage rates and soaring home prices, indicates a deepening challenge in the housing market as potential buyers are priced out despite what is typically a peak season for home sales. In response, properties are accumulating mostly in regions like Texas and Florida where new constructions have bolstered supply but not demand, coupled with buyer hesitancy due to concerns over natural disasters. The report found that 40.1% of homes listed had not found a buyer after 60 days, mirroring the stat from the previous year while marking an increase of 27.8% observed two years earlier. That persistence suggests that while the initial 30-day listing period saw a drop-off in buyer interest, many homes continue to face challenges in attracting buyers even as they linger longer on the market. Redfin economists note that the static nature of the 60-day stale rate, consistent in both April and May, could indicate an upcoming rise if mortgage rates continue to hold. The trend reflects a deepening normalization of longer listing durations as the new market reality set against high borrowing costs that deter potential buyers. 

3. Electric vehicle maker Fisker filed for Chapter 11 bankruptcy protection, the second electric startup to do so in the last year as even industry leaders struggle to lure more buyers beyond the early adapters of the technology. “Like other companies in the electric vehicle industry, we have faced various market and macroeconomic headwinds that have impacted our ability to operate efficiently,” the company said in a prepared statement late Monday. “After evaluating all options for our business, we determined that proceeding with a sale of our assets under Chapter 11 is the most viable path forward for the company.” However, EV sales have slowed as manufacturers have attempted to push electric vehicles into the mainstream. Those sales have been curbed both by a lack of infrastructure, as well as rising inflation that have made taking on car loans more expensive. Electric vehicles grew only 3.3% to nearly 270,000 during the first three months of this year, far below the 47% growth that fueled record sales and a 7.6% market share last year, according to J.D. Power. The slowdown, led by Tesla, confirms automakers’ fears that they moved too quickly to pursue EV buyers. The EV share of total U.S. sales fell to 7.15% in the first quarter. Another electric startup, Rivian, said this year that it was pausing construction of its $5 billion manufacturing plant in Georgia to speed production and save money. 

4. Retail sales increased at a slower-than-expected pace in May as high interest rates and inflation continued to weigh on consumers. Retail sales increased 0.1%, less than the 0.3% economists had expected. In April, retail sales ticked down 0.2%, according to revised data from the Commerce Department. Excluding autos and gas, retail sales increased 0.1%, below estimates for a 0.4% increase but above the 0.3% decline in April. Capital Economics chief North America economist Paul Ashworth noted Tuesday's retail sales reading adds to "signs that consumers are struggling a little. The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth is still a little lackluster in the second quarter too," Ashworth said. 

5. The Federal Deposit Insurance Corp. and the Federal Reserve have found Citigroup Inc.'s living will to be lacking, although the two agencies disagree as to the severity. Four of the plans that the largest U.S. banks must submit that outline how they would wind down in case of a crisis were found to have weaknesses, according to the Fed and the FDIC. Those institutions include Bank of America, Citi, Goldman Sachs and JPMorgan Chase. The FDIC, however, reached a "different conclusion" than the Fed on the severity of Citi's plan. The FDIC decided that Citi's plan "is not credible or would not facilitate an orderly resolution" under U.S. bankruptcy law and would consider the weakness to be a "deficiency." The Fed, meanwhile, found that Citi's weakness is a "shortcoming," a less severe rating. Specifically, the Fed and the FDIC have concerns over Citi's capability to unwind its derivatives portfolio, according to a letter from the pair of agencies to the bank. 

6. The number of Americans applying for unemployment benefits slipped last week as the U.S. labor market remained resilient. The Labor Department reported Thursday that jobless claims fell by 5,000 to 238,000 from a 10-month high of 243,000 the week before. The four-week average of claims, which evens out weekly ups and downs, rose by 5,500 to 232,750, the highest since September. However, there has been a gradual increase in recent weeks that merits watching for signals about a more material weakening in demand for workers going forward. 

7. U.S. crude oil was on pace Friday for a second weekly gain in a row, as gasoline demand has surged to post-pandemic highs. Oil prices fell Friday but are ahead nearly 3% for the week. The oil rally has lifted the energy stocks, with the sector up 2.4% to lead the S&P500 this week. Gasoline consumption in the U.S. surged to 9.4 million barrels per day, or bpd, last week, the highest level for that time of year since the Covid-19 pandemic ended. West Texas Intermediate August contract: $80.56 per barrel, down 72 cents, or 0.89%. Year to date, U.S. crude oil has gained 12.4%. Brent August contract: $85.06 per barrel, down 65 cents, or 0.76%. Year to date, the global benchmark is ahead by 10.4%. 

8. EUR/USD stays on the back foot and trades in negative territory below 1.0700 as the U.S. Dollar receives help from upbeat data in the American session. S&P Global reported that the economic activity in the private sector continued to expand at a robust pace in June.

 9. USD/JPY rallies to over 159 as U.S. Dollar gains on hawkish Fedspeak and weakening Yen. Slide in Japanese underlying inflation suggests BoJ will not be able to raise rates much to support JPY. USD/JPY reenters intervention territory increasing chances authorities could intervene to push it lower.

 Investors need to be patient when it comes to gold. According to one U.S. bank, the precious metal could continue to consolidate through the summer as markets come to terms with the Federal Reserve’s holding pattern. In an interview John LaForge, Head of Real Asset Strategy said that he does not expect the Federal Reserve to cut rates until the final months of the year. He added that the market is seeing solid signs that the Federal Reserve’s aggressive monetary policies have reached their limit. Until then, LaForge said that the market will be at the mercy of its natural ebbs and flows in retail markets. He pointed out that consumers in Asia, led by Chinese and Indian buyers, have been significant drivers for the physical bullion market, supporting prices near-record levels. According to the bank’s updated mid-year price forecasts, gold prices are expected to trade between $2,300 and $2,400 an ounce. The range is expected to increase to $2,400 and $2,500 an ounce by the end of 2025. Although Western retail investors continue to wait for the right moment to jump into the gold market, LaForge said he doesn’t see that hesitation among official gold buyers. He added that he expects central banks to continue buying gold as there are still years left in this new commodity supercycle.

As summer unfolds with spring in the rear-view mirror, sales staff at car dealerships across the country are clearing out inventory to make way for the new 2025 models coming in the fall. But one car group is still clogging up dealer lots: EVs. The relatively high cost of EVs, range anxiety, and American consumer preference for hybrids are a few factors to blame. The latest data from S&P Mobility finds that EV inventory at the end of April climbed 5.7% compared to the prior month and rose 105% compared to a year ago. This despite steep discounting for EVs through most of the year. “It’s tough sledding out there,” Tesla CEO Elon Musk said. Given that automakers other than Tesla are selling EVs at a loss, it’s not surprising car manufacturers across the board have been backtracking. Americans were never prepared to embrace electric vehicles at the rate predicted by many industry and government 'experts’. It was obvious getting from 3% to 7% EV share was much easier than getting from 7% to 10%. And getting EV share to 20%, 30%, or more percent? That was clearly a long way off.

New home construction in the U.S. slumped in May to the slowest pace in four years, as higher-for-longer interest rates sap the housing industry’s momentum from earlier this year. Housing starts decreased 5.5% to a 1.28 million annualized rate last month, according to government data released Thursday. The figure was below all but one estimate in a survey of economists. Building permits, which point to future construction, fell 3.8% to a 1.39 annual rate, also the weakest since June 2020. The drop in homebuilding suggests residential construction may detract from economic growth after stabilizing earlier this year. Before the report, the Federal Reserve Bank of Atlanta’s forecast had pegged the category to barely contribute to gross domestic product in the current quarter.

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