The Precious Metals Week in Review

 01/07/2024

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

                                         Gold                                   Silver

Support                            2295/2270/2233                 28.70/27.85/26.77

Resistance                       2357/2394/2420                 30.62/31.70/32.54

                                        Platinum                             Palladium

Support                           962/928/907                       876/800/728

Resistance                     1016/1036/1070                 1024/1096/1172 

1. Federal Reserve Bank of Chicago President Austan Goolsbee is still looking for inflation to cool further as part of the process that would open the door to a rate cut. While Goolsbee declined to say anything about the timing of rate cuts, he said policymakers do need to consider whether the high level of the Fed's short-term rate target, now at between 5.25% and 5.5%, is appropriate for an economy that's starting to show signs of cooling outside of inflation. Very tight monetary policy has been in place because "you're trying to guard against overheating," Goolsbee explained. "If unemployment claims are going up, the unemployment rate is inching up, many of the other measures have cooled down to something like what they were before the pandemic and you start to see weakness on consumer spending," Goolsbee said at that point the Fed needs to think more about balancing both sides of its inflation and employment mandates. That's because, "if you're going to be extra restrictive for too long, you're going to have to start worrying about what's happening to the real economy" and whether that policy setting is slowing the economy down too much. 

2. Some modest selling pressure in the U.S. dollar is helping gold and silver prices find their footing at the start of the week, following robust volatility last week. Gold and silver continue to carve out a relatively narrow trading channel, with gold rangebound between support at $2,300 and resistance at $2,350 an ounce. Meanwhile, silver has been unable to hold gains above $30 an ounce but has managed to maintain support above $29 an ounce. Some analysts have said that gold and silver’s elevated speculative bullish positioning creates some risks that prices could test lower. However, analysts have also added that in an environment of heightened uncertainty, any major selling pressure could be seen as a tactical buying opportunity. Overall, even as volatility remains high, analysts are not expecting to see any major breakout as the Federal Reserve continues to signal eventual rate cuts this year. While the Central Bank sees only one rate cut this year, markets continue to price in two cuts. “With incoming U.S. economic data currently giving mixed signals, we expect the current consolidation period will continue until we get a clearer picture about the timing and depth of U.S. rate cuts,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank, in a note Monday. 

3. There is something "amiss" in the U.S. banking sector, says Gareth Soloway, Chief Market Strategist at VerifiedInvesting.com, warning that big institutional players are "unloading" the stocks of big banks. "I'm hearing a lot of chatter about the big banks unloading bad debt right now, trying to get ahead of some sort of crisis looming," Soloway wrote on Monday. "Because interest rates are so high, the amount of losses in mortgage-backed securities potentially rival what we saw in 2008 and 2009. In addition, the commercial real estate market is in tatters. And these are all things that banks are holding on their balance sheets." There has also been a technical breakdown in the stocks of some of the bigger banks, including JPMorgan, according to Soloway. "This trend line breakdown just started on JPMorgan, Citigroup has already broken down," Soloway added. "There are signs that something is amiss within the banking system, whether it's the bear flag or in these bigger banks. There are some bigger players that are unloading the big banks here." During periods of increased market volatility, liquidity demand accelerates, putting pressure on banks as non-banks look for loans and lines of credit. This could trigger "vectors of shock transmission and amplification, forcing authorities to intervene and do so en masse," the post said, adding that the disruptions "could be rather severe." 

4. U.S. consumer confidence eased in June amid worries about the economic outlook, but households remained somewhat upbeat about the labor market and expected inflation to potentially moderate over the next year. Though fewer consumers planned to buy vehicles and household appliances over the next six months, more planned to go on vacation. Labor-market resilience is driving consumer spending, underpinning the economy despite the Federal Reserve's hefty interest-rate hikes in 2022 and 2023 to quell inflation. The Conference Board's consumer confidence index dipped to 100.4 this month from a downwardly revised 101.3 in May. Economists polled had forecast the index slipping to 100.0 from the previously reported 102.0. The drop in confidence was concentrated in the 35-54 age group. Confidence improved among consumers under 35 and those 55 years and older. 

5. The average rate on a 30-year mortgage eased again this week, extending a welcome trend for prospective homebuyers facing record-high home prices. The rate fell to 6.86% from 6.87% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.71%. This is the fourth straight weekly drop in the rate, which has mostly hovered around 7% this year. Home sales have been falling in recent months as the elevated rates, which can add hundreds of dollars a month in costs for borrowers, have put off many home shoppers. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, rose this week, pushing the average rate to 6.16% from 6.13% last week. A year ago, it averaged 6.06%. Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans. 

6. The number of continuing applications for unemployment benefits hit its highest level since November 2021 last week, furthering signs the labour market is cooling as unemployed workers struggle to find new jobs. New data from the Department of Labour showed nearly 1.84 million claims were filed in the week ending June 22, up from 1.82 million the week prior. Meanwhile, the 4-week moving average of weekly jobless claims ticked higher by 3,000 to 236,000, the highest rate since September 2023. LPL Financial chief economist Jeffrey Roach reasoned the data is "sending a warning sign that the labour market could be softening." 

7. U.S. crude oil on Friday was heading for a third straight weekly gain as fears of war between Israel and the Iran-backed militia Hezbollah grow. West Texas Intermediate briefly hit an intraday high of $82.72 per barrel, the highest level for the U.S. benchmark since April 30. Brent rose to $87.22 per barrel earlier in the session, the global benchmark’s highest level in two months. U.S. oil is up about 1.2% for the week and 5.98% for June. 

8. The EUR/USD pair traded lifeless for most of the week around 1.0700, barely reacting on Friday following the release of the United States Personal Consumption Expenditures (PCE) Price Index. The Federal Reserve favorite inflation gauge came largely in line with expectations, as the PCE Price Index rate edged lower to 2.6% YoY in May from 2.7% in April, while the monthly reading matched the 0.0% expected. 

9. The U.S. dollar initially pulled back just a bit against the Japanese yen, but then since has broken above the 160-yen level. The 160 yen level of course is a large round psychologically significant figure and an area that I think a lot of people are going to pay attention to it. Remember, Japan really can’t do anything with its monetary policy at the moment, while the Federal Reserve, looks very likely to hang out at this level. 

Bank of America is eyeballing $3,000 gold. According to a report released by the big bank, gold prices could potentially hit $3,000 an ounce in the next 12 to 18 months as the Federal Reserve begins cutting interest rates and rising debt drives economic uncertainty. The Bank of America report said central bank gold buying will remain a crucial factor supporting gold prices. According to the most recent World Gold Council Central Bank Gold Survey, that appetite for gold isn’t waning. Twenty-nine percent of central banks indicated they plan to add more gold to their reserves in the next 12 months. The WGC said it was the highest level since the survey began in 2018. The People’s Bank of China has added around 8 million ounces of gold to its reserves since January 2023. Meanwhile, the Chinese central bank has divested $102 billion in U.S. Treasuries in the past year. The Bank of America report highlighted bond yield volatility as another tailwind for gold. If demand for Treasuries continues to ebb, yields could rise even with Federal Reserve rate cuts. Higher yields typically create headwinds for gold since it is a non-yielding asset. The question is when will the Federal Reserve cut rates? Sentiment shifts back and forth with every fluctuation in CPI and economic data. But it seems like the central bank will potentially cut rates sooner rather than later to ease pressure on the economy.

Charles Schwab economists are pointing out that current market conditions are becoming more like 2021, the year before the most recent time stocks soured. The bank's investment analysts warned of the problems caused by the growing disconnect between individual stocks doing badly and indexes such as the S&P 500 going gangbusters. 'If we continue to see more weakness in the former and strength in the latter, it will start to eerily mimic 2021's dynamic,' wrote Liz Ann Sonders, who's been Charles Schwab's chief investment strategist for 24 years. The percentage of stocks in the S&P trading higher than they did in the last fifty trading days has plummeted to around 50 percent, when it was closer to 90 percent at the start of 2024. 'That was the case in the second half of 2021 which, with the benefit of hindsight, correctly signaled that the market would no longer be able to hold up at the index level—thus leading to the bear market in 2022,' Sonders wrote. The S&P shrank 18.11 percent in 2022. The index truly hit rock bottom at the end of September and has climbed more than 50 percent to where we stand today. If the same scenario happens again sometime in 2024 or 2025, Americans may see their net worth go down substantially since much of their retirement accounts are thoroughly invested in tech-heavy indexes like the S&P.

Over three-quarters (76.1%) of business professionals are skeptical of company motives for environmental, social and governance (ESG) commitments, according to a new survey. GlobalData’s ESG Sentiment Polls Q2 2024 found that over half (52.4%) of respondents believe that “for most companies, ESG is just a marketing exercise,” while nearly a further quarter (23.7%) feel that “some companies take ESG seriously, but, for others, it’s a marketing exercise.” In a recent briefing, GlobalData thematic intelligence analyst warned companies against publicly expressing support for ESG causes unless they can back up their words with action or at least a clear alignment of values lest they be accused of hijacking serious topics for financial gain. Some sections of the public perceive these marketing campaigns as corporate performative activism aimed at improving perceptions of the company and generating a false sense of relatability between the company and its customers rather than demonstrating the company’s actual devotion to any given cause.

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