The Precious Metals Week in Review

August 12,08. 2024  

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

                                   Gold                                     Silver 

Support                       2382/2322/2274                   27.47/26.43/25.56 

Resistance                 2490/2538/2598                    29.42/30.29/31.35 

                                   Platinum                              Palladium 

Support                      922/915/901                         877/865/844 

Resistance                973/988/1002                        910/931/945 

1. Wall Street's stock sell-off intensified in a major way Monday as concerns mounted over the health of the economy. The Dow Jones Industrial Average fell about 1,000 points. The Nasdaq Composite was crushed by roughly 4% after the tech-heavy index entered a correction with Friday's sharp losses. The S&P 500 losses cascaded over 2.5%. Wall Street's "fear gauge," the CBOE Volatility Index soared, reaching its highest level since the early days of the COVID-19 pandemic. Treasury yields plummeted, with the benchmark 10-year Treasury yield sinking below 3.8%. Crypto also took a beating, with Bitcoin sinking roughly 19.5%. The concerns have spread throughout the world, as well. Traders in Asia greeted the week with a similar sell-off, as Japan's Nikkei 225 was routed by more than 12% in its biggest-ever daily loss. In commodities, meanwhile, oil was near its lows for the year, with WTI crude futures down to nearly $72 a barrel. The U.S. market is headed into a quieter week of data and earnings. With the jobs market still in focus, weekly unemployment claims due Thursday will take a bigger spotlight than usual.  
2. Amidst factors typically bearish for the precious metal, gold prices posted solid gains on Thursday. This resilience in the face of economic data and market dynamics that would normally weigh on the yellow metal suggests the recent price correction may be nearing its end. Similarly, the U.S. dollar gained 0.05% on the day, reaching an index level of 103.01. A stronger dollar tends to make gold, which is priced in the U.S. currency, more expensive for foreign buyers, thereby reducing demand. Typically, the combination of a stronger dollar, higher yields, and improving employment data would be enough to send gold prices lower. Yet, defying these typical market dynamics, gold for December delivery settled $30.90 higher at $2,463.30 per ounce, a 1.27% increase. The fact that gold was able to rebound strongly in the face of these apparent headwinds suggests the recent price correction may be drawing to a close. 
3. The U.S. two-year yield became lower than the 10-year yield the first time since July 2022 as fears of an economic downturn led traders to bet on sharp monetary policy easing by the Federal Reserve. That’s a key milestone for the Treasury market, where short-term yields have been higher than longer-term ones, creating an inverted yield curve for most of the time since the Fed began a series of 11 interest-rate increases totaling more than five percentage points in March 2022. The move comes as investors bet the Fed and fellow central banks will turn more aggressive in cutting interest rates amid mounting concern that economic growth is faltering at a faster pace than expected just weeks ago. That has triggered one of the most powerful bond-market rallies since fears of a banking crisis flared in March 2023. The disinversion of the yield curve may mean the economy has entered a recession, said James Athey, a portfolio manager at Marlborough Investment Management. “History says that when the curve moves back to a positive slope, you’re in recession,” Athey said. “The signals have been getting a bit more worrying for a while now.”
4. The pressure on the Federal Reserve to cut rates is rising in the wake of heavy selling on Wall Street and a disappointing jobs report that's stoked recession fears. Traders are now betting the Fed will act more aggressively in the remaining months of 2024. They expect rate cuts of half a percent in both September and November and another quarter point cut in December. Previously traders were looking at two quarter point cuts for the rest of this year. JPMorgan chief economist Michael Feroli suggests there is even a growing argument for a rate cut before the next scheduled policy meeting on Sept. 17-18. There is a "strong case to act before September," he said in a research note. The Fed looks to be "materially behind the curve," added Feroli, who expects a 50-basis point cut at the September meeting followed by another 50-basis point cut in November. Wilmer Stith, bond portfolio manager for Wilmington Trust., doesn't expect a cut outside of a regularly scheduled meeting because that might spook investors. Normally the Fed reserves such moves for times of extreme crisis. “If things continue to fall out of bed at the rate that they seem to be falling, anything is possible,” Stith said, "but I think it’s unlikely that they move inter-meeting because I think that's just going to put more fear into the market." 
5. Mortgage rates are dropping fast. Will potential homebuyers jump at newly cheaper payments? Or will they wait to see if rates drop further before acting? Mortgage rates are now the lowest they’ve been in over a year. Last year at this time, mortgage rates were rising, eventually peaking at 8% in October 2023. That late year rise in costs really slowed the housing market. The 30-year fixed rate is under 6.5%. Still, this affordability boost is good for any buyers in the market now. We should be able to measure how demand changes over the next few weeks if rates stay at these new lower levels. If we get sustained lower rates this fall, will we return to the old seasonal patterns? I think we see some slowing in the growth of inventory. The slope is lower, just under 1% growth this week down from 1.5 or 2% recently. It could be that this late in the season, that not many homebuyers are motivated. Or they’re going to wait until the spring to see if rates are even lower then. But even in that case, we probably won’t see deterioration in prices the way we did in 2022 and 2023.  
6. Initial filings for unemployment insurance fell more than expected last week, offering some relief to markets worried about further signs of deterioration in the labour market and the broader economy. New data from the Department of Labour showed there were 233,000 initial jobless claims filed in the week ending Aug. 3, down from 250,000 the week prior and below the 240,000 economists had expected. In the week ending July 27, jobless claims hit their highest level since August 2023. Meanwhile, the number of continuing applications for unemployment benefits hit its highest level since November 2021, with 1.875 million claims filed in the week ending July 27, up 6,000 from the week prior. 
7. U.S. crude oil is on pace for a more than 3% gain for the week as recession fears have somewhat eased and the risk of a wider war in the Middle East that could disrupt production and transportation looms over the market. West Texas Intermediate September contract: $76.01 per barrel, down 18 cents, or 0.24%. Year to date, U.S. oil has gained 6%. Brent October contract: $78.92 per barrel, down 24 cents, or 0.32%. Year to date, the global benchmark is ahead 2.43%. 
8. EUR/USD trades sideways above the round-level support of 1.0900 in Friday’s New York session. The major currency pair trades inside Thursday’s trading range, with investors looking for fresh cues indicating how much the European Central Bank (ECB), and the U.S. Federal Reserve will cut interest rates this year. The ECB is expected to cut interest rates two times more this year as the Eurozone economy is going through a rough phase, and price pressures are on track to return to the desired rate of 2%. 
9. The USD/JPY pair trades in a tight range above 147.00 in Friday’s European session. The asset consolidates as investors look for fresh cues about how much the Federal Reserve will cut interest rates this year. The Fed seems certain that it will start reducing its key borrowing rates in September. While investors are divided whether the rate-cut size will be quarter or half to a percent.  

Stocks finished last week under pressure. They began this week in the same state. When the closing bell rang on Wall Street on Monday, the Nasdaq had shed 3.4%, deepening losses after tumbling into a correction last week. The benchmark S&P 500 lost 3%, while the Dow fell 1,034 points. The stars of the stock market show this year, The Magnificent Seven lost some $652 billion in market capitalization on Monday alone. The price of cryptocurrencies captured the breadth of the risk-off move in markets, as bitcoin and ether tumbled toward some of their largest one-week losses since the collapse of FTX. And this remains the cleanest way to understand why the stock market's year of smooth sailing has ended abruptly. When the Fed held interest rates steady last week, investor reactions suggested the central bank had made a policy mistake by not taking the chance to lower rates before the economy showed signs of weakness. A soft July jobs report heightened worries that rather than lowering rates from a position of strength, the Fed would end up cutting from a position of need with the labor market quickly softening. So, with more than six weeks between now and the Fed's next regularly scheduled policy meeting, markets have been quick to put pressure on the central bank not to miss its next appointment. 

Stocks are battling back for gains on Thursday afternoon after what's been a brutal stretch for the market over the past several weeks. The S&P 500 rose 1.9%, while the tech-heavy Nasdaq jumped more than 2.3%. The Dow Jones Industrial Average was up about 1.4%. The number added a fresh jolt into Thursday's trading. Wall Street saw a comeback attempt falter on Wednesday, as stocks faded into the close and ended up with sizable declines. The moves, from big gains to significant losses, continued a turbulent stretch that has pervaded markets for much of the past week. 

Mortgage rates fell to their lowest level in over a year, a welcome development for the housing market. The average rate on the 30-year fixed-rate mortgage dropped to 6.47% from 6.73% last week, Freddie Mac reported on Thursday. A year ago, the average rate on a 30-year fixed-rate loan was 6.96%. Separately, the average rate for the 15-year fixed mortgage was 5.63%, down from 5.99% a week prior. The rate on a 15-year loan was 6.34% a year ago. The index of refinancing jumped nearly 16% last week to a two-year high of 661.4. Mortgage applications to buy a home increased 0.8%, the first advance in a month. The overall index of applications, which includes the two, climbed 6.9% last week to the highest level since the start of the year. 

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.