The Precious Metals Week in Review

12/02/2024 

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

                               Gold                              Silver

Support                   2014/1991/1966            22.27/21.86/21.33

Resistance              2062/2087/2110            23.20/23.73/24.14 

                               Platinum                        Palladium

Support                   868/843/815                  866/835/805

Resistance              915/939/950                  917/935/976

1. U.S. stocks dipped on Monday after Federal Reserve Chair Jerome Powell put a chill on prospects for an early interest rate cut, raising the stakes for a packed week of corporate earnings to keep the recent rally alive. Stocks slumped after a rollercoaster week that ended in weekly wins thanks to a blowout January jobs report and strong high-profile earnings updates. Those high spirits took a knock after Powell doubled down on his midweek message that the central bank will tread cautiously in deciding when to cut rates. He said the "danger of moving too soon is the job's not quite done" in quelling inflation. That prompted traders to scale back their bets on rate cuts, not just for March, but in May too, per the CME FedWatch Tool. U.S. bonds sank, with the 10-year Treasury yield rising about six basis points to 4.08%. 

2. Federal Reserve chair Jerome Powell is predicting that more small banks will likely close or merge due to commercial real estate weaknesses, but that the problem is ultimately "manageable." This is due to losses tied to the falling values of properties across the U.S. that are suddenly worth much less due to the Fed’s elevated interest rates and the effect of a pandemic that emptied out many city-centre buildings. It was Powell’s first comments about the industry following a new bout of turmoil cascading through the stocks of many regional banks. "I don't think there's much risk of a repeat of 2008," Powell said, referring to a financial crisis 16 years ago that took down some of the biggest institutions on Wall Street as well as hundreds of banks across the U.S. The new concerns about regional banks were triggered by $116 billion commercial real estate lender New York Community Bancorp which shocked Wall Street last Wednesday when it slashed its dividend, reported a surprise quarterly loss, and stockpiled millions for future loan losses related to commercial real estate holdings. The stock of the Hicksville, N.Y.-based lender fell 38% on Wednesday and another 11% on Thursday, dragging the rest of the sector down with it. The stocks recovered Friday but are in the red once again on Monday. New York Community Bancorp was down more than 7% in morning trading. The "perfect storm" that could create problems for the rest of the industry is that if inflation goes back up, forcing the Fed to keep rates higher for longer, and the economy enters a recession. Borrowers would then have problems keeping up with their loans. 

3. As the Chinese New Year fast approaches, gold traders and investors are closely watching sales in the world’s largest precious metals consumer market to gauge the impact of higher prices on recent burgeoning demand. Chinese New Year will fall on Saturday, Feb. 10 this year, beginning the year of the Wood Dragon. It's traditional to buy gold during the Lunar New Year holiday in China, and gold purchases continued to increase last year even as the price of gold hit new all-time highs. According to a report from Shanghai, the higher prices have not discouraged buyers in the run-up to this year’s holiday. "Consumers who received their year-end bonus will purchase gold as investments or buy jewellery to dress up," said Chen Mengyi Manager of Jinrong Flagship Store Laomiao Jewellery. "The Year of the Dragon is approaching; some will buy a dragon-shaped pendant to give to new-born babies and the elders in the family." The report noted that all signs point to consumer gold sales being very strong this year with the higher gold prices actually creating additional incentive for people to buy, as they see the precious metal as an appreciating asset. "Gold price increased last year in RMB term by 16.8 percent, a very attractive return compared with other mainstream financial assets," said Wang Lixin, CEO of World Gold Council China. "On the other hand, it means you need to pay more for gold jewellery. But based on our research, we find young consumers intend to pursue the so-called saving consumption. One hand, they consume, on the other hand, they can have a sense of savings." According to the China Gold Association, gold consumption in the country exceeded 1000 tons in 2023, representing a year-over-year increase of around 9% overall, with sales of gold jewellery up 8% while sales of gold bars and coins rose over 15% during the year. 

4. Ford is on deck to report results for the fourth quarter and the full year after the bell on Tuesday, with its changing EV game plan in focus as the company shifts to hybrid production. Last year Ford divided into business units — Ford Blue for the traditional gas-powered business, Ford Model e for the EV division, and Ford Pro for its commercial and super duty truck business. Ford Blue is slated to report $24.52 billion in revenue, with EBIT of $866.5 million. Model e is expected to bring in $1.91 billion in revenue, with an EBIT loss of $1.34 billion. Ford Pro at $13.86 billion in revenue, with EBIT of $1.43 billion. In focus is Ford’s Model e EV business, one that has seen significant changes over the last year as growth in the business has slowed. Ford also delayed the construction of its new battery plant in Michigan and scaled back battery’s output. Earlier in January Ford moved 1,400 workers off F-150 Lightning EV production and cut a shift as the company adjusted supply to what appears to be slowing demand. Ford also saw declining sales of its EVs in January of this year, with EV sales dropping over 10%, mainly led by decreasing sales of the Mustang Mach-E, which lost federal EV tax credit eligibility on Jan. 1. The company did see overall auto sales climb, however, with hybrid sales jumping over 40%. Ford has said it will push to bring more hybrids to the market to meet customer demand. 

5. China's overreliance on real estate has sent its economy tumbling toward 2008-era financial conditions. "This is just like the U.S. financial crisis on steroids," the Hayman Capital founder said. "They have three and a half times more banking leverage than we did going into the crisis. And they've only been at this banking thing for a couple of decades." The years of double-digit growth China enjoyed prior to the pandemic were made possible by an unregulated real estate market, which leaned too heavily on debt to expand. With defaults now plaguing the industry, this spells massive trouble for the country's broader economy. The real estate sector makes up around a quarter of the country's GDP and 70% of household wealth. The basic architecture of the Chinese economy is broken. In fact, virtually every public or listed Chinese developer is currently in default. Two of the biggest, Evergrande and Country Garden, have a collective debt of $500 billion. The former was recently ordered to liquidate by a Hong Kong court, and its collapse is sparking fears of systemic risks to come. However, Chinese officials have hesitated to provide massive stimulus. 

6. In the week ending February 3, the advance figure for seasonally adjusted initial claims was 218,000, a decrease of 9,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 224,000 to 227,000. The 4-week moving average was 212,250, an increase of 3,750 from the previous week's revised average. The previous week's average was revised up by 750 from 207,750 to 208,500. 

7. Oil prices were on track for gains of 6% on a week-on-week basis amid persistent tensions in the Middle East after Israel rejected a ceasefire offer from Hamas, and tightness in refined products markets that was driven by refining outages. Brent crude futures were up 35 cents, or 0.4%, on the day to $81.98 a barrel by 11:49 a.m. EST (1649 GMT), while U.S. West Texas Intermediate crude futures rose 41 cents or 0.5%, to $76.63 a barrel. U.S. crude was $1 higher earlier in the session. 

8. EUR/USD clings to modest daily gains slightly below 1.0800 in the American session on Friday. Following the downward revision to the monthly December CPI print, the U.S. Dollar struggles to gather strength and help the pair edge higher. 

9. Japanese Yen bears retain in control near YTD (year to date) lows, focus shifts to next week’s U.S. CPI. The Japanese Yen continues to be undermined by dovish BOJ remarks on Thursday. The Fed rate cut uncertainty keeps the USD bulls on the defensive and caps gains. Traders also prefer to wait for the U.S. consumer inflation figures, due out next week. 

The gold market is struggling to find some bullish momentum after the U.S. central bank significantly pushed back on expectations of an aggressive easing cycle kicking off in March. However, one Canadian bank says now is the time to buy for an inevitable rally. Monday, commodity analysts at TD Securities published a note, saying they have initiated a tactical long gold trade and are looking for significantly higher prices in the next three months. The bank said they entered their long gold trade at $2,035 an ounce and are looking for prices to reach $2,250 an ounce. The bullish trade comes as gold starts the week seeing considerable selling pressure as prices fell below a significant support/resistance level at $2,050 an ounce. Gold is struggling after Powell reiterated the central bank’s stance that it is not ready to cut rates in March. While a March rate cut is off the table, the central bank still expects to ease interest rates this year, which Daniel Ghali, Senior Commodity Strategist at TD Securities, and author of the latest trade note, said is the most important factor for gold. “Whether it’s March or May is largely irrelevant,” he said. “What the gold market does care about is the total amount of rate cuts priced in the next 12 months or so.” Ghali said four rate cuts will be enough to attract new investors to the marketplace, “given the cohort's positioning is now at least -40k lots below levels implied by current pricing in the Fed funds futures curve.” At the same time, Ghali noted that there are a lot of traders sitting on the side-lines that could jump, and robust Chinese demand continues to provide critical long-term support. 

The oil market is about to do a 180, according to Occidental Petroleum's CEO, Vicki Hollub. The chief executive of the energy giant beloved by Warren Buffett pointed to the oversupply in the oil market as the main factor keeping a lid on prices. Global oil demand growth is expected to ease in 2024, according to the International Energy Agency. Meanwhile, the world's oil supply is expected to rise to a record 103.5 million barrels a day this year. That kind of supply-demand mismatch has helped push prices lower in recent months, but the dynamic is about to be flipped on its head, Hollub warned, with undersupply set to be the dominant theme over the coming years. Though crude demand has eased in the short term, energy markets are slammed with long-term supply issues, Hollub said, given that producers haven't been able to replace the oil they're currently producing. She estimated that over the past 10 years, the world has replaced less than half of the oil that was produced. Other oil market forecasters have warned of a similar outcome, where the undersupply of crude puts upwards pressure on oil prices. Chronic underinvestment in the industry also means oil and other commodities are in a "super cycle," which could push crude as high as $100 a barrel, Goldman Sachs previously estimated. 

With temperatures bottoming out across the country, electric vehicle drivers are probably noticing their driving range plummeting. Here’s why it keeps happening – and there’s more to it than you might think. There are two main reasons for the drop in driving range, or how far the car can go before recharging: The battery, and the driver. Batteries operate through chemical reactions with electrons and ions moving from one side of the battery to the other. When it gets too cold, all sorts of chemical reactions slow down, including those taking place in a battery. That means the driving range is reduced. But human beings also don’t function so well in the cold. When we’re driving on a cold day, we need to turn up the heat. That’s a much bigger factor in reducing EV range than the effect of temperature on the battery itself. In a gasoline-powered car, turning on the heater hardly impacts fuel economy at all. In Consumer Reports’ EV tests, taking lots of short trips made things substantially worse. Every time the vehicle stopped, and the cabin cooled down it had to be reheated again when the vehicle started, sapping more energy, and doubling the amount of range lost. EV charging times are longer when the temperature is cold. Charging, just like discharging, or powering the car, is a chemical reaction that’s slowed down when temperatures drop. In fact, some electric vehicles will greatly slow down their maximum fast charging in very cold weather to prevent battery damage. 

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.