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Weekly roundup for StoneX Bullion 23 September 2024
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Gold’s bull run continued last week after a small correction and crested $2,600 at the end of the week, largely on momentum
The rally has taken gold up by 6% this month
Silver’s major move was on 12/13th September and last week was a question of backing and filling between $30.0 and $30.3
Silver’s change on the month, +11.0% at the peak, net 8.4% as we write
Both metals have been helped by improved technical formations, notably from the Moving Averages. Our inhouse technical expert is citing Fibonacci resistance at $2,657
The ratio has picked up again, edging back towards 85
Powell: while all FOMC members are expecting further cuts this year, do not assumed that 50-point cuts are enshrined in policy. The FOMC will remain data dependent and take it meeting by meeting.
Gold State of Play: a Cheat Sheet
)Outlook; with geopolitical tensions worsening and the official monetary authorities getting towards full swing over the rate cycle the tailwinds for gold continue to exceed the headwinds and there is still plenty of upside scope. Some of the speculative froth needs to be blown off, though, as the CFTC numbers (below) demonstrate. A similar argument applies to silver.
Gold in key local currencies
Source: Bloomberg, StoneX
At Jackson Hole, Fed Chair Powell made several key points, of which the two most important were
“The time has come for policy to adjust”
And
“We do not seek or welcome further cooling in labor market conditions.”
Now we have had the September meeting of the FOMC and, importantly, the Q&A session with Chair Powell immediately thereafter. The Fed cut the federal funds target rate by 50 basis points, and the dot plot, which marks where each FOMC member expects the rate to be at the end of this year, next year and thereafter, was especially informative. Probably the most important point that Chair Powell made in the Q&A was that all 19 members were expecting more cuts this year, with seventeen members expecting three or more and ten of them, four or more. He may have been referring to units of 25n points in this instance, as there are only two more meetings this year.
Dot Plot September
Dot plot June
In response to a couple of key questions, Mr. Powell made the point that “we have made a good strong start”, reflecting the FOMC’s confidence that inflation is coming down; and that “We don’t think we’re behind and we think that this is timely, but I think that you can take this as a sign of our commitment not to get behind. We’ve been very patient about reducing the policy rate and that patience has really paid dividends and allowed the strong start today. I do not think that any-one should look at this and say “this is the new pace”.
This view is borne out by economic data from the States last week that were better than expected.
Gold trading towards the end of last week reflected speculative and institutional interest internationally, and with particularly heavy volume on Friday, while the speed of the move teased out physical selling in the price-elastic regions of the Middle East and Asia. Note that it is almost invariably the speed of a move in gold (and silver) that affects physical market activity rather than absolute levels. Silver encountered some early selling as it looked to consolidate, and the physical market has weakened here, too, as should be expected after its sizeable rallies. The technical picture remains constructive, though, with support from the key moving averages at $28.8 up to $30.1.
With geopolitical tensions worsening and the official monetary authorities getting towards full swing over the rate cycle the tailwinds for gold continue to exceed the headwinds and there is still plenty of upside scope. Some of the speculative froth needs to be blown off, though, as the CFTC numbers (below) demonstrate. A similar argument applies to silver.
Gold, year-to-date; technical indicators supportive
Source: Bloomberg, StoneX
Silver, year-to-date; technical indicators positive; the 20D move above the 50D spurred the rally
Source: Bloomberg, StoneX
Gold:silver ratio, year-to-date
Source: Bloomberg, StoneX
The swaps market is pricing in two more 50-point cuts – one in November and one in December. As usual, more benign than the Fed
Source: Bloomberg
Tailwinds for gold exceed the headwinds
For the longer term, the tailwinds substantially outweigh the headwinds and are summarised in this note that we published at the end of August: Precious Metals Talking points 083024: Gold: state of play and key influences going forward
Key points from this note are as follows
Current tailwinds include: -
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Geopolitical risk – not just the overt international tensions (Ukraine, Middle East, potential Taiwan issues, etc) but the number of elections around the world this year, which has been generating uncertainty.
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Increasing trade tensions
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Stresses in the banking systems in the three major regions, notably in the small-to-medium sized sector, and especially exposure to property, and (in the US) Commercial Real Estate.
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Emergence of the Shadow Banking sector i.e. unregulated transactions), reminiscent of the Sub-Prime issues in 2007 that led to the Global Financial Crisis in 2008
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The equities rout of early August (now more than recovered) may be a signal not to be too complacent about equities valuations
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Continued strong Official sector purchases – not just because they are taking tonnage off the market but because of the signal that it sends to the markets because the Official Sector dislikes uncertainty
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Retail investors in Asia are chasing the market higher in the expectation of yet higher prices
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And so are some High-Net-Worth individuals, Family offices and other professionals who are back in the market for the long haul.
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Headwinds:
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Reduction in international political or trade tensions; Harris more of a bearish influence than Trump on this score
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Any strong inflationary forces and / or associated expectation thereof could force a reversal in monetary policy
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Official sector going on the retreat (unlikely)
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Investors’ conclusion that risks have declined (likely to take a matter of years, compare GFC of 2008); it wasn’t until 2013 that professionals bailed out of gold (over 300t of ETF metal went straight into private hands in China)
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Gold; more optimism; longs up 13.3% (88t) to 753t, shorts up 12% (7t) to 79t Net long was up 14%5t to 673t vs a 12M average of 458t and the market is looking toppy
Gold COMEX positioning, Money Managers (t)
Source: CFTC, StoneX
Silver; very lively; longs up a massive 29% (1,866t) and shorts down 341t (15%). Net long up 53% (2,206t) to 6,429t vs a 12M average of 3,332t. Also due a correction
COMEX Managed Money Silver Positioning (t)
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Source: CFTC, StoneX
23 September 2024 Previous week % change Year-to-date Range Jan 2022 onwards Range as % Min Max Gold (pm LBMA price) 2,605.85 2,575.10 1.19% 26.04% 1,628.75 2,605.85 59.99% Silver (LBMA price) 31.32 29.97 4.51% 30.78% 22.08 32.01 45.01% Platinum (pm LBMA price) 988.00 996.00 -0.80% 0.00% 850.00 1,065.00 25.29% Palladium (pm LBMA price) 1,067.00 1,061.00 0.57% -3.09% 852.00 1,221.00 43.31% S&P 500 5,702.55 5,626.02 1.36% 19.55% 4,117.37 5,713.64 38.77% $:€ 1.1162 1.1075 0.79% 1.06% 1.0536 1.1192 6.23% Source: Bloomberg, StoneX
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