Gold and silver weighed by hot CPI print

OUTSIDE MARKET DEVELOPMENTS: Headline CPI rose 0.6% in September, in line with expectations, versus +0.4% in August. The annualized rate of consumer inflation jumped to 3.7% y/y, above the 3.6% consensus and up from 3.4% in August. Core came in at +0.3% on expectations of +0.2%; 2.6% y/y on expectations of 2.5%, versus 2.4% in August.

Stocks turned lower, Treasury yields jumped, and the dollar strengthened as traders raised bets on further Fed rate hikes.
Odds of an October rate hike rebounded to 50% from 22.1% yesterday and 17.7% a week ago, though many still view a December move as more likely.



FedSpeak continues to tilt hawkish. NY Fed President John Williams believes another rate increase this year may be appropriate. “I haven’t changed my view that it may be appropriate to have one more rate hike... I don’t think at this time I have any reason to believe that we would need to do more” after that," he said. 

Market focus now turns to tomorrow's PPI data, where analysts are expecting inflation to moderate slightly. Consensus estimates are (headline) 5.3%, and (core) 4.4%. September retail sales data will also be released tomorrow, and the pace of consumption is expected to slow.

Iranian officials have acknowledged deploying new tactics to target ships in the Strait of Hormuz in an effort to keep oil prices elevated. Yemen’s Iran-backed Houthis have also escalated attacks on Saudi Arabia, striking an Aramco administrative building in Dhahran and launching missiles toward Riyadh that were intercepted. Oil prices remain elevated amid heightened supply-risk concerns, which continue to stoke inflation and Fed tightening expectations.

Bank of America faces more than $1.21 bln in U.S. regulatory penalties, primarily a $1.2 bln fine from FinCEN for major anti-money laundering shortcomings. The bank failed to timely report over $5 bln in suspicious transactions, including activity linked to Chinese money-laundering networks. The bank was also hit with a record $750M OCC penalty plus a smaller OFAC sanctions settlement.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$20.26 (-0.49%)
5-Day Change: +$34.80 (+0.85%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,887.03 - $5,595.02
Weighted Alpha: -6.18

Gold sold off in reaction to this morning's hotter-than-expected inflation readings, which sparked a rebound in Fed-tightening expectations and lifted yields and the dollar. So far, last week's low at $4,067.07 has contained the downside, but the surge in the dollar and sharp losses in silver suggest the downside is vulnerable.



If the yellow metal does take out that low, focus will shift to the August low at $4,022.62 with potential to the $4,000 zone. My preferred scenario has been that the low for the year at $3,945.52 will hold, but my confidence has been shaken.

Intraday resistance at $4,105.77/$4,107.08 now provides an intervening barrier ahead of the overseas high at $4,170.19. The more important level on the upside is defined by the recent highs at $4,217.02/$4,225.02, and bolstered by the falling 20-day MA at $4,210.15.

At last week’s LBMA Conference in Sorrento, Italy, delegates predicted gold would average around $5,013 in 12 months, more than 20% above current levels. The bullish outlook stems from structural drivers such as rising global government debt concerns, ongoing geopolitical fragmentation that elevates gold’s role as a neutral reserve asset, and continued strong central-bank buying. Bundesbank President Joachim Nagel emphasized that gold still accounts for a growing share of reserves and remains a key diversifier that cannot default or be easily restricted.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.709 (-1.20%)
5-Day Change: -$1.059 (-1.77%)
YTD Range: $54.778 - $121.630
52-Week Range: $45.563 - $121.630
Weighted Alpha: -0.72

Silver plunged to three-month lows following this morning's CPI report, as yields pressured recent multi-decade highs and the dollar index reached 18-month highs. The white metal has been significantly more volatile than gold amid broader risk-off sentiment. The gold/silver ratio is trading above 73 for the first time since December.



With last week's low at $58.516 and the $58.272 Fibonacci level negated, the late-July lows at $56.681/$56.583 are in play. Below the latter, the low for the year at $54.778 (17-Jul) defines key support.

Minor intraday resistance at $56.476 stands in front of the early U.S. high at $57.778. Above that, the $60 zone is likely to keep Monday's high at $61.451 at bay.  The falling 20-day MA (currently $61.920) should correspond closely with the high for the week over the next session or two. 


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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