Gold and silver reach new cycle highs, spurred by haven interest

Outside Market Developments: The U.S. government entered a partial shutdown at midnight after a fractious Congress failed to pass funding legislation for the new fiscal year. The impasse stemmed from partisan disputes, with Democrats rejecting a Republican continuing resolution over its lack of extensions for Affordable Care Act subsidies and other health benefits. Meanwhile, the Democrats argue that the GOP's claims that their version of the CR is "clean" are untrue.

AS many as 800,000 non-essential federal workers were furloughed without pay until funding can be restored. However, the Trump administration is seeking to terminate tens of thousands of those workers as a means to reduce the federal workforce and save billions of dollars.

While the shutdown stokes ongoing economic and fiscal uncertainty, these shutdowns tend not to last very long. Since 1990, they have averaged 8-14 days, although the 2018-2019 impasse lasted 35 days amid similar partisan healthcare disputes.

Historically, U.S. stocks on average have posted gains during past shutdowns, so perhaps not surprisingly, the market is tilted toward risk-on today. MarketWatch points out that it will be "business as usual for much of the country, including for federal workers deemed essential, and that any missed paychecks for Uncle Sam’s employees will come through once the shutdown ends." The potential for RIF firings this time around is a bit of a wildcard.

The trade continues to take its cues from rate cut expectations. Today's weak ADP employment survey and the downside risk for nonfarm payrolls (if they get reported) has another 25 bps cut essentially fully priced in for October. Fed funds futures currently imply 68 bps of easing by year-end.

The dollar index is trading lower for a fourth straight session, but price action remains confined to last week's range thus far. The DX set a more than three-year low on 17-Sep and has since been mildly corrective to consolidative.

President Trump's 20-point Gaza peace plan has been warmly received by a number of key stakeholders. While Hamas hasn't officially responded, the terrorist organization is unlikely to agree to the deal, as it would face disarmament and exclusion from governance moving forward.

MBA Mortgage Applications fell 12.7% in the week ended 26-Sep, versus +0.6% in the previous week. The 30-year mortgage rate rebounded to 6.46% from a 12-month low of 6.34% last week.

ADP Employment Survey showed private payrolls fell 32k in September, below expectations of +50k, versus a revised -3k in August (was +54k). "Despite the strong economic growth we saw in the second quarter, this month's release further validates what we've been seeing in the labor market, that U.S. employers have been cautious with hiring," said ADP's Chief Economist, Dr. Nela Richardson.

Construction Spending - DELAYED

S&P Global Manufacturing PMI was 52.0 in September, unchanged from the preliminary print, versus 53.0 in August. 

Manufacturing ISM rose 0.4 points to a seven-month high of 49.1 for September on expectations of 49.0, versus 48.7 in August. Prices eased to 61.9 from 63.7 in August.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$29.10 (+0.75%)
5-Day Change: +$140.38 (+3.76%)
YTD Range: $2,607.16 - $3,895.23
52-Week Range: $2,541.42 - $3,895.23
Weighted Alpha: +51.05

Gold notched a new record high of $3,895.23 in overseas trading before stabilizing somewhat. The government shutdown adds to pervasive uncertainty, stoking the haven bid.



It’s hard not to remain bullish. September saw the biggest monthly percentage gain since August 2011. Gold has posted gains in all but one month (July) so far this year. In fact, there haven’t been more than two consecutive lower monthly closes since late 2022.
 
Gold has also posted gains in seven of the last eight quarters. The yellow metal notched solid double-digit gains in Q1 and Q3 this year.

A move above $3,900 would bode well for the anticipated push to $4,000. Above the latter, the next Fibonacci objective off the last meaningful corrective phase comes in at $4,103.32.
 
While gold is quite overbought at this point, short-term setbacks are likely to be viewed as buying opportunities amid ongoing geopolitical, trade, and fiscal risks, easing expectations, sticky inflation, de-dollarization, and central bank demand.

Today's Asian low at $3,853.62 is being pressured. Fresh intraday lows and a lower close would suggest potential back to $3,800.00/$3,793.52.  More substantial support is marked by Mon day's low at $3,760.05.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.592 (+1.27%)
5-Day Change: +$3.471 (+7.90%)
YTD Range: $28.565 - $47.549
52-Week Range: $28.565 - $47.549
Weighted Alpha: +62.43

Silver has resumed its march higher after a brief pause on Tuesday, establishing a new 14-year high at $47.826. Haven flows seem to be overwhelming any growth risks stemming from the government shutdown. Today's good manufacturing sector data, relentless gold, heightened Fed easing expectations, and a weaker dollar provide additional tailwinds.

 

Silver rose more than 17% in September, its fifth consecutive monthly gain and the biggest since July 2020. The Q3 gain was 29.2%, the biggest since Q4 2010. 

Silver moved within striking distance of the targeted $47.973/$48.105 zone before moderating intraday. A short-term violation of this area would lend further confidence to the bullish scenario that calls for a challenge of record highs around $50. Weakness in the gold/silver spread suggests potential for ongoing silver outperformance.

Intraday support at $47.108 protects the low for the day at $46.631. Tuesday's low at $45.825 is the more important level to watch.


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

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.