Gold reaches another new record high, as silver consolidates recent gains

OUTSIDE MARKET DEVELOPMENTS: Dovish FedSpeak on Tuesday from Chairman Powell sparked a rally in Fed funds futures. "We are well positioned to continue easing policy as needed to support employment, even as we remain alert to the possibility that inflation could move back up," said Powell at the National Association for Business Economics annual conference.

While a 25 bps rate cut this month was already baked into the cake, the probability of further easing in December to a 3.50-3.75% target range has risen to 93.9%. The more dovish tilt has helped to underpin risk appetite.

Powell also indicated that the Fed's quantitative tightening campaign could wind down "in coming months" to avoid liquidity stress. “Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” he said.

The Fed has reduced the size of its balance sheet by $1.8  trillion since it reached a post-COVID high of nearly $9 trillion in May 2022. Powell acknowledged that the central bank "prolonged the expansion of our balance sheet for too long," which stoked inflation.

The shutdown continues, now in its third week. Tuesday's Senate vote (the 8th) on the CR to fund the government through 21-Nov once again failed to clear the 60-vote hurdle needed to break the Democrats' filibuster. The vote was 55-45, largely along party lines.

While the White House has directed that the military be paid today via redirected funds, civilian employees will not be receiving paychecks. Over 4,000 federal employees were laid off last week, and OMB Director Russell Vought warned of additional "substantial" mass firings in the coming days.

The U.S.-brokered ceasefire between Israel and Hamas appears to be holding after the release of the 20 living Israeli hostages and nearly 2,000 Palestinian prisoners/detainees earlier in the week. However, the ceasefire remains fragile with each side accusing the other of violations.

Trade tensions between the U.S. and China have escalated sharply over the past week with tit-for-tat measures on rare earth export controls, tariffs, and port fees. The actions shattered a fragile six-month truce, risking a full-blown trade war ahead of a potential Trump-Xi summit in South Korea later this month.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$60.18 (+1.45%)
5-Day Change: +$155.29 (+3.84%)
YTD Range: $2,607.16 - $4,218.09
52-Week Range: $2,541.42 - $4,218.09
Weighted Alpha: +63.67

Gold rose to another record high above $4,200 in European trading. Elevated trade tensions between the world's two largest economies, persistent fiscal and geoplitical worries, political unrest, heightened expectations for further Fed easing, and a softer dollar are all contributing to the bid.



While the market remains quite overbought, the yellow metal has set all-time highs every day this week and appears to be on track for its fourth straight higher daily close. Over the past month, there have only been five lower daily closes, and just one instance of back-to-back lower closes. Sellers step in front of this freight train at their own peril, and that risk helps perpetuate the uptrend.

The next target is $4,300, with today's intraday high at $4,218.09 providing an intervening barrier. Further out, $5,000 is an increasingly compelling attraction.

Today's early U.S. low at $4,177.60 marks initial support. The low for the day at $4,141.06 is the more important level to watch.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$1.085 (+2.10%)
5-Day Change: +$3.671 (+7.51%)
YTD Range: $28.565 - $53.586
52-Week Range: $28.565 - $53.586
Weighted Alpha: +78.93

Silver is consolidating recent gains after setting a new record high at $53.586 on Tuesday. While the white metal is trading higher today, price action remains confined to yesterday's range.



The backwardation with Dec futures was more than $4 at one point last week, but has since moderated to less than $1. Lease and roll rates have also moderated, suggesting that the worst days of the London short-squeeze may be behind us.

For what it's worth, I also fielded a press inquiry from Vanity Fair yesterday. There is nothing scientific about this, but when Vanity Fair is asking about the silver market, I feel we're close to at least a short-term top. That being said, silver is another freight train I'd be disinclined to step in front of as supply/demand dynamics remain broadly supportive.

The U.S. Geological Survey added silver to a draft list of critical minerals earlier in the year. Upon approval, which seems likely before the end of the year, it would mandate the federal government to secure domestic supply chains via enhanced permitting, subsidies, and strategic stockpiling.

Additionally, in a Bloomberg interview last week, the CEO of Wheaton Precious Metals said he's heard talk that some central banks are considering adding silver to their balance sheets. Central bank buying and strategic stockpiling would be considerable sources of additional demand in a market that is currently in its fifth year of a supply deficit.

My next upside targets are at $54.427 and $55.496 based on Fibonacci projections off of Tuesday's pullback. Further out, I have a major Fibonacci objective at $60.417 (127.2% retracement of the decline from $50.000 to $11.703).

Minor intraday support at $52.308 protects the low for the day at $51.402. Tuesday's low at $50.495 is well protected at this point, but penetration would suggest scope for a more sustained corrective retreat.


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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