Weekly roundup for StoneX Bullion 21 October 2024
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Yet more records as gold tests $2,740, pokes its nose above the existing upward channel
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Escalation in the Middle East, a tightening Presidential race and more banking stresses lie behind the gains
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Most technical indicators show gold as overbought, although the MACD indicator is sending out a buy signal
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Silver reaches $34; ratio drops sharply over the weekend, from 85 down to just above 80
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Silver is also overbought and it, too, has breached its bullish channel to the upside
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Year-to-date gold is up 33% and silver, 43%
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European Central Bank cut its rate last Friday (to 3.25%)
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US equity markets are also looking too aggressive
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COMEX gold outright longs up again in the week to last Tuesday –still top-heavy
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COMEX silver positions barely changed
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As noted previously, Diwali is on the horizon and gold trade in India is solid after the tax cut; local price at a record and is up by 34% year-to-date
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Delegates at the LBMA Conference last week were almost wholly bullish of gold and very bullish of silver
Outlook; still a bullish scenario for both metals but they have run up very sharply in the past few days and need to correct if the physical markets are to remain robust. The tone at the LBMA-LPPM Conference was positive all round (possibly too positive!) and there is talk of coin and bar markets starting to pick up. At the professional level, the feeling is that there are potential investors still on the sidelines looking or a $200-$300 drop in order to open a buying window. But those falls aren’t coming as other investors are piling in more quickly. The $3,000 target is being touted in the press and while we believe that it is achievable, it needs to be approached gradually and not in a spike, otherwise any such move will be unstable.
Gold in key local currencies
Source: Bloomberg, StoneX
The Fed’s rate cycle is making less of a headline feature than it was (although the ECB cut its key deposit rate by 25-basis points last week, the first back-to-back reduction in over ten years) and geopolitics are more to the fore. The increasing tightness in the race for the White House is stoking uncertainty, which is something on which gold thrives. Rising tensions in the Middle East are prompting fresh urgings from the Biden Administration for caution and negotiation but this seems to be hitting a brick wall, for now at least. So we have uncertainty over US domestic politics and no clear sign yet as to how Foreign Affairs policy will pan out next year as the two candidates have different agendas.
Added to this is the persistence of stresses in the banking system, which have been with us for at least eighteen months and which in Jay Powell’s words, will be there “for years”. It is important to recognise that this is not just a US phenomenon, but applies in Europe and China also, and there are rumblings in other countries. This seems to have slipped under the radar where gold market observations are concerned. For example: the Swiss regulator Finma is now warning UBS to boost its emergency measures due to the risks involved after it was required to acquire Credit Suisse last year (the integration process is scheduled to last three years and is therefore half-way finished), while US banks are reported to be thinking of reducing interest payments on corporate deposits in an effort to bolster balance sheets. And an area that captures this writer’s concern is the fact that some stressed liabilities are being handed off from commercial banks into the Shadow banking Sector.
Meanwhile, as we noted two weeks ago, in the physical market Diwali, the most auspicious period in the Hindu calendar for gold purchases and gifting (also celebrated by Jains, Sikhs and some Buddhists), starts with Dhanteras on 29th October, with Diwali itself celebrated on 31st October. The overall Festival runs through to 3rd November. Prospects for gold offtake are bright for the next few months, following a good monsoon season (important for crops and farmers’ gold purchases, which are an important part of the market) and what is looking like a lively wedding season in December / January. September imports slowed slightly due to a lack of auspicious days, but another interesting development here is increasing interest in gold ETFs in India.
Gold, short-term; technical indicators still supportive
Source: Bloomberg, StoneX
Silver, year-to-date; technical indicators positive; the 10D average still providing close support
Source: Bloomberg, StoneX
Gold:silver ratio, year-to-date
Source: Bloomberg, StoneX
The swaps market has beaten a retreat and is now giving a 25 point cut in November a 92% probability and 79% of another in December
Source: Bloomberg
COMEX
Gold; longs on the up again after the previous week’s clear-out. Still looking toppy.
Managed Money positions saw longs gain just 19.5t (3%) and shorts, 2.8t (also 3%). The outright longs at 727t are still 5% higher than the 12-month average. Net long; up fractionally to 620t.
Gold COMEX positioning, Money Managers (t)
Source: CFTC, StoneX
Silver; positions barely changed.
Longs added 18.6t (0.2%) dropping to 7,678t to stand at just 9% over the 12-month average, much more manageable than previously. Shorts contracted by just 1.4% (28t) to 2,031t. Net long up just ten tonnes to 5,647t.
COMEX Managed Money Silver Positioning (t)
Source: CFTC, StoneX
ETFs:
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Gold ETFs; two-way activity over the past fortnight with a week of net redemptions followed by a week of net creations. This leaves holdings just seven tonnes higher than they were at the start of October, at 3,207t for a year-to-date loss of18t. Silver ETFs saw five days of new net redemptions followed by a couple of days of net creations last week, leaving a gain of 308t over October-to-date, to 22,730t. This gives a year to-date gain of 960t or 4.4%. Global mine production is ~26,000tpa.
21 October 2024
Previous week
% change
Year-to-date
Range Jan 2022 onwards
Range as %
Min
Max
Gold (pm LBMA price)
2,712.50
2,648.80
2.40%
31.19%
1,628.75
2,712.50
66.54%
Silver (LBMA price)
32.13
31.20
2.98%
34.16%
22.08
32.48
47.13%
Platinum (pm LBMA price)
1,010.00
977.00
3.38%
2.23%
850.00
1,065.00
25.29%
Palladium (pm LBMA price)
1,064.00
1,073.00
-0.84%
-3.36%
852.00
1,221.00
43.31%
S&P 500
5,864.67
5,815.03
0.85%
22.95%
4,411.55
5,864.67
32.94%
$:€
1.0867
1.0937
-0.64%
-1.61%
1.0619
1.1192
5.40%
Source: Bloomberg, StoneX
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 still relevant, and 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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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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