1. After investors faced an onslaught of economic data to wrap up August, a lighter calendar and holiday-shortened week awaited investors as the Federal Reserve’s next interest rate decision quickly approached. U.S. markets will be closed on Monday in observation of Labor Day, with updates on the services sector, the Federal Reserve’s latest Beige Book report, and a smattering of corporate earnings serving as highlights in the week ahead. Last week, the crucial August jobs report offered the latest evidence that the U.S. labor market continues to slow, with the economy creating 187,000 new jobs last month while the unemployment rate unexpectedly rose to 3.8% as more Americans sought employment. This data capped a week that also featured a sharp drop in job openings and a downward revision to second-quarter GDP growth estimates. Investors view this data run as a sign the Fed will elect not to raise rates at the conclusion of its September 19-20 policy meeting. After a choppy August, stocks are now entering a historically bad month. Dating back to 1945, September has historically been the year’s worst month for the S&P 500 with the index falling, on average, 0.7% during September and logging gains less than half the time.
2. Wall Street stocks inched down at Tuesday’s open as traders returning from a long weekend grappled with fresh data showing China’s economy is still struggling to recover. Data out Tuesday showed China’s services activity fell to its lowest level in eight months in August, reviving worries about recovery in the world’s second-biggest economy, and what that means for demand globally. Amid the downturn debate, analysts at Goldman Sachs cut their odds of a U.S. recession given cooling inflation and a still-resilient labor market. Plus, they played down the idea that a long drag from the Fed’s rate-hiking campaign will push the economy into a severe slowdown. With light earnings and economic calendar ahead, the focus will likely stay on the Fed this week, when investors looking at seasonal forces in play for stocks may well find fewer reasons to be cheerful.
3. The Federal Reserve has reached a delicate stage in its fight against inflation. Its policymakers have raised their key interest rate to about 5.4%, its highest level in 22 years, to try to slow borrowing and spending and cool inflation pressures. They now are considering whether to raise the rate even higher, a move that would heighten the risk of a recession — or leave it at its current level for an extended period. Though inflation has slowed for the past year, it’s showing signs of stickiness at its current levels. A recent uptick in gas prices sent inflation a bit higher in July. Raphael Bostic, president of the Federal Reserve Bank of Atlanta and a member of the Fed’s interest rate policy committee, doesn’t think another hike is needed. But Bostic favors keeping the benchmark rate at its current level well into 2024.
4. Mortgage rates above 7% are further worsening the nation’s affordability crisis with many would-be buyers forced to the sidelines. Home affordability is in a “state of arrested development” for younger buyers, Redfin CEO Glenn Kelman said as higher rates along with rising prices further erode buying power. This is the main reason millennials are lagging behind their parents’ generation when it comes to buying a home. Last year, fewer than two-thirds of 40-year-olds owned a home, compared to 69% of baby boomers at that same age. “It’s a tragedy… We pulled the ladder up just as millennials were coming of home-buying age,” Kelman said. “Thirty years ago, baby boomers owned more than 20% of U.S. national wealth, whereas millennials own less than 10% today.” The Federal Reserve’s aggressive rate hikes have pushed mortgage rates to a two-decade high, making it more expensive for potential buyers to purchase a home. The rapid jump in rates has also prompted would-be sellers to stay put instead of giving up their low monthly payments, worsening the inventory crunch. The lack of supply has led to increased competition among buyers for limited housing options, driving home prices back near all-time highs. The median sale price climbed to $379,975 in August, the biggest monthly increase in ten months, according to Redfin. Meanwhile, active listings declined 19% year-over-year, the biggest drop since February 2022. “The market is waiting for a break from the Federal Reserve,” Kelman said. “Rates are going to stay around 7% or higher for the rest of the year… and until we get some rate relief, we’re not going to see more inventory.”
5. Conversely, the National Institute of Economic and Social Research (NIESR) said August’s sharp drop in house prices meant that 50,000 people had fallen into this predicament over the last 12 months. It comes after Nationwide said last week that house prices were falling at the fastest rate in 14 years. Average prices dropped by 5.3pc in August compared with the same month last year when values were at their peak. The slump marked the sharpest fall since July 2009 when the global economy was plunged into the depths of the financial crisis. Negative equity is where a property is worth less than the value of the mortgage attached to it. It can make it difficult to sell a property or to remortgage, leaving homeowners facing higher monthly repayments when they roll off fixed-rate deals. Max Mosley, an economist at Niesr, said: “Mortgage holders across the country have had to endure Covid, a cost-of-living crisis and now a cost-of-owning crisis.” Potentially many more households are likely to run into difficulties in the months ahead. The Office for Budget Responsibility (OBR), the Government’s independent tax and spending watchdog, expects house prices to fall 10pc from their recent peak.
6. The biggest risk of de-dollarization isn’t a rival currency, it’s that the U.S. could lose a key tool it’s used to fight past economic crises, according to JPMorgan. “Historically, imported deflation via trade with the global South and East, outsourcing less profitable segments of the economy, recycling of trade surpluses into USD assets, and domestic energy independence (US shale growth), were key ingredients to the USD supremacy,” JPMorgan said. “Imported deflation and debt demand has allowed Western central banks to successfully navigate every recent economic crisis with a combination of monetary and fiscal measures.” This risk is magnified by environmental ‘arbitrage’, where carbon-intensive industries such as manufacturing, commodity production, etc., were outsourced to the East, leaving the West industrially fragile and susceptible to inflation shocks. In a separate note from Thursday, JPMorgan analysts pointed out signs of de-dollarization already taking root. Looking at the oil market, the commodity is increasingly being transacted in non-dollar currencies, such as the yuan. But while JPMorgan expects “marginal de-dollarization,” to take place, the pace is not expected to be rapid. This is because the dollar is just too widely used in a vast global financial ecosystem.
7. The number of Americans seeking jobless benefits for the first time fell unexpectedly last week to the lowest level since February, pointing to a U.S. job market that remains relatively tight even as other recent data indicate it has begun to soften. Initial claims for state unemployment benefits fell 13,000 to 216,000 in the week ended Sept. 2 from a revised 229,000 in the prior week, the Labor Department said on Thursday. That was the lowest since the same level was touched in the week ended Feb. 11 and it marked the fourth straight weekly decline. Economists polled had forecast new claims would rise to 234,000 in the latest week.
8. The global oil market, a critical element of the world’s economic engine, is currently at a pivotal junction. Recent events have caused dramatic shifts, impacting both supply and demand dynamics. The U.S. West Texas Intermediate crude futures recently bucked their steady climb, with numerous indicators pointing to demand fluctuations in the near future. At the time of writing on Friday WTI was trading for $87.65 per barrel with Brent crude at $90.84 per barrel.
9. On Friday, the Euro (EUR) managed to gain some upward momentum against the U.S. Dollar (USD), propelling EUR/USD back above the 1.0700 level as the week drew to a close. EUR/USD holds steady above 1.0700 in the American session as the upbeat market mood reflected by rising U.S. stocks doesn’t allow the USD to gather strength. The pair, however, remains on track to close the eighth straight week in negative territory.
10. USD/JPY recovers early lost ground, intervention fear caps the upside amid a retreating dollar. USD/JPY attracted fresh buying following the release of the final GDP report from Japan. Intervention fears hold back bulls from placing fresh bets amid a modest USD downfall. The Fed-BoJ policy divergence suggests that the path of least resistance is to the upside.
An important change has unfolded in the global gold market. The East has been driving up the gold price, predominantly in late 2022 and the first months of 2023, breaking the West’s long-standing pricing power. Until recently, Western institutional money was driving the price of gold in wholesale markets such as London, mainly based on real interest rates. Gold was bought when real rates fell and vice versa. However, from late 2022 until June 2023 gold was up 17% while real rates were more or less flat, and Western institutions were net sellers. Most likely, Eastern central banks, and Turkish and Chinese private demand, lifted the price of gold. For about ninety years, up until 2022, there was a pattern of above-ground gold moving from West to East and back, coordinated with the gold price falling and rising. Western institutions set the price of gold and bought from the East in bull markets. In bear markets, the West sold to the East. A proper indicator of a trend reversal is the net flows to the Eastern trading hub of Hong Kong. Normally Hong Kong would be a net importer when the price declines (and vice versa). Recently, however, Hong Kong was a net importer while the price was up. Possibly, central banks are buying in Hong Kong, monetizing the gold locally, and repatriating the metal outside the scope of public customs data. Gold owned by central banks (“monetary gold”) is exempt from being reported in customs data. Major suspects are non-Western central banks secretly buying gold, as dollar assets have become riskier to hold since the U.S. seized Russia’s official dollar reserves in 2022. These central banks have an incentive not to make the public rush into gold or the price would spike excessively giving them less bang for their buck. The most logical explanation for gold’s recent behavior is a combination of surreptitious buying by central banks from emerging markets and strong private demand in Turkey and China. It’s possible the WGC’s estimates of covert central bank buying are too low, given these estimates were falling during the price spike at the end of 2022 and the beginning of 2023. We will have to wait and see if the East is able to further push up the price of gold and weaken the West’s control over the price. If so, gold will become less of a dollar derivative, and take more center stage in the international monetary system.
The U.S. has so far skirted what was once a widely predicted recession. China’s economic slowdown could change that. New data out Tuesday showed China’s service sector activity hit an eight-month low in August. The slowdown in the world’s second-largest economy could become a headwind for what’s been an otherwise resilient U.S. economy, according to economists. “While there is growing optimism about a ‘soft landing’ for the economy, global challenges still cloud the horizon with China’s economic turmoil emerging as a top risk,” EY chief economist Greg Daco wrote in a note on Tuesday. After a massive increase over the last several decades, China’s annual economic growth slowed to a 2% annual rate in 2022, its lowest rate since 1976. Many thought that would change in 2023, as Covid restrictions were expected to subside. But the reopening has been slower than expected. In the second quarter, China’s GDP grew at a 6.3% annual rate, missing Wall Street’s expectations due to a slowdown in property investment and shrinking consumer confidence. The weaker-than-expected growth prompted Wall Street firms to lower their expectations for overall growth this year.
Geopolitical, economic, and environmental uncertainty can be expected to continue in the near term. Astute investors continue to seek out alternative investments for their portfolios to aid in diversifying them away from overexposure to any single asset class. Some are seeking out buying opportunities from temporary price dips to add more physical precious metals into their portfolios. Remember that one of the keys to profitability through the ownership of physical precious metals is to acquire the physical product and hold on to it for the long term without overextending your ability to maintain its ownership.
Trading Department – Precious Metals International Ltd.
Friday to Friday Close (New York Closing Prices)
| Sep. 01, 2023 | Sep. 08, 2023 | Net Change | ||
| Gold | $1,941.25 | $1,921.30 | -19.95 | -1.03% |
| Silver | $24.21 | $22.94 | -1.27 | -5.25% |
| Platinum | $966.15 | $896.00 | -70.15 | -7.26% |
| Palladium | $1,233.90 | $1,202.10 | -31.80 | -2.58% |
| Dow | 34841.57 | 34579.26 | -262.31 | -0.75% |
Previous Years Comparisons
| Sep. 09, 2022 | Sep. 08, 2023 | Net Change | ||
| Gold | $1,716.49 | $1,921.30 | 204.81 | 11.93% |
| Silver | $18.81 | $22.94 | 4.13 | 21.96% |
| Platinum | $884.79 | $896.00 | 11.21 | 1.27% |
| Palladium | $2,184.61 | $1,202.10 | -982.51 | -44.97% |
| Dow | 32151.71 | 34579.26 | 2427.55 | 7.55% |
Here are your Short-Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
| Support | 1916/1894/1875 | 22.79/22.54/22.37 |
| Resistance | 1957/1975/1997 | 24.40/24.78/25.39 |
| Platinum | Palladium | |
| Support | 874/850/815 | 1189/1175/1105 |
| Resistance | 970/995/1005 | 1231/1245/1252 |