1. The final trading week of the month kicked off with stocks sliding on Monday, setting investors up for a losing month where much of the optimism of the early summer has fizzled into more tempered expectations of the Fed’s tightening campaign. Wall Street stocks struggled, as the Federal Reserve’s “higher for longer” interest rate strategy continued to pile on pressure as a U.S. government shutdown loomed. Oil prices have resumed their rally, raising the prospect of inflation staying high, and that has fired up debate about whether the Fed will find itself restricted from cutting rates in the near term. Investors are now getting ready for a fresh read on PCE (Personal Consumption Expenditure) inflation due out Friday for more insight. With less than a week left to avert a government shutdown, investors are starting to assess its potential impact on the economy, given there’s little sign of progress on a budget agreement by lawmakers. A reading on the second quarter GDP is scheduled for Thursday.

The Precious Metals Week in Review – September 29th, 2023.
The Precious Metals Week in Review – September 29th, 2023.

2. Corporate America isn’t being frightened by a Federal Reserve that may have one more interest rate hike in its inflation-busting arsenal. And that could be a prime reason why markets, broadly speaking, are shaking off a setup of higher interest rates well into 2024. “I don’t think so,” Cisco CFO Scott Herren said when asked if the potential for another rate hike from the Fed was a worry to his capital allocation. If Herren and his CEO Chuck Robbins were terrified of the Fed, the dynamic duo wouldn’t be paying more for that new debt versus one year ago. “As I talk to my peers, and CFOs at other companies, I think we are all monitoring the environment. It’s time to be prudent. But they are not stopping. They are not shutting down business. By the way, you can’t ever time what’s going to come with the FOMC. I would never try to do that,” Herren added. “I think that says a lot about economic resilience and how maybe, just maybe, markets won’t fall off a cliff in 2024 as the last round of rate hikes filter through civilization. Dare I say this is the soft landing so many pundits think could happen?” This is a Fed that sees an opening for a soft landing and will try not to blow it.”

3. Global official gold reserves hit 38,764 tons in Q2 2023, breaking its previous record from 1965. The new high confirms the world has entered a new era of gold. Central banks will continue to accumulate gold and the metal’s role in the international monetary system will increase to the detriment of the U.S. dollar. The new record in world gold reserves reflects a desire by central banks the world over to diversify away from the U.S. dollar with its ever-more evident counterparty risks. Central banks’ turning point in gold holdings came just after the Great Financial Crisis of 2008 when they bought more than 7,000 tons. The value of global gold reserves grew by 66% from that moment, while foreign exchange reserves have swelled by 30%. As a result, gold’s share of global international reserves (gold and foreign exchange) is rising from an all-time low in 2015. In the context of increasing geopolitical tensions, a weaponized dollar, and sky-high debt levels across the globe (historically alleviated through inflation), central banks will continue to buy gold in the near future. The new record in gold reserves is mostly a symbolic milestone. Foreign central banks mostly own U.S. government bonds (Treasuries) as dollar assets. As their gold reserves are rising, their nominal holdings of Treasuries have been roughly flat in the past decade. So, against massive increases in public debt every year, the share of foreign central banks owning that debt is steadily decreasing. This dynamic could lead to a funding crisis in the U.S., further eroding the dollar’s appeal as a reserve currency.

4. The debt cycle is something many North Americans have become all too familiar with. These days, it is common for homeowners to take out mortgages in the hundreds of thousands of dollars, creating pressure to make the hefty monthly payments. When mortgage rates climb, as they have done recently, those holding variable-rate mortgages can suddenly find themselves on the hook for hundreds a month more. Fixed-rate mortgage holders face a similar nasty surprise when forced to renew at a higher rate. Mortgages, car loans, student loans, and lines of credit are all tied to the interest rate set by the Bank of Canada, or the Federal Reserve in the United States. While taking on short-term debt can be a useful investment in the future, it needs to be paid off to build net worth. Failure to do so can result in a debt cycle from which escape is all but impossible. Those in lower-income brackets endure the double-whammy of the skyrocketing cost of borrowing, and high inflation, which reduces their purchasing power over essentials like groceries and gas. The average credit card now charges 20% interest. Payday loan companies demanding usurious interest rates are a last-ditch resort for some. The U.S. has a serious debt problem. Its gross national debt sits just below $33 trillion, or 122% of GDP. The bigger problem, though, is the pace at which the debt is accumulating, leading to ballooning interest payments. Over the past decade, the U.S. national debt has nearly doubled. According to Congressional Budget Office projections, interest payments will total around $71 trillion over the next 30 years and will take up 35% of federal revenues by 2053. Interest costs would also become the largest “program” over the next few decades.

5. Oil prices could be headed as high as $150 a barrel unless the U.S. boosts its exploration efforts, a top shale executive warned. Once crude oil output in the Permian Basin peaks with no new sources coming online, then a supply squeeze could see “$120 to $150” oil, Continental Resources CEO Doug Lawler said on Monday. “That’s going to send a shock through the system,” he warned on the sidelines of the American Energy Security Summit in Oklahoma City. Unless new drilling can begin, “you’re going to see more pressure on price.” U.S. crude oil currently hovers around the $90 mark as OPEC+ production cuts have triggered a steep rally in recent months. JPMorgan warned last week that oil prices could soar back into the triple-digits if supply is put under any more pressure and that oil at $120 a barrel would have dire consequences. “We estimate that if this were to happen in the coming weeks and was attributable entirely to supply cuts, the global economy would slow to a near stall next quarter,” they said.

6. Homebuyers in every corner of the country retreated from the market heading into the fall as rising mortgage rates drained their purchasing power. In August, the average rate on the 30-year fixed mortgage surged to 7.23%, the highest rate point since June 2001 when rates were at 7.24%, according to Freddie Mac. Rates have stayed above 7% for seven weeks, squeezing affordability. The latest reading for the average rate on the 30-year fixed-rate mortgage climbed to 7.31% as of September 28. Pending home sales for August plunged 7.1% from the month before, down from the 0.9% monthly increase recorded in July. The result was far worse than the 1.0% decline that economists had estimated and was widespread. Every region recorded a monthly and year-over-year drop. On a yearly basis, pending transactions were down by 18.7%. The drop in the index, a leading indicator of the housing market’s health, further highlights how housing activity has been smothered by expensive mortgages, rising prices, and low inventory. Seasonality may also have played a role. Elevated mortgage rates have landed a one-two punch on supply and demand. Higher rates have robbed homeowners of the incentive to sell their houses and left buyers with few options in the resale market.

7. In the week ending September 23, the advance figure for seasonally adjusted initial claims was 204,000, an increase of 2,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 201,000 to 202,000. The 4-week moving average was 211,000, a decrease of 6,250 from the previous week’s revised average. The previous week’s average was revised up by 250 from 217,000 to 217,250.

8. Crude oil production levels in the United States stayed at 12.9 million BPD, according to the latest weekly EIA estimates, still sitting at the highest production level since 2019. U.S. production levels are now up 900,000 BPD versus a year ago. The EIA also published monthly data on Friday that showed July’s average production rose slightly to 12.991 million BPD, compared to June’s 12.900 million BPD. At 10:28 a.m. ET on Friday, the WTI benchmark was trading down $0.82 (-0.89%) on the day at $90.89—still up roughly $1 per barrel from this time last week. The Brent benchmark was trading down $0.08 (-0.08%) at $95.30 per barrel on the day—up roughly $2 per barrel from a week ago.

9. EUR/USD lost its recovery momentum and declined below 1.0600 in the American session on Friday, erasing a portion of its daily gains in the process. Nevertheless, the risk-positive market atmosphere after PCE inflation data helps the pair limit its losses. The sharp rebound following the lowest daily close of the year so far has improved the outlook for the Euro, although the overall trend remains bearish. A recovery rally could potentially extend to 1.0700 without disrupting the bearish trend.

10. The USD/JPY pair attracts bids near 148.50 and rebounds strongly in the European session. The asset finds cushion despite hopes of a stealth intervention by the Bank of Japan (BoJ) in the FX domain to support the Japanese Yen against excessive volatility. The scale of the sell-off of global bonds prompted the BoJ today to announce an unscheduled bond-buying operation. If the Dollar was performing more strongly in broader markets, there’s a chance such a modest operation may have propelled USD/JPY through the 150 level.

Mortgage payments for the average family have nearly doubled since the start of the pandemic after rates reached their highest level in 20 years. The rise in mortgage bills was tracked by rising house prices which jumped from $322,000 to $479,000 in the two years to the end of last year. But they have slumped back to $416,000 since then as higher bank rates have deterred buyers, leaving analysts warning of a ‘mortgage timebomb’ with millions trapped in homes they can no longer pay for. The average monthly mortgage payment on an American home has soared from $1,191 in January 2020 to $2,161 in July this year according to the Mortgage Brokers Association. The increase has been driven by 11 successive increases in the bank rate as the administration struggles to control surging prices. Hopes of a reprieve grew as the Fed held the bank rate at 5.25 to 5.5% after its September meeting last week while it waits to see if the hikes are working. And while inflation has fallen from its peak of 9.1 percent in June last year it has crept up again for the last three months, leaving policymakers warning mortgage payers to expect yet another increase before the end of the year. The administration has blamed inflation supply shortages caused by the worldwide shutdown during the pandemic and the impact of the war in Ukraine on the supply of Russian energy. The President has tried to turn criticism of ‘Bidenomics’ on its head as the economy looks set to take center stage in next year’s general election. And the president’s approval rating on the economy has slumped to just 30 percent. “Biden’s job approval rating is 19 points underwater, his ratings for handling the economy and immigration are at career lows,” ABC wrote in its analysis.

Oil futures hit a 2023 high on Wednesday after inventories at the largest storage hub in the U.S. fell toward levels nearing operational minimums. West Texas Intermediate jumped more than 3% to settle at $93.68 per barrel following a drop in stockpiles to just below 22 million barrels at the Cushing, Okla., hub. The storage facility is considered a benchmark for U.S. oil prices. Brent International futures also rose on Wednesday, trading more than 2.5% higher to $96.55 per barrel. The rise in prices has fueled speculation of $100 per barrel of oil in the coming months. Goldman Sachs recently raised its price target to $100 for the next 12 months. Even the more bearish forecasters at Citi believe crude may temporarily hit that level. Crude futures have jumped more than 35% since the end of June. Supply squeeze concerns have been exacerbated by the extension of unilateral production cuts from Saudi Arabia and fuel export bans from Russia. “There are more outcomes that say the price of oil does go up to 100 bucks a barrel,” Ed Hirs, economist, and energy fellow at the University of Houston, told the media on Wednesday. “The one thing that would keep the price of oil very depressed would be the Chinese economy imploding.” China is facing a property crisis as its government works on initiatives to grow the economy post-COVID-19 lockdowns last year. Wall Street analysts have weighed in on what prolonged higher oil prices could mean for the broader economy. “On net, we estimate the last moves in the price of oil, if sustained, would damp annualized global GDP growth by 0.5%-point over two quarters,” JPMorgan’s head of economic research Bruce Kasman wrote in a note to investors.

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. 22, 2023Sep. 29, 2023Net Change
Gold $1,925.57 $1,849.92-75.65-3.93%
Silver $23.54 $22.19-1.35-5.73%
Platinum $930.67 $906.60-24.07-2.59%
Palladium $1,254.51 $1,250.42-4.09-0.33%

Month End to Month End Close

 Aug. 31, 2023Sep. 29, 2023Net Change
Gold $1,940.49 $1,849.92-90.57-4.67%
Silver $24.43 $22.19-2.24-9.17%
Platinum $973.26 $906.60-66.66-6.85%
Palladium $1,219.09 $1,250.4231.332.57%

Previous Years Comparisons

 Sep. 30, 2022Sep. 29, 2023Net Change
Gold $1,662.74 $1,849.92187.1811.26%
Silver $19.04 $22.193.1516.54%
Platinum $865.53 $906.6041.074.75%
Palladium $2,183.39 $1,250.42-932.97-42.73%

Here are your Short-Term Support and Resistance Levels for the upcoming week.

This is not a solicitation to purchase or sell.
© 2023, Precious Metals International, Ltd.

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