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1. A hot jobs market is continuing to help boost consumer spending. Retail sales rose 0.7% in September from the previous month, more than double Wall Street’s estimate for 0.3% growth. Retail sales have now grown from the month prior for six straight months, marking a consistent trend of consumer spending. This, economists say, has been supported by an average of nearly 270,000 nonfarm payroll additions over the same period. With no obvious signs of the labor market fully cooling, the strong position of the U.S. consumer entering the fourth quarter of 2023 could provide upside risks to inflation that’s already showing signs of stickiness — and prompt more Fed rate hikes. “The economy is entering Q4 with more momentum than we previously thought,” Oxford Economics lead economist Michael Pearce wrote in a research note on Tuesday. “The risks to our forecast for a slight contraction in consumption in Q4 are firmly to the upside. The strength of the economy also means that Fed officials will leave the door open for additional rate hikes.” Over the past week, Fed officials eased market concerns of another interest rate hike as central bankers explained credit tightening caused by rising bond yields could effectively take the place of another Fed rate hike. The discussion provided a reprieve for bond yields, and stocks rallied. But that shifted on Tuesday with the September retail sales report. Markets as of Tuesday afternoon are pricing in a roughly 40% chance that the Federal Reserve will hike interest rates at its December meeting, up from a 25% chance just a week ago. The 10-year Treasury yield breached 4.85%, its highest level in more than a week and just off its 16-year highs. This will keep the Federal Reserve on high inflation alert, and though it won’t tilt the Federal Open Market Committee toward another fed funds rate hike at the November meeting, the December meeting will very much remain a ‘live’ one.

The Precious Metals Week in Review – October 20th, 2023.
The Precious Metals Week in Review – October 20th, 2023.

2. Housing activity in the resale market tanked again in September, the National Association of Realtors reported on Thursday. Sales of previously owned homes dropped 2% from August to a seasonally adjusted annual rate of 3.96 million. That was 15.4% lower than year-ago levels but above the 3.89 million units forecast. Economists claim the property market is in a ‘prolonged freeze’ with interest rates set to remain high through 2024. Meanwhile, Chen Zhao, economics research lead at real estate brokerage Redfin said he expected the total number of existing home sales in 2023 to hit around 4.1 million. It would mark the smallest number of sales since 2008, the year the Lehman Brothers collapsed. Buyers are currently facing a perfect storm of rising mortgage rates and record-high home prices. Soaring rates are having a knock-on effect on buyer demand as homeowners seek to cling to their cheap mortgages. Most locked into deals when they were at record lows of between 0 and 2 percent. As a result, few homeowners are willing to move. A survey by lender Fannie Mae in September found just 16 percent of Americans thought now was a good time to buy a home, the lowest since mid-2010. Mortgage applications in late September also dropped to their lowest levels since 1995, according to the Mortgage Bankers Association.

3. After climbing an eighth of a percentage point Monday, 30-year mortgage rates bolted another quarter point higher Tuesday. The two-day surge has pushed the flagship average more than a tenth of a point beyond the 23-year peak registered early this month. Averages for almost every loan type jumped by double-digit basis points Tuesday. The latest 30-year fixed-rate average is 8.45%.

4. There has been great enthusiasm in the energy world for the increased production of hydrogen, which can be used in a range of ways as a cleaner alternative to fossil fuels. However, an increase in green hydrogen capacity would require a significant amount of clean electricity from renewable resources. Many energy experts in the U.S. are now asking whether the production of hydrogen is the best use of solar, wind, and other clean energy sources or whether they could be better used directly. Green hydrogen is produced using renewable energy sources to power an electrolysis process, which separates the hydrogen and oxygen in water. The process emits no carbon dioxide, making it much cleaner than grey hydrogen, which is derived from fossil fuels. However, not everyone is so supportive of the widescale development of U.S. hydrogen capacity. At present, green hydrogen production accounts for just one percent of total U.S. hydrogen production, with most projects continuing power production with fossil fuels. Some climate experts believe that green hydrogen can only be considered green if new renewable energy sources are developed to power production operations, rather than using the existing grid and questionable carbon accounting schemes. Other energy experts believe that green hydrogen production detracts from the direct use of renewable energy sources. While there is significant optimism about the expansion of U.S. clean hydrogen ability, the widescale development of truly green hydrogen projects is not so simple. There are several hurdles that the U.S. must overcome to build a low-carbon hydrogen industry, with many energy experts demanding better regulations to manage sectoral development and others questioning whether this is the best use of the country’s renewable energy sources.

5. Gasoline is so weak in the U.S. that some refiners are losing money making it. While benchmark futures reflect gasoline margins that are rapidly declining near the lowest since 2020, the reality is even more dire when accounting for costs to comply with environmental regulations. Some refiners are having a tough time breaking even on just gasoline alone, traders and analysts said. Gasoline futures are plunging even as the oil from which the fuel is made remains strong due to geopolitical conflicts and tight supplies. As a result, margins for making America’s most popular road fuel have sunk below $10 a barrel using the futures crack spread as an estimate. Gasoline margins dipped into negative territory for some refiners in early October and late September. That was when the environmental compliance cost was above $5 a barrel, and it’s still hovering near that level. Negative margins are the latest sign of gasoline weakness that dragged oil and the whole energy complex down before the Israel-Hamas conflict jolted prices back up. Soft gasoline is also prone to spark worries about a broader slowdown in economies trying to curb inflation without triggering a recession. Recent declines in gasoline margins might seem extraordinary, they fell from more than $40 a barrel to less than $10 in just under two months. Moreover, refiners are still making historically high profits from diesel, at more than $45 a barrel. That is enough to carry refiners through. In the meantime, gasoline stockpiles will build through the winter season, a sign that the system is rebalancing.

6. The dependence on economic data that has been a guiding light of Jerome Powell’s tenure at the Federal Reserve is also one of its great weaknesses, said Mohamed El-Erian, in an interview on Thursday. In critical remarks of the U.S. central bank, the president of Queens’ College, Cambridge, and chief economic adviser at Allianz, said that Powell’s emphasis on backward-looking data, which operates with a lag, has denied the economy and market observers the clarity and vision that were present under previous eras of the Fed. El-Erian pointed to the sharp rise in Treasury yields as a cause for concern. In addition to the higher borrowing costs for both households and businesses and the drag on the economy, he emphasized the abrupt climb of yields. “There’s fear, and I hope it’s just a fear, that this could break something.” Treasury yields have continued their march higher, with the 10-year Treasury reaching 4.9% for the first time since 2007 in a move that has dragged the stock market lower. El-Erian said he’d like the Fed chair to pull back from an approach that is “excessively data dependent.” Instead, he’d like Powell to recognize that “you cannot drive a car on a curvy road looking through the back-view mirror,” he said. The Fed’s inflation goal of 2%, which has proven to be an elusive figure for central bankers, also drew El-Erian’s criticism. “We have the wrong inflation target,” he said. “Even if you abstract from all the problems, the deep hole that the Fed dug itself into, we have these genuine uncertainties about monetary policy going forward.”

7. In the week ending October 14, the advance figure for seasonally adjusted initial claims was 198,000, a decrease of 13,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 209,000 to 211,000. The 4-week moving average was 205,750, a decrease of 1,000 from the previous week’s revised average. The previous week’s average was revised up by 500 from 206,250 to 206,750.

8. The U.S. Department of Energy wants to buy 6 million barrels of crude oil for the strategic petroleum reserve as part of efforts to refill it after a massive release last year of close to 200 million barrels. The release was a partially successful attempt to bring retail fuel prices down following Russia’s invasion of Ukraine, which at the time some warned would empty the strategic petroleum reserve at a time when it was better full. This year, the Department of Energy has repeatedly said it wanted to start refilling the SPR, but the price never seemed right, after the department set itself a range of between $68 and $72 per barrel for the refill push. At the time of writing, WTI (West Texas Intermediate) was trading at $89.97 per barrel with Brent crude at $93.15 per barrel.

9. The EUR/USD pair continues to display resilience in the face of escalating market risk aversion, contrary to expert forecasts. Trading on the EBS platform, the pair moved from 1.0565 to 1.0595, confounding expectations of a decline. Traditionally, during times of heightened uncertainty, investors flock to the safe haven status of the U.S. dollar, causing it to appreciate against other currencies. However, the Euro, typically deemed riskier, has managed to maintain its ground.

10. USD/JPY flirts with multi-week highs, just below the 150 possible intervention level. USD/JPY regains positive traction on Friday and climbs back closer to the top. The divergent Boj-Fed policy outlook turns out to be a key factor acting as a tailwind. The risk-off mood could help the safe-haven JPY (Japanese Yen) and cap gains amid intervention fears.

Oil jumped on Wednesday after Iran called for an embargo against Israel amid the Israeli-Hamas war and a drop in U.S. stockpiles signaled increased demand for crude. Brent crude jumped almost 2% to hover above $91 per barrel. West Texas Intermediate also rose almost 2%, trading beyond $88 per barrel. Last week prices jumped on worries that a disruption to Iran’s output of roughly 3.2 million barrels per day would impact the global price of crude. “If one million barrels per day is knocked out of the market…I would expect the price of oil to increase 20-25%,” Ed Hirs, economist and energy fellow at the University of Houston, said this week. EIA (Energy Information Administration) data on Wednesday showed an increase in demand for oil as inventories in Cushing, Oklahoma, the largest storage hub in the country, dropped to the lowest level since 2014. The stockpile draw coincides with U.S. crude exports jumping to a June high. Oil surged in the third quarter of this year amid continued OPEC+ production cuts and unilateral reductions by Saudi Arabia, which are expected to continue through year-end.

Shark Tank mogul Barbara Corcoran has insisted that now is the right time to get on the property market – despite high-interest rates. The Federal Reserve held interest rates steady at its last meeting last month, but benchmark borrowing costs remain at the highest point in more than two decades. But Corcoran, who sold her real estate company the Corcoran Group for $66 million in 2001 said she sees an opportunity for buyers to get ahead of the market. “Interest rates just hit a 23-year high and… what that’s doing is pushing more buyers onto the sideline, and they’re going to wait it out. The days of the 2 or 3 percent interest rates are never going to come again – forget about that,” she continued. “But they will come down, and you want to stay on the market. The minute they drop and come to anything with a 5 in front of it, the whole world is going to jump back in the market. ‘There’s going to be no houses around and prices are going to go up by 10 percent or even 15 percent.” She recommended that people not get out of the market. “This is the very best time to buy a house because everybody’s scared,” she said.

Developers broke ground on more housing units in September, but future activity could be muted. New residential construction, including single-family homes and multifamily, increased 7% month over month in September to 1.358 million units on a seasonally adjusted basis. That’s down 7.2% versus a year ago and slightly below the forecast of 1.383 million units by economists surveyed. Adding new single-family homes is a crucial factor in alleviating some of the persistent inventory challenges homebuyers are facing on the for-sale side. Meanwhile, the severity of shortages on the rental side has subsided much more. “Building permits and housing starts are volatile month-to-month, but their trend likely points to modest growth of new single-family construction in September despite high mortgage rates,” Bill Adams, chief economist for Comerica Bank said. “Multifamily units under construction likely fell as rising interest rates made it more difficult for developers to finance new projects profitably, and as more projects started in 2021 and 2022 reach completion.” Now as a result of the new supply, asking rent growth has flattened, only rising 0.3% year over year in September, a reversal from a year ago when annual growth was 9%. Single‐family housing starts in September increased 3.2% to 963,000 from August’s revised figure of 933,000. Authorizations to start new single-family development were up 1.8% to 965,000 from August.

Volatility should be expected to remain high as investors will be closely watching for hints on upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil. Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.

Trading Department – Precious Metals International Ltd.

Friday to Friday Close (New York Closing Prices)

Oct. 13, 2023Oct. 20, 2023Net Change
Gold1,928.451,982.2353.782.79%
Silver22.7223.390.672.95%
Platinum884.38900.9416.561.87%
Palladium1,148.721,110.36-38.36-3.34%
Dow33672.2033126.42-545.78-1.62%

Previous Years Comparisons

Oct. 21, 2022 Oct. 20, 2023 Net Change
Gold$1,651.93

$1,982.23

330.30

19.99%
Silver 19.18 23.39 4.21 21.95%
Platinum 935.24 900.94 -34.30 -3.67%
Palladium 2,031.97 1,110.36 -921.61 -45.36%
Dow 31082.56 33126.42 2043.86 6.58%

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

GoldSilver
Support1975/1968/193321.90/21.11/20.65
Resistance1988/1993/200023.62/24.41/24.75
PlatinumPalladium
Support864/847/8301083/1046/1025
Resistance915/931/9531185/1222/1254
This is not a solicitation to purchase or sell.
© 2023, Precious Metals International, Ltd.

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