1. Gold’s new high signals global central banks are likely accumulating the precious metal to diversify away from the dollar, as persistently large fiscal deficits threaten to erode its real value and lead to more inflation. Gold’s move has been broad as well as pronounced with the precious metal making 50-year highs versus three-quarters of major developed and emerging currencies. The biggest holdings of gold after jewelry are for private investment followed by central banks’ official reserve holdings. The dollar has been relatively stable and real yields (which anyway have a non-linear relationship with gold) are higher over the last three months. The bulk of seasonal buying, for instance Diwali in India, is likely behind us. It’s therefore a reasonable supposition the official sector, i.e., central banks, has been a significant driver of gold’s recent ascent to new highs. Over the last six months, China, Germany, and Turkey have increased their gold holdings by the most (these are official holdings – when it comes to China, its true holdings are likely much higher than stated). Central banks want gold as it is a hard asset, not part of the financialized system when owned outright. But the dominant reason is a desire to diversify away from the dollar. If you’re not on friendly terms with the U.S., then it is a way to avoid your reserve assets being seized, as happened to Russia. But central banks everywhere are quite possibly uneasy about owning too many dollars when the U.S. is running large, inflation-causing fiscal deficits. The dollar is structurally overvalued on a purchasing-power-parity basis versus the main developed markets’ currencies.

The Precious Metals Week in Review – March 15th, 2024.
The Precious Metals Week in Review – March 15th, 2024.

2. Inflation pressures remained persistent in February as prices for shelter and gas rose, according to the latest data from the Bureau of Labor Statistics released Tuesday morning. The Consumer Price Index (CPI) showed prices rose 0.4% over the previous month and 3.2% over the prior year in February, more than forecast and an acceleration from January’s 0.3% monthly increase and 3.1% annual gain. This marked the largest monthly increase since September. On a “core” basis, which strips out the more volatile costs of food and gas, prices in February climbed 0.4% over the prior month and 3.8% over last year. Both measures were higher than the economist’s expectations of a 0.3% monthly increase and 3.7% annual gain. Tuesday’s results represented the last inflation print before the Fed’s next policy decision on March 20. Investors are hopeful the central bank will cut interest rates this year. After the data’s release, markets were pricing in a nearly 100% chance the Federal Reserve will keep rates unchanged next week, according to data from the CME Group.

3. After recovering from a near-death experience during the most recent crypto winter, Bitcoin miners are back in survival mode — spending billions of dollars on equipment and drawing energy at a record pace. The surge in activity is sparked by a runup in the world’s largest cryptocurrency, fueled by newly launched spot Bitcoin exchange-traded funds, and a quadrennial event called the halving that is slated to take place in April. Bitcoin has surged since plunging by 64% in 2022 amid a series of crypto industry bankruptcies and scandals. Since February 2023, 13 of the top mining companies have placed orders for over $1 billion worth of specialized computers, according to data compiled by TheMinerMag. CleanSpark, and Riot Platforms Inc. led the group, spending as much as $473 million and $415 million, respectively, on the rigs. The machines are being purchased to help miners increase efficiency for their operations and lock in favorable electricity rates. Miners are in constant search of cheap power because they use energy-hungry computers to validate records of transactions on the blockchain to earn rewards in the form of Bitcoin. All the activity is driving miners to consume energy at a record pace. Last month, miners drew a record 19.6 gigawatts of power, up from 12.1 gigawatts the same period in 2023. That’s equivalent to the electricity capacity that can power about 3.8 million homes in Texas. The rapid expansion comes with risks as seen in the last crypto bull run in late 2021. Companies borrowed a record amount of money and when the market crashed in 2022 so did miners. Two of the largest firms at the time, Core Scientific Inc. and Compute North declared bankruptcy with other miners warning of a liquidity crunch. Core Scientific has since emerged out of bankruptcy and relisted in January. There is a danger in which you scale and start compromising on the cost of energy, the cost of machines and the costs of certain paybacks. That’s why so many companies went bankrupt in 2022 because people would scale at all costs.

4. Some market participants believe the relentless U.S. stock rally is poised for a breather, even if it remains unclear whether equities are in a bubble or a strong bull run. The benchmark S&P 500 index is up over 25% in the last five months, a phenomenon that has occurred just 10 times since the 1930s. Bullish investors argue those gains stem from solid fundamentals, rather than the type of rampant speculation that has accompanied past bubbles. Oft-cited reasons include a strong U.S. economy, expectations the Federal Reserve will cut interest rates this year, and excitement over the business potential of artificial intelligence. Yet some investors believe the market’s nearly uninterrupted ascent means a pullback is due. The last time the S&P 500 slid more than 5% was in October, though BofA data shows such selloffs historically occur three times per year on average. The index is up 8.5% this year. “A lot of good news is priced into the market,” said Michael Arone, chief investment strategist at State Street Global Advisors. “From my perspective that just suggests that the risks are skewed to the downside.” Nevertheless, some indicators are flashing a warning. The S&P 500’s weekly relative strength index (RSI) – which gauges whether stocks are overbought or oversold – has climbed to just over 76, a level it has rarely topped since 2000. Significant selloffs followed the last two times the index exceeded those levels: a 10% drop in the S&P 500 in January 2018 and a 30% plunge as COVID-19 emerged after the index topped that level in January 2020. “None of this means we’re looking at a major long-term top,” said Matt Maley, chief market strategist at Miller Tabak. “However, it does tell me that we’re getting ripe for a material pullback.”

5. European Union lawmakers gave final approval to the 27-nation bloc’s artificial intelligence law Wednesday, putting the world-leading rules on track to take effect later this year. Lawmakers in the European Parliament voted overwhelmingly in favor of the Artificial Intelligence Act, five years after regulations were first proposed. The AI Act is expected to act as a global signpost for other governments grappling with how to regulate the fast-developing technology. Big tech companies generally have supported the need to regulate AI while lobbying to ensure any rules work in their favor. OpenAI CEO Sam Altman caused a minor stir last year when he suggested the ChatGPT maker could pull out of Europe if it can’t comply with the AI Act — before backtracking to say there were no plans to leave. Like many EU regulations, the AI Act was initially intended to act as consumer safety legislation, taking a “risk-based approach” to products or services that use artificial intelligence. The riskier an AI application, the more scrutiny it faces. High-risk uses of AI, such as in medical devices or critical infrastructure like water or electrical networks, face tougher requirements like using high-quality data and providing clear information to users. Some AI uses are banned because they’re deemed to pose an unacceptable risk, like social scoring systems that govern how people behave, some types of predictive policing and emotion recognition systems in school and workplaces. Other banned uses include police scanning faces in public using AI-powered remote “biometric identification” systems, except for serious crimes like kidnapping or terrorism.

6. The Labor Department reported Thursday that filings for unemployment claims for the week ending March 9 ticked down by 1,000 to 209,000 from the previous week’s 210,000 (revised from 217,000). The four-week average of claims, which evens out some of the weekly volatility, came in at 208,000, a decrease of 500 from the previous week. In total, 1.811 million Americans were collecting jobless benefits during the week that ended March 2, an increase of 17,000 from the week before. That number, which at 1.906 million had been the most since November, was revised down by 112,000 to 1.799 million.

7. Crude oil futures fell slightly Friday after booking gains in two consecutive sessions but are on pace to close out the week higher. The West Texas Intermediate contract for April fell 48 cents, or 0.59%, to $80.78 a barrel. The Brent contract for May lost 46 cents, or 0.54%, to $84.96 a barrel. U.S. crude and the global benchmark are up 3.5% week to date so far. OPEC and the International Energy Agency are now both expecting a tight crude market this year. The IEA has revised its outlook for 2024, projecting a slight supply deficit rather than a surplus. The Paris-based agency’s forecast is now more in line with OPEC’s projections.

8. EUR/USD continues to fluctuate below 1.0900 on Friday and remains on track to snap a three-week winning streak. The cautious market mood ahead of the weekend helps the U.S. Dollar stay resilient against its rivals and doesn’t allow the pair to gain traction.

9. USD/JPY jumps to 148.80 on hopes that the BoJ will maintain its ultra-loose monetary policy stance on Tuesday. The BoJ lacks a significant wage-price spiral to back an exit to negative interest rates. Diminished Fed rate cut expectations keep the U.S. Dollar strong near its three-week highs around 103.50.

In European trade on Monday, gold was $2167, a new record and up $85 from last Friday’s close, while silver at $24.49 was up $1.18. Comex volumes in both contracts were heavy, but the startling increase was in gold’s Open Interest, which has surged by 100,000 contracts since 20 February. Comex deliveries have also soared. In the four days of this week so far, 1,056 gold contracts have stood for delivery, making the total this year 28,159 contracts (87.58 tons). But the more remarkable increase has been in silver contracts: 1,628 this week so far representing 8,140,000 ounces or 253 tons. The total for this year to date is 1,122 tons. Admittedly, this would take fleets of security vans working 24/7 to handle these quantities if it stood for delivery, and this bullion was delivered out of the vaults. Instead, it represents a change of ownership rather than actual deliveries, but it is an indication of the stress on bullion bank liquidity which must be being badly squeezed, not just on Comex but in London as well. The bullion establishment in western capital markets has been caught badly short. The squeeze is global, which is why when the charts say “buy gold” as they now do the effect has been dramatic. After a 43-month consolidation, breaking into new high ground was bound to be a major event. This is as powerful as it gets, capable of supporting a run of several hundred dollars higher. And Elliott Wave technicians will be positively drooling over the bullish potential.

Wholesale prices in the United States accelerated again in February, the latest sign that inflation pressures in the economy remain elevated and might not cool in the coming months as fast as the Federal Reserve or the Biden administration would like. The Labor Department said Thursday that its producer price index, which tracks inflation before it reaches consumers, rose 0.6% from January to February, up from a 0.3% rise the previous month. Measured year over year, producer prices rose by 1.6% in February, the most since last September. Higher wholesale gas prices, which jumped 6.8% just from January to February, drove much of last month’s increase. Wholesale grocery costs also posted a large gain, rising 1%. Yet even excluding the volatile food and energy categories, “core” inflation was still higher than expected in February. Core wholesale prices rose 0.3%, down from a 0.5% jump the previous month. Compared with a year ago, core prices climbed 2%, the same as the previous month. Consumer inflation has plummeted from a peak of 9.1% in 2022 to 3.2%. Yet many Americans are exasperated that average prices remain about 20% higher than they were before the pandemic erupted four years ago.

JPMorgan Chase CEO Jamie Dimon said he doesn’t think the Federal Reserve should begin lowering interest rates by June and should instead wait for more clarity. The suggestion from the boss of the nation’s largest bank comes as the central bank prepares to meet next week to decide on the direction of rates, which are currently at a 22-year high following an aggressive campaign to lower inflation. Investors are currently betting that the Fed will hold steady in March and May before making its first cut in June, adjusting their expectations following cautious commentary from Fed Chair Jerome Powell and other Fed officials. Powell said last week that the Fed is “not far” from the confidence it needs to cut rates, while some of his colleagues have suggested it could happen “later this year” or during the summer. “You can always cut it quickly and dramatically,” Dimon said. “Their credibility is a little bit at stake here. I would even wait past June and let it all sort it out.” The JPMorgan chief has been warning for some time now that inflation may prove to be stickier than expected and that rates could remain higher for longer. 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)

Mar. 8, 2024Mar. 15, 2024Net Change
Gold $2,184.66 $2,156.82-27.84-1.27%
Silver $24.39 $25.200.813.32%
Platinum $913.65 $940.8027.152.97%
Palladium $1,021.35 $1,081.7660.415.91%

Previous Year Comparisons

Mar. 17, 2023Mar. 15, 2024Net Change
Gold $1,961.68 $2,156.82195.149.95%
Silver $22.19 $25.203.0113.56%
Platinum $976.50 $940.80-35.70-3.66%
Palladium $1,399.78 $1,081.76-318.02-22.72%

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

This is not a solicitation to purchase or sell.
© 2024, Precious Metals International, Ltd.

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