Price gains in gold, silver as China eases its monetary policy

(Kitco News, Wed. Jan. 24th, 2024) – Gold and silver prices are higher in early U.S. trading Wednesday, following news that China has implemented an economic stimulus measure that has positive demand implications for the metals markets. February gold was last up $8.00 at $2,033.80. March silver was last up $0.418 at $22.88.

(Hey, my latest “Markets Front Burner” weekly email report is out today. Front Burner is my best writing and analysis, I think, because I get to look ahead at the marketplace and do some market price forecasting. Plus, I’ll throw in an educational feature to move you up the ladder of trading/investing success. And it’s free! Email me at jim@jimwyckoff.com and I’ll add your email address to the Front Burner list.)

China’s central bank eased its monetary policy Wednesday, announcing it would cut the reserve requirement ratio for its commercial banks by 50 basis points, according to officials. The move is expected to inject 1 trillion yuan ($140 billion) of liquidity into Chinese markets. China and Hong Kong stocks rallied on the news. Some analysts said the move by China’s central bank is not enough and more government spending is needed to shore up the world’s second-largest economy. Still, the news has implications for better Chinese demand for raw commodities, including metals.

Asian and European stock markets were mixed to firmer overnight. U.S. stock index futures are set to open higher when the New York day session begins. The S&P and Nasdaq indexes have hit record highs this week as risk appetite in the general marketplace has up-ticked recently.

In other news, the Euro zone composite (services and manufacturing) purchasing managers index (PMI) came in at 47.9 in January, which was below expectations. A reading below 50.0 suggests contraction.

The key outside markets today see the U.S. dollar index lower. Nymex crude oil prices are slightly down and trading around $74.25 a barrel. Meantime, the yield on the benchmark U.S. Treasury 10-year note is presently fetching 4.105%.

U.S. economic data due out Wednesday includes the weekly MBA mortgage applications survey, the U.S. flash and services manufacturing purchasing managers indexes (PMI) and the weekly DOE liquid energy stocks report.

Technically, the gold futures bulls have the overall near-term technical advantage but have faded a bit. Prices are still in a three-month-old uptrend on the daily bar chart, but just barely. Bulls’ next upside price objective is to produce a close in March futures above solid resistance at last week’s high of $2,062.80. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $2,000.00. First resistance is seen at this week’s high of $2,039.30 and then at $2,050.00. First support is seen at the overnight low of $2,023.60 and then at this week’s low of $2,017.40.

The silver bears have the firm overall near-term technical advantage but any weakness here in silver should be looked at as a buying opportunity.

Recently, Silver has lagged behind other commodities due to its dependence on industrial applications and reliance on China as a consumer. China remains the largest consumer of Silver globally, consuming 18% of global fabrication. After a disastrous 2023, China has taken extraordinary measures to step up and support its economy by curbing short selling and proposing a stock market rescue package backed by $278 billion as part of a stabilization fund to restore confidence in its economy.

While China may be one part of the puzzle, higher interest rates have been a significant headwind that is near coming to an end. Depending on upcoming economic data, the market could see our first interest rate cut as early as March, but more likely in May. Regardless of one or the other, the first cut should set off a chain reaction of events leading to a weaker U.S. Dollar followed by a steady stream of fund inflows into the Gold market. Historically, Gold has, on average, seen a 6% rise within 30 days of the first interest rate cut. Additionally, the Gold/Silver ratio is trading near 91:1, leaving Silver at a historically low valuation to Gold. Funds have also cut their bullish bets on Silver to 10-week lows, leaving them underinvested. With Silver’s high beta nature, the returns after the first interest rate cut could significantly outperform Gold.
Note : if silver is ready to gain then the other industrial metals like platinum & palladium will follow, platinum especially has excellent supply/ demand fundamentals going forward.

Prices on silver hit a three-month low Monday and are in a six-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing March futures prices above solid technical resistance at $24.00. The next downside price objective for the bears is closing prices below solid support at the October low of $21.17. First resistance is seen at $23.00 and then at $23.25. Next support is seen at the overnight low of $22.465 and then at $22.00.

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com