Phil Streible with Blue Line Futures discusses Gold, Silver, Copper, Platinum, and other commodity topics.
Phillip Streible, Chief Market Strategist
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Good morning, it’s Thursday, January 25th, about 6:00 a.m. Central Time. Already the precious metals are higher after yesterday’s mixed session. You have February gold up $1 at 2017, March silver up 9 cents at 22.98, March copper up 1 at 388, and April Platinum down 7 at 907.
So yesterday, we saw Futures take a real positive tone on the People’s Bank of China set to cut the reserve ratio by 50 basis points. However, shortly after, at about 8:45 a.m. Central Time, we saw US flash manufacturing PMI data come out. What it indicated was 50.3 versus a 47.6 expected. This was the first positive number that we’ve seen in months, and it’s a leading indicator of economic health. Anything over 50 indicates an expansion in the economy.
So, you also saw flash Services PMI come out at 52.9 versus 51.4. Now, this sounds like a lot of numbers, but the reality is that if you see the economy’s health improving with this number over 50, that’s going to be less dovish for the Federal Reserve. So that’s why your gold Futures, which were up substantially in the morning, they pull back and they go negative.
Now, this is a manufacturing data and also it’s an indication of industrial demand. 54% of Silver’s demand is industrial demand. So this is where you get the divergence yesterday between gold and silver. Remember, sometimes these things are not the same; they may be brother and sister, they may be distant cousins under different economic environments.
So you saw a positive inflow in the silver ETF, and you saw silver hold on to much of its gains. Yesterday, we saw 15.9 million ounces flow into the silver ETF. Now, if you’ve been listening to this for a while, you know that silver has been the most neglected ETF, and most of the funds have been flowing into other metals, other industrial metals, and a lot of people are playing the gold market because they’re anticipating those Fed interest rate cuts.
So, you want to look at a lot of this economic data and kind of break it down, and then it paints the picture for you as far as why things are moving in different directions. So, the gold market now, with that negative tone from that expansion data, I think the 200-day moving average is your critical level of support on gold. You really want to see it get back above the N9 and the 18-day moving average, and you want to see a crossover there on the charts. You want the nine to go over the 18-day; that’ll indicate that short-term momentum is flowing into the gold market.
Now, the silver market looks a lot better, and it’s shot up, and it’s tracking copper. Remember, copper is a major industrial metal. China’s the largest consumer of copper. Now, the gold-silver ratio, because of that divergence yesterday, had dropped substantially. I wrote an article on Kito; I felt that 91 was way too high on the gold-silver ratio. That had stretched back to early 2023, was the last time we were that high. We tested a double top on there, and now we’ve got the ratio coming back down, meaning silver is a leader on the gold market.
Now, today, we’re going to have a lot more economic data coming out. We’ve got GDP; it’s expected to show the economy expanded at 2.2% on an annualized rate in the fourth quarter. If you see that, you’ll continue to see that divergence expand between gold and silver. You don’t want to see the economy just really take off because the Fed won’t cut rates at that point. You want to see this thing kind of fluttering at the moment.
We’re also going to see releases covering inventories, new home sales, and weekly unemployment claims. That’s the number that’s going to affect the gold market the most. So, this will all give you a snapshot of the economy, kind of, you know, ahead of next week’s Fed meeting. The Fed is not indicated to do anything. If you go to the CME’s Fed Watch tool, you guys should all have this bookmarked on your desktop. Just Google CME Fed Watch tool, hit enter, you’re going to see a series of months. It’ll give you the January 31st, 97.4% chance that we leave rates unchanged. You click on the March 20th meeting; that’s the one everyone’s eyeing, 42% interest rate cut probability, 56% they leave it unchanged. You go out to May, the number gets different. They’re really looking at that first interest rate cut, and I think we’ll get it ahead of the presidential election as a way for the current Administration to cut some of that debt burden, stimulate housing sales, get people feeling a little bit good.
And remember, when interest rates come down, money’s got to flow into other things. People will take it out of that 5% yielding asset that’s in their bank account, and they’re going to want to put it into the markets. They see things like the NASDAQ ripping 5% in the first couple of weeks of the year, and they feel like they’re missing out. So, it’ll flow; the funds will flow somewhere else.
You got any questions, give me a call. We’ll probably be putting some positions on here today. My number is 312-8581 3. Remember, Futures option trading involves risk of loss and is not suitable for all investors. Good luck, good trading.
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