Following a significant selloff in precious metals due to a strong jobs report boosting the dollar, analysts examine market positions and future prospects amidst shifting central bank strategies and global economic indicators.
Phillip Streible, Chief Market Strategist
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Good morning, it’s Monday, February 5th, about 6 a.m. Central Time. Over at the precious metals are weaker after Friday’s massive selloff. You had a big extension upward in the dollar Index and also you had nonfarm payroll beat expectations by a landslide, putting the precious metals firmly under pressure on Friday. So you have April gold down $12 at 2041, March silver down 25 at 2255, March copper down 1 at 380, and April Platinum up 4 at 905. Looking at the latest CoT report, which is about a week delayed, we see the net position here for non-commercial and non-reportables plus the Futures and options give you a broad picture of where we sit position-wise on precious metals. On the net position for gold, 174,000, they had taken down 21,000 contracts. Looking at the silver market, 35,000 is in that position on the long side, adding 5,000 contracts. Copper down 7,000, and they added 20,000 contracts. Remember, copper was a massive short position, and then you got that news from stimulus from China, and that had caused that reversal. Platinum, 177,000 contracts, and they added 2000.
So getting in the wood here and looking at the precious metals, gold, it’s really been a disappointing week. You had this upside breakout that was looked to be set, and then you had the non-farm payroll come out, and what that did was it broke prices back down. You saw the downside rejection in the dollar Index, and now the dollar Index is the mirror image breaking out to the upside. So short-term, we’re going to see the Fed’s forward rate path is really going to drive where the short-term price action is in the gold market. Now long-term, I believe that three core catalysts still remain: Central Bank buying, geopolitics, and also the lower rates from the Fed, and not only the Fed but also globally. If you go to Central Bank buying, it’s still China, India, Poland, and Singapore. They are all adding after strong 2023 purchases. They’re really shifting away from the dollar Index here, and they’re really going into some reserve diversification. Now if you look at China and their FX reserves, you could basically draw an X on the chart. The X, the line going down, would be any FX reserves, specifically the dollar Index. The line going upwards across the chart is going to be gold holdings. So China is firmly adding gold.
Now, what you need in order for this gold market to reverse is you need ETF inflows as a catalyst for the next leg, and it’s not going to happen until the Fed really eases rates. We’ve seen 11 straight days of ETF Holdings continue to get liquidated here, pushing on to the US equities, which the S&P 500 is strung together. It’s fourth consecutive weekly gain of about 1% or more. Now, if you look at the equities, one observ if you start separating things from US individual equities and US Equity indexes, the indexes look like a 45-degree up, but if you take the number of stocks, individual stocks within the S&P 500 that are making 52-week highs and also 3-month highs, you’re going to see that it’s really starting to come off here. So usually, what happens is the individual stocks lead the S&P 500 Index. You can also take a look at the number of stocks above the 50-day moving average versus above the 200-day moving average, and you’ll see that they’re both starting to slide. The Dow also tacked down about 6,000 points since November. So I’m not exactly calling for a top, but I’m definitely saying that the warning signs are starting to set up that we could be gearing up for some kind of break and some kind of correction. Typically, when you see a stronger dollar Index, stocks come under pressure. If you look back in November when the dollar had bottomed, that was also gearing up to be some kind of top here in the stock market.
Now, yesterday on 60 Minutes, Paul really sent some shockwaves across the market, and I think he’s the one who’s really got, you know, the pressure under the market here today. He said that the central banks, that they’re weary of cutting rates too soon. He said in an interview on 60 Minutes on Sunday night that voting members are unlikely to reach the required level of confidence about the inflation’s path by the March meeting, so that really put that pressure on the market and gave traders a sour taste in their mouth. I could see pockets of liquidation going on as that was coming out. Also, the same thing over in Europe, they kind of reiterated a lot of that same verbiage.
Now looking here today, we’re going to see ISM services for January throughout 9:00 a.m. Central Time. They’re predicting a small uptick. The last time we had the ISM Services have a small uptick, we did see a little bit of a bump up here in the copper and also in the silver market. We’ll also see the Fed will issue its latest quarterly loan senior loan survey, and it talks about bank lending practices and things like that. Chicago Fed President will join Bloomberg TV. I think that’ll be one of the more market-moving events, and also Atlanta Fed President Raphael Bostic will also do some additional coverage here on some Fed actions as they come into more digestive path as far as what they’re going to do at these next meetings. We will have two more inflation reports. We’ll also have a yearly revision of CPI, so a lot of data coming out. If you guys got any questions, give me a call. Remember, futures and option trading involves risk of loss and may not be suitable for all investors. Good luck, good trading.