Silver Physical Demand is Buying the Dip Again | JPM on Gold
Jackson Hole Preview
Market Rundown:
Good Morning. The dollar is up 43. Bonds are weaker. Stocks are hovering at unchanged with a tiny bid. Gold is down $4. Silver is down 17c. Crude is up 43c. Nat Gas is up 7c. Grains are bid and crypto is soft. Activity is light and waiting in anticipation of Jackson Hole activities today.
SILVER EFP IS BID AGAIN
Yesterday was a weird day in that stocks dropped with a weakening dollar. It felt like traders squaring up. A lot of counter-trend moves. Gold ran quick and hard for a couple hours possibly signifying random shorts covered pre event.
The most significant thing in metals is Silver. The EFP is once again trading almost 13 cents backwardated indicating the physical buying is not done. And while the buyers do not chase, the funds tend to sell it to them and eventually the funds panic cover shorts. This is what happened a couple weeks ago.
On July 26th we wrote in Silver Gets Sticky:
We think this is the continued physical demand in London as shown by the backwardated EFP making it hard to rationalize selling silver given the steep decline it has had. When the EFP normalizes, then we see if it has enough spark to light the gasoline the shorts have thrown on it the past few weeks.
The next 2 weeks saw silver run hard
***Assume that will happen again. But do not think it can be timed quite like it was last month. Triggers are hard to see on these, especially with Jackson hole upon us today.****
As noted yesterday sarcastically:
Excerpt: JPM Weekly Gold Monitor
With the USD driving near-term price action, gold’s premium to US 10-yr real yields has fallen in the last week but remains at around $400/ oz. US 10-yr nominal yields have risen back up to 3% as overall investor positioning in Treasury futures has turned shorter ahead of the Fed’s Jackson Hole Symposium this week. Chair Powell is scheduled to deliver remarks at the event on Friday, but our strategists ultimately think he is unlikely to materially guide markets on the potential magnitude of a rate hike ahead of the upcoming September 20-21 FOMC meeting.
JPM also believes Gold is range bound, implies volatility is too high and suggests selling straddles as Goldman outright stated last week. They actually base this observation on technical analysis and include a chart showing their rationale as well as detailed comments.
Gold technical strategy: Gold drop to 1724-1745 support levels after rejecting anticipated resistance at the 1809-1825 May-Jun pattern breakdown….We are looking for the market to continue to carve out a range above that area.
Their price projections:
More at bottom Goldman’s Take on Jackson Hole
The Fed’s annual Jackson Hole Economic Policy Symposium takes place on Friday and will open with a speech by Chair Powell at 10am EST. We expect Powell to reiterate the case for slowing the pace of tightening laid out in his July press conference and the July minutes released last week. He is likely to balance that message by stressing that the FOMC remains committed to bringing inflation down and that upcoming policy decisions will depend on incoming data.
We suspect that the Fed leadership saw the easing in financial conditions after the July FOMC meeting—much of which has now reversed—as unhelpful to its task of keeping the economy on a below-potential growth trajectory, but not problematic enough to scrap its plan to slow the pace of tightening. Softer-than-expected CPI and PPI reports since the July meeting should also make the leadership more comfortable proceeding with its plan to slow down.
ZEROHEDGE": Here's What Jerome Powell Will Say At Jackson Hole, According To Goldman
Cutting to the chase, Goldman expects Powell to reiterate the case for slowing the pace of tightening laid out in his July press conference and the July minutes released last week, while also stressing that the FOMC remains committed to bringing inflation down and that policy decisions at upcoming meetings—including in September—will depend on incoming data. "This will require striking a delicate balance."