The situation in the Middle East continues to intensify as Israel takes out the new Hamas leader.  Gold traders to a record high of 2725, and the silver market has a massive 6% gain breaking out of its old range as it catches up to the gold market. Silver’s record high, just shy of US50.00, was made in April 2011. The ECB cut official interest rates by another 25bps following easings in September and June. The refinancing rate stands at 3.25%.  The ECB remains confident that the inflation is easing as the September inflation rate nudged to 2% for the first time in more than three years. The ECB then outlined its projections for the coming years, which provided additional support for the move. GDP data from China continued to edge lower, coming in at 4.6% it was the slowest annual rate growth since Q1 2023 amid persistent property weakness, shaky domestic demand, deflation risks, and trade frictions with the West. The newly built House Price Index, which measures new home prices in 70 cities, continued to shrink. The index has fallen since Nov 2016, when annual growth was 12.6%. The September read came in at -5.6%, which must be putting pressure on mortgages.  In the US, we had another record high for equity markets; once again, there seems to be a divergence between record highs and economic performance, which doesn’t make all that much sense. Industrial production, dropped by Yoy dropped by 0.6%, Manufacturing production dropped by 0.5%w, and Capacity Utilization dropped by another 0.6%, which was the biggest decline in months, indicating that the economy is shrinking.

But first let’s take a deeper look into the US economy. In the U.S., equity markets have continued to set record highs, despite underlying weaknesses in economic data. This divergence between market performance and economic fundamentals is raising questions among analysts. The S&P 500 and NASDAQ have both reached new peaks, driven primarily by investor optimism around future Federal Reserve rate cuts and strong earnings projections from major tech companies.

However, recent economic indicators paint a less optimistic picture. Industrial production has decreased by 0.6% year-over-year and this is the third month in a row that numbers are showing a contraction. While manufacturing output fell by 0.5%, apart from 3 marginally positive reads this year, the data has shown a contracting manufacturing sector. Capacity utilization also dropped by 0.6%, marking the most significant decline in months. Capacity utilization in the US fell to 77.5% in September 2024, marking a new 8-month low, from a downwardly revised 77.8% in August and below forecasts of 77.8%. The rate is now 2.2 percentage points below its long-run average. These figures suggest that the U.S. economy may be losing momentum despite the upbeat performance in equity markets. The discrepancy between the financial markets and economic data could result from liquidity-driven rallies fueled by expectations of looser monetary policy rather than actual economic strength, which is generally a preferred view by many. 

Further recent earnings reports in the US have also egged investors on. This week’s Durable Goods orders due out on Friday should help to form a catalyst on expectations on earnings for manufacturing companies.  Whilst, on the US Election it appears that Harris seems to have a small marginal gain on Trump. Which may also support valuations further. 

On the geopolitical landscape in the Middle East, fighting has intensified significantly as Israel launched a strike against the new Hamas leader and killed him. The ongoing conflict has created uncertainties, especially around oil production and supply routes, leading to increased volatility across various asset classes. However, crude oil futures dropped 2% to settle at $69.2 per barrel on Friday, marking the biggest weekly losses since early September, falling more than 8%. The decline was driven by weaker demand forecasts from OPEC and the IEA, slowing economic growth in China and signs of easing geopolitical tensions in the Middle East. Both OPEC and the International Energy Agency (IEA) lowered their demand forecasts for 2024 and 2025. China’s refinery output has now declined for the sixth consecutive month, influenced by weak fuel demand and the rise of electric vehicle (EV) adoption. The geopolitical risk premium, which measures the potential impact of these developments on financial markets, has surged, and market participants are increasingly wary of how prolonged instability could impact global trade and energy security. However, the precious metals market is booming.

Gold reached a record high of $2,725 this week, driven by heightened geopolitical risks and a broader search for safe-haven assets amid global uncertainties. Weaker U.S. economic data and expectations of potential inflationary pressures further support the precious metal rally. Interestingly, the nexus between the USD and Gold, seems to have broken, with the USD remaining the better bid since last September when the Gold rally started. It seems that gold is trading on its own merits.  Silver also recorded a strong performance, gaining 6% and breaking out of its previous trading range. The surge in silver is seen as a catch-up to gold, with the metal nearing its historical high of just under $50, last seen in April 2011. The rally is attributed to the metal's dual role as both an industrial and monetary asset, with demand increasing amid geopolitical tensions and concerns about supply chain disruptions. If looking to trade the precious metal markets would have a look at silver over gold. 

Next week, the earnings season will continue with major companies such as Tesla, Coca Cola, 3M, General Motors and Verizon unveiling their quarterly reports. In the United States, the economic calendar will feature PMI releases, durable goods orders, and reports on existing and new home sales. Across the Atlantic, investors will closely watch Germany's IFo business climate index and consumer confidence figures for the Euro Area, UK, France, Italy, South Korea, and Turkey. Also, manufacturing and services PMI data will be in focus for Australia, Japan, India, France, Germany, and the UK. In Canada, attention will be on the Bank of Canada's interest rate decision and retail sales data. Finally, South Korea will release its Q3 GDP growth rate.

On the position front, we have reduced all … positions in equities, but we are … off on reducing position sizes further; ditto this week again.  Given the weak economic data, we are finding it hard to close positions entirely. Oil continues to trade well for us, albeit it has come under pressure on economic concerns. We have given up good profits but feel given issues in the Middle East that this will prevail in the end and the issues are not resolved. We are happy to remain … We went … both Gold (US… and Silver (…) and happy to hold. Both positions are deep in the money but we do have trialing stops in the market as sentiment could turn at anytime.  Wheat has come back after showing good profits but we are still happy to … for a … term. 

Trade Focus:

Trade Gold and Silver

Fundamentals:

Gold climbed to around $… per ounce on Monday, reaching new record highs, bolstered by increased demand for safe-haven assets. Investors are closely watching developments in the Middle East as tensions flared following Hezbollah's announcement on Friday that it is entering a more intense phase in its conflict with Israel…

Technical Analysis:

It’s always hard to buy into a market that has been trending for some time and making record highs, however a … to new … means the trend is still intact. Not until we get some volatile price action in a range can, we come close to conclude that a …

Support              …

Resistance         …

Momentum        …