The market’s risk sentiment is improving, partially due to the stabilization of the Israel-Hamas conflict from the perspective of financial markets. This has impacted gold and silver, which are usually seen as safe-haven assets, leading to a decrease in their values over the past few weeks.
On Monday, gold prices experienced a slight increase, influenced by short-term futures traders engaging in short covering and investors seeking deals after recent price declines. Both gold and silver prices reached their lowest points in four weeks, with December gold futures rising by $7.150 to $1,949.39 and December silver futures increasing by $0.0420 to $22.36. The market is currently balanced, with no clear advantage for either bulls or bears in the near term, although the trend for gold prices is slightly downward. Bulls are aiming to break through the resistance level at $2,000.00, while bears are trying to push prices below the support level of $1,900.00. The immediate resistance and support levels are identified at $1,950.00, $1,965.00, and $1,935.60, $1,925.00 respectively. Silver bulls are aiming to exceed the October high of $23.88, while bears are attempting to lower prices below the October low of $20.85. The resistance and support levels are set at $22.50, $22.80, and $21.925, $21.50, respectively.
Amidst these market movements, the U.S. Treasury’s 30-year auction witnessed tepid demand, with foreign buyers reducing their interest in U.S. debt. The Treasury faces the challenge of refinancing $5 trillion in maturing debt and covering a projected $2 trillion fiscal budget deficit in 2024. Additionally, the interest expense on the $34 trillion U.S. debt is escalating exponentially, currently at $1 trillion annually. Disturbances in the U.S. Treasury market could have significant global financial repercussions.
The Federal Reserve maintains a hawkish stance on rates due to persistently high consumer prices. The dilemma they face is that loosening conditions could reignite inflation, while continued tightness could hamper economic activity, thereby exacerbating the deficit and debt issuance. This places Federal Reserve Chair Jerome Powell and the Federal Reserve in a challenging position as the Treasury prepares for a substantial increase in debt issuance.
Compounding these issues, Moody’s downgraded the U.S. credit outlook to negative, hinting at a potential Sovereign ratings downgrade amidst the Federal budget crisis in Washington. U.S. household debt has reached record highs, with consumer rates soaring above 20%. The U.S. banking system is also under pressure due to commercial real estate debt and underwater Treasury and mortgage debt portfolios. The current stability of the banking system is largely due to the government allowing banks to value their portfolios at par rather than market value, which, if not in place, would have already triggered a banking crisis.
As these debt crises unfold, physical gold and silver are increasingly viewed as means of wealth preservation outside an increasingly fragile financial system.
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