Zaner Daily Precious Metals Commentary
Tuesday, June 3, 2025Gold retreats modestly on downtick in trade tensions
OUTSIDE MARKET DEVELOPMENTS: Markets have calmed somewhat after the White House said that Trump and Xi Jinping are likely to speak directly this week. Investors are hopeful that the two leaders can get broader trade negotiations back on track.
Meanwhile, U.S. Commerce Secretary Lutnick said that a mega trade deal with India could be finalised soon. While markets have grown increasingly impatient with progress on trade, Lutnick reminds us that "these kind of deals used to take two or three years, and we're trying to get them done in a month."
Fair enough, it's a big lift. However, it's a lift of the Administration's own making. The UK deal was relatively easy, as the U.S. typically has a trade surplus with them. The tougher deals are with countries that contribute to the massive trade deficit.
Manufacturing activity in China contracted in May as tariffs began to bite. The Caixin/S&P Global manufacturing PMI fell to 48.3, versus 50.4 in April. It was the first drop in eight months and the lowest reading in 32 months.
Amid mounting growth worries in the world's second-largest economy, there are expectations of more stimulus. China's Premier Li Qiang said last week that additional measures are indeed being considered, including some that are "unconventional."
The dollar has retraced some of yesterday's losses, but price action in the index remains confined to Monday's range. Nonetheless, with more than 78.6% of the April/May corrective rally now retraced, considerable credence has been returned to the downtrend that began this year. The dollar index posted five consecutive lower monthly closes this year.
Recent FedSpeak continues to highlight the need for clarity before rates are adjusted further. This strongly suggests that the easing campaign remains on hold. Fed funds futures still imply a 25 bps cut in October, but 50 bps in easing by year-end is no longer fully priced in.
Factory Orders tumbled 3.7% in April, below expectations of -3.2%, versus a negative revised +3.4% in March (was +4.3%). It was the first decline in five months and the biggest drop since January 2024. Inventories fell 0.1% after rising a revised 0.1% in March.
JOLTS Job Openings rose 191k to 7,391k in April, above expectations of 7,100k, versus a revised 7,200k in March (was 7,192k). The data suggest a healthy labor market and imply upside risk for the 125k NFP consensus.
RCM/TIPP Economic Optimism Index rose 2.7% to 49.2 for June on expectations of 49.1, versus 47.9 in May. "A pause on mindless tariffs (that would greatly hinder U.S. exports if implemented) has coincided with rising confidence," said RCM's John Tamny.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$26.50 (-0.78%)
5-Day Change: +$58.31 (+1.77%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +47.70
Gold has retreated from a four-week high of $3,389.78 set in Asia as trade tensions with China cool modestly, providing some lift for the dollar. However, broader trade and geopolitical risks remain supportive for the yellow metal.
While the dominant uptrend appears to be reasserting itself, important resistance at $3,431.63 (07-May high) must be negated to clear the way for a retest of the record high. The 78.6% retracement level of the recent corrective phase comes in at $3,416.97, and now today's high at $3,389.78 provides an additional intervening barrier.
Central bank gold purchases slowed in April to 12 tonnes. Poland remains the most aggressive buyer year to date. The PBoC added 2 tonnes, marking the sixth straight month of purchases.
The World Gold Council speculates that the slowdown may be attributable to the latest round of record-high prices that reached $3,500 in April. "While the rally to multiple new record highs is unlikely to deter central banks from buying gold – as they tend to be more strategic in nature – it could explain some of the deceleration in the pace of monthly net buying," wrote WGC Senior Analyst Krishan Gopaul.
"Fears about the impact of US tariffs have been the overwhelming factor driving gold in the past few months," says John Reade of the WGC in a conversation with FT Advisor. "There’s a sense that the rules have changed, and in that context gold is being re-evaluated as a strategic asset, not just a defensive one," he added.
It strikes me that central banks already view gold as a strategic asset. Allocations have grown in recent years as emerging countries sought to diversify reserves, reduce reliance on the dollar, and mitigate exposure to sanctions.
High net worth investors are increasingly following the lead of the central banks. "The percentage of high net worth (HNW) investors holding gold has increased from 20% to 38% — a 90% jump in only 15 months," according to State Street Global Advisors.
"The ability to hedge against market volatility and persistently low correlation to both equities and fixed income can potentially make gold a compelling portfolio play," says SSGA. That suggests that gold should continue to grow in acceptance among average investors, providing a boost to demand.
The $3,324.40/28.00 zone provides initial support and protects the 20-day moving average at $3,293.35. Penetration of the latter would favor further consolidation into the lower half of the range.
OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.487 (-0.70%)
5-Day Change: +$1.118 (+3.36%)
YTD Range: $28.565 - $34.783
52-Week Range: $26.524 - $34.853
Weighted Alpha: +19.38
Silver started the week with an impressive rally of more than 5%, reaching seven-month highs. The white metal followed gold higher on rising trade and geopolitical tensions. A weaker dollar provided additional lift, as did the shake-out of stubborn shorts as important resistances were violated.
Key resistance marked by the high from October at $34.853 was approached but remains intact. The white metal has pulled back into the range as gold eased and the dollar firmed on a downtick in trade tensions.
A breach of $34.783/853 is needed to confirm the upside breakout. Such a move would target $36.169 initially based on a Fibonacci projection, with an important long-standing retracement level at $35.217 providing an intervening barrier. However, the longer-term bullish implications of such a range breakout would be to $40, and beyond.
If silver is unable to muster a breakout fairly quickly, I'd look for a retreat to today's low at $34.015. Below that, a return to consolidation around $33 would be likely.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com
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