Gold and silver consolidate as optimism on inflation is tempered by ongoing conflict

OUTSIDE MARKET DEVELOPMENTS: Inflation cooled noticeably in June, thanks in large part to the ceasefire that triggered a sharp drop in oil prices. However, with oil prices rising again amid renewed U.S.-Iran hostilities, optimism about disinflation has been significantly tempered.

The Consumer Price Index fell 0.4% for the month – the largest drop since April 2020 – cooling to 3.5% y/y, down from 4.2% in May. Core CPI also eased to 2.6%, signaling that price risks may be moderating even as energy volatility and geopolitical risks linger.

Wholesale inflation followed suit. The Producer Price Index declined 0.3% in June, slowing to 5.5% y/y, below expectations of 6.2% and down from 6.0% in May. Core PPI ticked up to 4.7% y/y from 4.6% in May, but came in well below expectations of 5.2%.

With both CPI and PPI coming in softer than forecast, hawkish Fed expectations have moderated. Prospects for a July rate hike have declined to 10.2%, versus 31% a week ago. A 25 bps rate hike by year-end is no longer fully priced in.

The dollar index has eased somewhat but remains within striking distance of the 13-month high set in late June. Haven interest continues to underpin the greenback amid persistent geopolitical risks and substantial uncertainty about the trajectory of energy prices. 

Tensions in the Middle East have escalated again as the U.S. and Iran exchanged further strikes and threats following a brief ceasefire. President Trump formally notified Congress that U.S. military operations have resumed against Iran under the War Powers Resolution. Iran continued to launch ballistic missiles and drones against U.S. bases in the region. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$24.73 (-0.61%)
5-Day Change: -$38.48 (-0.94%)
YTD Range: $3,960.16 - $5,595.02
52-Week Range: $3,270.50 - $5,595.02
Weighted Alpha: +8.47

Gold is consolidating above $4,000, with this week's cooler-than-expected inflation readings and diminished rate hike expectations providing a bit of a tailwind. However, Middle East reescalation and the rebound in oil prices are providing opposing pressure.

 

Probes back below $4,000 earlier in the week suggest the 30-Jun low at $3,945.52 remains vulnerable to a test. Fresh lows for the year would bode well for a downside extension to challenge chart/Fibonacci support at $3,887.03/$3,886.02.

I continue to eye the declining 20-day moving average as initial resistance, which corresponds closely with chart resistance at $4,100.00/$4,107.71. Several additional tiers of chart resistance are noted at $4,137.89 and $4,201.70 that protect the upper limits of the descending wedge pattern around $4,261.

It seems like it will take a new and sustained ceasefire, along with real movement toward a lasting peace, to create the opportunity for gold to form a bottom.  A rebound above $4,800 in really needed to return a measure of confidence to the long-term uptrend, and that level is a long way away.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.711 (-1.21%)
5-Day Change: -$0.104 (-0.18%)
YTD Range: $55.666 - $121.630
52-Week Range: $36.287 - $121.630
Weighted Alpha: +24.57

Silver is trading within the confines of the 22-Jun week for a fourth consecutive week. Despite the encouraging CPI and PPI prints for June, the trade is understandably not convinced that we're out of the woods on inflation and the possibility of a Fed rate hike.



While supply/demand dynamics remain broadly supportive of the long-term uptrend, the market continues to look like there's scope for additional short-term corrective losses. New lows for the week below $56.891 would clear the way for a retest of the small double bottom at $55.727/666. Below the latter, a pair of Fibonacci levels at at $53.695 and $53.340 would be in play.

Tech and AI sentiment remains broadly positive but increasingly selective. While enthusiasm for artificial intelligence infrastructure and long-term growth stays strong – fueled by continued capital spending on chips, data centers, and enterprise adoption – investors are showing more caution amid high valuations, mixed earnings results, and concerns over near-term returns on massive AI investments.

The declining 20-day moving average is approaching $60 and is protected by Monday's high at $59.675. A series of daily highs from the last couple of weeks stand in front of the more important $63.267 high from 6-Jul.


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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