Gold trades higher on risk-off sentiment, but remains within Friday's range

OUTSIDE MARKET DEVELOPMENTS: Moody's downgraded the U.S. credit rating one notch from AAA to Aa1 late on Friday. Treasuries, stocks, and the dollar begin the week on defense due to heightened risk aversion.

On Meet the Press, Treasury Secretary Bessent downplayed the downgrade. “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies,” said Bessent.

If anything, Moody's is late to the party. The other two major credit agencies, S&P and Fitch, downgraded the U.S. from their highest ratings in 2011 and 2023, respectively. The national debt was $14.3 trillion in Q2 2011 and had risen to $32.3 trillion in Q2 2023.

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” according to Moody's.

Moody's joining the other two ratings agencies with a one-notch downgrade is arguably an event of negligible significance. However, it is the latest in a long line of warning signs that have historically been disregarded by most politicians in DC. At some point, the debt and funding burden will reach levels where a course correction is no longer an option. 

It may be implied that Moody's doesn't hold out much hope for Trump's "Big Beautiful Bill" to meaningfully address the growing government debt. “We are determined to bring the spending down and grow the economy,” vowed Bessent.

On Sunday, the House Budget Committee passed the reconciliation bill, overcoming challenges from budget hawks within the GOP. The House may vote on the legislation as soon as this week and is expected to split along party lines, making passage dependent on GOP unity.

President Trump spoke with Putin, Zelenskyy, and other European leaders today. After the call, Trump said Russia and Ukraine "will immediately start negotiations toward a Ceasefire and, more importantly, an END to the War."

Leading Indicators fell 1.0% in April, in line with expectations, versus a revised -0.8% in March (was -0.7%).


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$41.86 (+1.31%)
5-Day Change: +$5.85 (+0.18%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +40.31

Gold is trading higher, boosted by risk-off sentiment stemming from the Moody's downgrade. A softer dollar is providing some additional lift, although price action remains confined to Friday's range thus far.



The inability of gold to sustain the probe below the 50-day moving average provides some encouragement to the bull camp, but it's unclear at this point if the corrective low is in place. A breach of Friday's high at $3,251.05 would allow for a test of previous highs at $3,256.01 and 3,262.11.

A move back above $3,300 would put the yellow metal back above the 20-day MA. The midpoint of the range comes in at $3,311.51.

On the downside, today's low at $3,203.51 protects Friday's low at $3,161.16. Below the latter, the more important $3,127.12 low from last week would be back in play.

Global ETFs saw net outflows of 30 tonnes last week as investors shifted back to riskier assets on optimism that the worst of the tariff uncertainty was behind us. All regions were net sellers. It was the biggest net outflow since the week of 30-Sep'22.

The COT report for last week showed net speculative long positions fell 1.3k to 161.2k contracts, versus 162.5k in the previous week.  It was the fourth straight weekly decline.

Silver is consolidating within Friday's range. A firmer gold price and softer dollar are providing support, but the Moody's downgrade calls to mind the headwind posed to the economy by our massive debt burden.



Selling above $33 and buying below $32 still looks like an attractive short-term strategy until fresh inputs allow the white metal to pick a direction.

The 20- and 50-day MAs at $32.714/758 mark resistance once again. However, there are mutiple tiers of resistance above that limiting the upside. The key levels are the high for the year at $34.543 and the 22-year high from October at $34.853.

On the downside, Friday's low at $31.945 protects Thursday's low at $31.701. More important support comes in at $31.362/114 zone, where the 200-day MA corresponds with an important retracement level.

The latest report showed net speculative long positions declined by 1.5k to 47.8k contracts, versus 49.3k in the previous week. It was the second consecutive weekly decline.

CFTC Silver speculative net positions

Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.