Gold catches a modest bid as yields and dollar slip
OUTSIDE MARKET DEVELOPMENTS: The U.S. and China have reportedly agreed on the framework to reinstate the Geneva trade truce from May. "Our deal with China is done, subject to final approval with President Xi and me," posted the President on TruthSocial. That's arguably an overstatement, and the market's tepid response suggests investors are aware it's a baby step despite the all-caps post.
The Geneva trade truce unravelled shortly after it was struck on May 12, when the U.S. restricted chip exports to
China and Beijing imposed export controls on rare earths. Getting the relationship back to where it was less than a month ago is a positive step, but there's a long way to go before a comprehensive trade deal is struck between the world's two largest economies.
Nonetheless, the trade is maintaining some level of optimism as evidenced by elevated risk appetite. Deals with the UK, Japan, India, and South Korea are apparently in the works, but the market is keen to see some agreements inked. The White House is doing a good job of managing market expectations, pointing out that major trade deals typically take years to negotiate, and Trump has been President for less than five months.
Headline and core consumer inflation rose just 0.1% in May, below expectations. The annualized CPI rate ticked up to 2.4%, while core was steady at 2.8%.
So far, anyway, concerns that President Trump's trade agenda would stoke inflation are overblown. May PPI is out tomorrow and is also expected to be benign. Despite a slight uptick in easing expectations, persistent uncertainty keeps the Fed on hold.
The dollar index remains defensive below 99. CNBC reports that Asia’s shift away from the U.S. dollar is picking up pace. “Trump’s erratic trade policy decisions and the dollar’s sharp depreciation are probably encouraging a more rapid shift towards other currencies,” said Francesco Pesole, FX strategist at ING.
Tensions remain high in Los Angeles as rioting and looting continued on Tuesday night. Los Angeles Mayor Karen Bass declared a local emergency and had police enforce a downtown curfew. Meanwhile, protests against immigration enforcement are spreading across the country.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$6.47 (+0.19%)
5-Day Change: -$30.89 (-0.92%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,295.86 - $3,495.89
Weighted Alpha: +44.27
Gold is trading modestly higher but remains within the recent range. Today's soft CPI data have weighed on yields and the dollar, providing some support to the yellow metal.
Trading since the record high was established in April has developed into a symmetrical triangle, recognized by a series of lower highs and higher lows. This chart formation is viewed as a continuation pattern within the long-term uptrend.
The aforementioned de-dollarization trend is a major supporting factor for gold, with central banks leading the charge. "Investors and officials are beginning to recognize that the dollar can and has been used as a leverage — if not overtly weaponized — in trade negotiations," says CNBC.
Data shows that the PBoC bought 1.87 tonnes of gold in May. It was the seventh straight month of purchases. The PBoC has added 17 tonnes of gold to reserves since the beginning of the year.
The National Bank of Poland continues to be an aggressive buyer, adding 12 metric tonnes to reserves in May. The NBP has bought 61 tonnes year-to-date.
Violations of last week's high at $3,401.81 and the $3,416.97 Fibonacci level are needed to clear the way for further attacks on the $3,500 and a resumption of the uptrend. New all-time highs would bode well for an upside extension to the $3,596.20 Fibonacci objective.
The 20-day moving average has essentially contained the downside this week and comes in at $3,311.16 today. This 20-day protects Monday's low at $3,297.69, which in turn stands in front of the 50-day MA at $3,277.26 and the 29-May low at $3,251.28.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.341 (-0.93%)
5-Day Change: +$1.872 (+5.42%)
YTD Range: $28.565 - $36.875
52-Week Range: $26.524 - $36.875
Weighted Alpha: +27.38
Silver is corrective to consolidative for a second straight session after the upside extension stalled ahead of $37 on Monday. While the white metal is nearly 2% off the 12-year high at $36.875, price action remains confined to Monday's range.
In the wake of last week's range breakout, the focus remains squarely on the upside with sights now on the February 2012 high at $37.430. A breach of this level would bode well for a push to the next Fibonacci projection at $38.750, which would bring $40 within striking distance.
The fundamentals for silver have been positively aligned for some time. Now that the technicals are suddenly more in line with the realities of supply and demand, the squeeze crowd is crowing once again.
Be careful!. This is a small and thinly traded market, and we all know, it can be exceedingly volatile.
Support around $36 is highlighted by Monday's low at $35.948. Below that, Friday's low at $35.654 is a more significant level to watch.
Additionally, the gold/silver ratio has found some support ahead of 90, garnering a bit of a bounce as silver underperforms today.
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.