Gold stabilizes within the range, near unchanged for July

OUTSIDE MARKET DEVELOPMENTS: President Trump wasted no time in blasting Fed Chair Powell for not cutting interest rates yesterday. "He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair,” Trump posted on TruthSocial.

Despite two dovish dissents, the statement signalled some heightened concerns about inflation, leading the market to interpret the decision as a hawkish hold. Governors Christopher Waller and Michelle Bowman favored a 25-basis-point cut, and their dissents leave the FOMC the most divided it has been in more than 30 years.

However, I think the trade discounted the division somewhat. Both Waller and Bowman are on the short list to replace Powell, suggesting they may have merely been trying to increase their appeal to Trump.

The President remains optimistic that easing is in the cards. “I hear they’re going to do it in September," Trump said. I didn't hear anything like that, rather just a reiteration that the Fed remains data-dependent.

The market is increasingly skeptical. Fed funds futures put the probability of a September cut at 37%, down from 46.7% yesterday, 58.4% a week ago, and 75.4% a month ago. Implied easing for year-end stands at 34 bps.

The Fed also expressed concerns about ongoing tariff uncertainty ahead of looming deadlines. That uncertainty manifested in the copper market yesterday.

Copper had risen to record highs near $6 in recent weeks as importers stockpiled ahead of 50% tariffs slated to take effect on Friday. However, yesterday, the Trump Administration unexpectedly announced that refined products such as cathodes would be excluded.

Copper plunged nearly 18% on Wednesday and extended losses another 5% on Thursday. The decline since last week's record high of $5.98436 is nearly 27%. “If cathode is excluded, the arb is over,” said Michael Haigh, head of FIC and Commodity Research at Societe Generale in a Mining.com piece.

  

I believed from the beginning that because copper is so critically important to key U.S. industries, such as automotive, aerospace, defense, power generation/transmission, and building, among others, the White House would ultimately walk back copper tariffs (see 29-Jul and 15-Jul commentary).

I do think it is prudent for the U.S. to boost domestic mining, smelting, and refining capacity to shorten and harden the copper supply chain. If that is Trump's goal, it's a good one. However, this kind of volatility is really counterproductive.

The Fed's favored measure of inflation edged up to 2.6% y/y in June, from 2.4% in May. It was the second consecutive monthly rise since April's seven-month low of 2.2% and backs up the FOMC's heightened worry about price risks.

Fading dovishness has Treasuries on the offer into month-end. Today's bill auctions were poorly subscribed amid expectations of increased supply and therefore higher yields down the road.

This, along with trade optimism, keeps the dollar on the bid. The dollar index set fresh nine-week highs today, trading above 100 for the first time since late May.

The White House announced a trade deal with South Korea. Seoul will pay a 15% tariff, invest $350 bln in U.S. energy and shipbuilding projects, and buy $100 bln in U.S. energy products. U.S. goods imported into South Korea will not be tariffed.

Deals were also reached with Thailand and Cambodia after the Trump Administration applied pressure last week that led to a ceasefire between the neighboring countries that have been embroiled in a long-standing border dispute.

Mexico has been granted a 90-day extension to negotiate a trade deal after Presidents Sheinbaum and Trump spoke today. The current 25% tariff rate remains in place, but will not be hiked tomorrow. Could more reprieves be forthcoming?

Trade tensions with Canada escalated after PM Carney said he would recognize a Palestinian state in September. Trump said the Canadian position “will make it very hard” to reach a trade agreement.

The BoJ held steady on rates, as was widely expected. The central bank remains cautious amid domestic political and ongoing trade uncertainties.

Challenger Layoffs rose 14.1k to 62.1k in Jul, from 48.0k in June.

Personal Income rebounded 0.3% in June, above expectations of +0.2%, versus -0.4% in May.

PCE rose 0.3% in June, below expectations of +0.4%, versus a revised unch in May (was -0.1%). 

PCE Chain Price Index rose 0.3% in June, in line with expectations, versus a revised +0.2% in May (was +0.1%); 2.6% y/y, versus 2.4% in May. Core +0.3% m/m, in line with expectations, versus +0.2% in May; 2.8% y/y, unchanged from May.

Civilian ECI rose 0.9% in Q2, above expectations of +0.8%, versus +0.9% in Q1; 3.6% y/y unchanged from Q1.

Initial Jobless Claims rose 1k to 218k in the week ended 26-Jul, below expectations of 222k, versus 217k in the previous week. Continuing claims steady at 1,946k in the 19-Jul week.

Chicago PMI rebounded 6.7 points to a four-month high of 47.1 in July, above expectations of 42.0, versus 40.4 in June. However, the index remained in contraction territory for a 20th consecutive month. 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$21.19 (+0.65%)
5-Day Change: -$58.71 (-1.74%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,369.10 - $3,495.89
Weighted Alpha: +33.61

Gold fell to a four-week low on Wednesday after the Fed's hawkish hold spurred yields and the dollar. While the yellow metal is firmer today, yields and the dollar continue to pose a headwind. Gold needs to close above $3,303.10 today to avoid its first lower monthly close in seven.

 

Important support marked by the 100-day moving average and the 30-Jun low at $3,270.50/$3,256.02 is holding thus far. This leaves gold well contained within the range that has dominated since mid-May, but further tests of the downside must be considered.

Tests back above $3,300 earlier today met modest selling pressure around the midpoint of the range, leaving the convergence of Monday's high, and the 20- and 50-day moving averages at $3,340.31/43.81 protected. A short-term breach of this level would set a more favorable tone within the range, suggesting potential for probes above $3,400.

The World Gold Council says that investors fueled robust gold demand in Q2, led by ETF inflows, strong interest in bars and coins, and ongoing central bank demand. "Total Q2 gold demand (inclusive of OTC investment) increased by 3% y/y to 1,249t," according to the Gold Demand Trends report.

Bar and coin demand slipped 6% to 306.8 tonnes in Q2, but was up 11% versus Q2'24. Bar and coin investors were "attracted by the rising price and gold’s safe-haven attributes," leading to "the strongest first half for bar and coin investment since 2013."

Total gold supply rose 3%. Initial estimates suggest record mine production of 909 tonnes, while recycling remained subdued.

If support at $3,256.02 gives way, focus would shift to the $3,200 zone. However, I still view the underlying trend as bullish and expect the range low at $3,127.12 (15-May) to remain protected.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.816 (-2.20%)
5-Day Change: -$2.372 (-6.07%)
YTD Range: $28.565 - $39.517
52-Week Range: $26.524 - $39.517
Weighted Alpha: +28.98

Silver has tumbled to a three-week low of $26.287, but still appears poised to notch its third straight higher monthly close. Silver is underperforming today, weighed by the plunge in copper, firm yields, and dollar strength. The gold/silver ratio rebounded to a three-week high of 90.937.



Yesterday's breach of the $37.443 level cleared the way for tests of the next tier of Fibonacci support at $36.954 and the 50-day moving average.  The breach of the 50-day leaves chart points at $36.315 and $36.201 vulnerable to tests.

A rebound of $37 would ease short-term pressure on the downside. However, the 20-day MA and the halfway back point, just shy of $38, must be regained to revive confidence in the longer-term bullish scenario.


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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