Gold easier within the range, but underpinned by haven interest
OUTSIDE MARKET DEVELOPMENTS: Recent soft economic data and signs of cracks in the labor market have swung market expectations decisively in favor of a September rate cut. Fed funds futures put the probability at 91.4%, up from 46.7% a week ago and 64.0% a month ago. The trade is currently pricing 57 bps of easing by year-end.
The rise in rate cut expectations since Friday's weak jobs report knocked the dollar index off the nine-week high set last week at 100.26. Just over half of the recent corrective rally in the dollar has already been retraced, and the 20-day moving average is under pressure.
President Trump is poised to name a replacement for Fed Governor Adriana Kugler, who announced last week that she would step down this week. “I have a couple of people in mind,” said Trump. “I’ll be announcing that probably over the next couple of days.”
Former Fed Governor Kevin Warsh and Kevin Hassett, the current chair of the President’s Council of Economic Advisors, are thought to be front-runners for the open position. Either could be tapped down the road to replace Jerome Powell as chairman.
"I’d say Kevin and Kevin, both Kevins are very good,” Trump hinted. If I were a betting man, I'd put my money on Hassett.
Hassett has been more consistently dovish. Warsh, on the other hand, has tilted toward hawkish views in the past. Only recently have his comments on monetary policy been more aligned with Trump.
While a non-voting member of the FOMC this rotation, Minneapolis Fed President Neel Kashkari told CNBC this morning that the central bank is increasingly supportive of a resumption of the easing cycle. "In the near term, it may become appropriate to start adjusting the federal-funds rate,” he said.
Kashkari is a moderate hawk, but acknowledged that "the economy is slowing." He also noted ongoing uncertainty associated with tariffs. He said we may not know the “ultimate effects of tariffs” for "quarters or a year or more.”
Trump tacked on an additional 25% tariff on India that will go into effect in 21 days, as a penalty for its purchases of Russian oil. This is in addition to the 25% tariff that begins tomorrow.
Trump is also threatening to ratchet pharmaceutical tariffs higher to as much as 250%. "We want pharmaceuticals made in our country," Trump told CNBC.
The Russian and Chinese navies are conducting anti-submarine warfare exercises in the Sea of Japan, days after President Trump said he had deployed two nuclear submarines closer to Russia. That move was precipitated by Russian saber-rattling.
U.S. special envoy met with Putin today. The Kremlin said that the meeting was "constructive." Russia faces additional sanctions and tariffs if a ceasefire with Ukraine is not reached by Friday.
MBA Mortgage Applications rose 3.1% in the week ended 1-Aug, versus -3.8% in the previous week. The 30-year mortgage rate
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$17.72 (-0.52%)
5-Day Change: +$94.15 (+2.87%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,381.66 - $3,495.89
Weighted Alpha: +36.85
Gold moderated from yesterday's two-week high as special envoy Steve Witkoff arrived in Moscow with the hopes of negotiating a ceasefire between Russia and Ukraine before President Trump's Friday deadline. However, the yellow metal remains confined within its range, awaiting fresh inputs.
However, several factors continue to underpin gold. Ongoing trade and fiscal uncertainty, persistent geopolitical risks, and rising concerns about growth risks are supporting haven interest. Revived Fed easing expectations are also weighing on the dollar.
With gold in the upper half of that range, and above the 20- and 50-day moving averages, the technical bias tilts to the upside and short-term tests back above $3,400. Formidable chart resistances at $3,435.01 (23-Jul high) and $3,449.13 (16-Jun high) must be cleared to confirm potential back to the record highs around $3,500. An eventual move to new all-time highs would revive confidence in the previously established $4,000 objective.
Bloomberg reports that bullion held in Shanghai Futures Exchange warehouses has nearly doubled in the past month to reach an all-time high. “So many people were piling into futures that prices shot up above physical gold. That created an opportunity for others to step in and deliver gold into the system,” said John Reade of the World Gold Council. It's another sign of resilient demand for gold investments in China, according to Bloomberg.
On the downside, the 20- and 50-day MAs at $3,350.18/46.58 are bolstered by Monday's low at $3,347.21. A breach of this zone would set up a softer tone within the range, highlighting the midpoint of the broader range at $3,313.56.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.035 (-0.09%)
5-Day Change: +$0.689 (+1.86%)
YTD Range: $28.565 - $39.517
52-Week Range: $26.524 - $39.517
Weighted Alpha: +37.79
Silver has edged to a new high for the week, helped by resilient gold, and rising rate cut expectations that have weighed on the dollar. However, resistance at the $38 zone has contained the upside thus far.
A climb above $38 would shift focus to the next tiers of Fibonacci resistance at $38.283 and $38.826. Above the latter, potential back to the 14-year high at 39.517 (23-Jul) would be confirmed. Further out, $40 remains a valid target.
Supply/demand dynamics remain broadly supportive. Industrial demand for silver is expected to remain strong, so fluctuations in investment demand will be the source of uncertainty. While YTD gains of more than 30% to reach 14-year highs are certainly appealing to investors, one could argue that the white metal is overextended. Silver's volatility can also scare away investors.
Today's intraday low at $37.698 marks first support and protects Tuesday's low at $37.337. Monday's low at $36.700 is now below the 50-day MA and is the more important level. New lows for the week from here would be troubling for the bull camp.
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.