6/03/2024

Weaker U.S. manufacturing data revives hopes for a Fed rate cut this year

OUTSIDE MARKET DEVELOPMENTS: U.S. manufacturing ISM and construction spending missed expectations this morning. Interest rates and the dollar tumbled in reaction, providing some supportive buying in the precious metals.

These indications of a slowing U.S. economy revived expectations that the Fed may still cut rates this year. Last week we saw the Fed's preferred measure of inflation holding steady at 2.7% y/y, which lends additional credence to the rate cut scenario. 

However, recent FedSpeak has leaned more hawkish. Even today, Minneapolis Fed President Kashkari said the central bank is on hold for an "extended period."

Last week's Personal Income report for April came in largely as expected, with the Fed's preferred measure of inflation holding steady at 2.7% y/y 

Manufacturing news out of China was more encouraging. The Caixin PMI reading for May came in at 51.7, indicating China's manufacturing sector grew at its fastest pace in two years.

Focus later this week will be on Wednesday's U.S. services PMI and ISM, as well as Friday's nonfarm payrolls report. Median expectations are for an increase of 195k jobs in May. The jobless rate is expected to hold steady at 3.9%.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$3.83
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold ended May with a gain of 1.8%, despite the retreat from the $2,449.34 record high set on May 20. It was the fourth consecutive monthly gain. Through the end of May, the yellow metal is up 14.3% YTD.



While the near-term tone is corrective as the first trading week of June commences, the underlying trend remains bullish. While the yellow metal completed a 61.8% retracement of the latest leg-up in the rally in overseas trading today, the extent of the correction off the all-time high has been just 5.5% thus far. 

There's decent chart support at $2,307.65 down to $2,300.00. Today's intraday low at $2,315.47 now marks a good intervening barrier. At this point, I consider more important support marked by the May low at $2,281.97 to be well protected.

A higher close today, above $2,327.82 would be encouraging. A trade above Friday's high at $2,357.11 and a higher close would be better yet for the bulls. A rise above good chart resistance at $2,361.54/81 would return additional confidence to the underlying uptrend.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.019
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver posted a solid 15.7% gain in May, its third consecutive higher monthly close. That's pretty impressive, given that silver ended the month nearly $2 off the more-than 10-year high that was set on May 21 at $32.379.

While important chart support at $30.077/079 was violated in overseas trading, downside follow-through was minimal. The sell-off in the dollar following data misses helped push the white metal back into positive territory for the day. As of this writing, silver is up more than 50¢ above the $29.908 intraday low.

A convincing push back above $31.00/08 is needed to return confidence to the underlying bullish trend. Until then, the short-term bias remains to the downisde. 

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Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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