6/05/2024

The metals await additional data for Fed rate cut timing cues

OUTSIDE MARKET DEVELOPMENTS: The market is expecting a print of +175k for this morning's ADP survey number, and will hope to glean some insight into Friday's payrolls report. JOLTS job openings fell in April to the lowest level since February 2021. Signs of weakness in the labor market would likely pull forward Fed rate cut expectations.

Traders will also be watching Services ISM and PMI to see if the weakness revealed in the manufacturing sector earlier in the week is also evident in the services sector. The ISM prices component is expected to moderate somewhat.

Additional signs of a slowing economy and cracks in the heretofore resilient labor market would ramp the likelihood of a Fed rate cut, but the prospects of anything happening at the June 12 FOMC meeting remain remote. While the timing of that first cut is data-dependent, Fed funds futures currently indicate the Fed won't start easing until November.

The Bank of Canada is expected to cut rates by 25 bps today. The ECB is likely to follow suit tomorrow.

With the first Fed rate cut still thought to be some ways down the road, widening interest rate differentials should provide some underpinning for the dollar. The dollar index hit a near-two-month low on Monday before rebounding modestly.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$6.78 (+0.29%)
5-Day Change: -$3.98 (-0.77%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold is higher in early U.S. trading on Wednesday with price action confined to the previous day's range. The weakness seen on Tuesday was successfully contained by Monday's low at $2,315.47.



The secondary tier of support is $2,307.65 down to $2,300.00, which is likely to keep the May low at $2,281.97 at bay. While the underlying trend in gold remains decidedly bullish if $2,281.97 gives way, a more protracted corrective phase would be indicated.

Consolidative trading may prevail until Friday's nonfarm payrolls report. The market is expecting a payrolls increase of 195k and the unemployment rate to hold steady at 3.9%.

Deviations from market expectations could set at least the near-term tone for gold. A beat would likely weigh on the yellow metal as the rate cut likelihood would remain in the Nov-Dec timeframe. A significant miss on the other hand would pull rate-cut expectations closer to the present, perhaps even July.

On the upside, chart resistance at $2,361.54/81 is needed to return confidence to the longer-term uptrend. Intervening chart resistance has developed at $2,352.32/$2,357.11.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.102 (+0.35%)
5-Day Change: -$2.348 (-7.35%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver tumbled to a 3-week low of $29.413 on Tuesday. Price action today has thus far been confined to the low end of yesterday's range.



The short-term oversold condition may be a limiting factor on the downside ahead of Friday's jobs data, but the technical bias remains to the downside. Penetration of $29.413 would clear the way for additional losses to a retracement level support at $29.214.

The fundamentals for silver remain broadly supportive. The push to more-than-11-year highs above $30 several weeks ago was a significant technical event as well.

Chinese silver imports may surge in the coming weeks due to a significant premium being paid in Shanghai to satisfy strong industrial demand. “A wave of imports into China is going to drain the free float away from the West even further,” said Daniel Ghali, senior commodity strategist at TD Securities Inc. in a recent mining.com article.

Silver needs to reclaim the $30-handle to ease short-term pressure on the downside. However, $31 is the more important level to watch with respect to returning credence to the underlying uptrend. The highs from earlier this week at $30.733/825 now define a solid intervening chart barrier. 

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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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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.