6/07/2024
Gold tumbles on news that the PBoC didn't buy any gold in May
OUTSIDE MARKET DEVELOPMENTS: Official data from the People's Bank of China (PBoC) revealed that the central bank had not added any gold to official reserves in May as the yellow metal was making record highs. This apparently ended a buying spree that had lasted 18 consecutive months.
May U.S. nonfarm payrolls significantly beat expectations with a print of +272k. Median expectations were +195k, but there had been whispers of a weaker number based on soft jobs market data that came out earlier in the week. Back-month revisions totalled -15k.
The unemployment rate ticked up to 4.0%, largely due to a 250k drop in the labor force. Hourly earnings rose 0.4%, above expectations of +0.3%, versus +0.2% in April. The average workweek held steady at 34.3 hours.
These generally robust data downgraded rate cut hopes for July and September, putting additional pressure on the precious metals. Fed funds futures continue to suggest that the first Fed rate cut is most likely to come in November.
With the BoC and the ECB having cut rates this week, and hopes for a 'sooner rather than later' Fed cut dashed for the time being, the dollar index rebounded to new highs for the week. Prevailing interest rate differentials should help to underpin the greenback and pose a headwind for the precious metals.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -41.61 (-1.75%)
5-Day Change: -5.23 (-0.22%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34
Gold fell sharply in overseas trading as the market was surprised to learn that the PBoC had not bought any gold in May. This understandably rattled the gold market and the weekly gains that had accumulated through early Asian trading were quickly erased.
Of course, the PBoC is rather opaque when it comes to policy matters, including its gold holdings. Is the central bank really on pause? Was May just a one-off aberration? Are they still accumulating gold by other means? There will be much speculation on all these questions in the week ahead.
Net central bank gold purchases had picked up in April, but China was the second-biggest buyer behind Turkey. Without China in the mix, we could see net central bank sales of gold for the first time in a year.
The better-than-expected U.S. jobs report added further weight to gold, as Fed rate cut hopes dimmed and the dollar rose. The yellow metal tumbled to a new low for the week. Not only do we have an outside trading day, but an outside trading week as well.
If gold closes lower today, which seems likely, it will be the third consecutive lower weekly close since the record high of $2,449.34 was established on 20-May. None of this is terribly encouraging from a technical perspective, but keep in mind that gold is only off 5.7% from its all-time high. I still see the losses as corrective in nature.
Focus returns to chart support at $2,307.65 down to $2,300.00. More important support is defined by the May low at $2,281.97. Should this level give way, a more protracted corrective phase becomes more likely.
First resistance is marked by a minor intraday pre-jobs-data high at $2,337.28. The halfway back point of today's range at $ 2,348.40 is a more significant technical level.
One potential bright spot today was news that global ETFs registered inflows in May for the first time in 12 months. I say "potential" because one month does not a trend make.
European and Asian buyers provided the boost, while outflows from North America and other regions were relatively small.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.986 (-3.15%)
5-Day Change: -0.573 (-1.88%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Silver is displaying a bearish outside day and appears poised to register a weekly loss. At the time of this writing, Monday's low at $29.413 was being challenged, but was intact.
A new low for the week would further erode the short-term technical picture, shifting focus to a retracement level at $29.214 (50% retracement of the rally from $26.049 to the $32.379 high). The 61.8% retracement level comes in at $28.467. Losses since the 21-May 11-year high are just over 9%.
The halfway back point of today's range thus far is $30.469 which corresponds closely with a minor intraday chart point. A minor intervening barrier is noted at $29.710.
It's been a wild roller coaster ride in the white metal this week. Such is the nature of the silver market. Nonetheless, I continue to see the underlying trend as bullish.
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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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