6/12/2024

Gold and silver firm in early U.S. trading on unch CPI print

OUTSIDE MARKET DEVELOPMENTS: The precious metals caught a bid in early U.S. trading after May CPI came in unchanged, just below expectations of +0.1%. However, price action remains broadly consolidative in the wake of last Friday's sharp sell-off.

Annualized CPI edged down to 3.3%, from 3.4% in April. Core CPI was +0.2% in May on expectations of +0.3%; +3.4% y/y, versus 3.6% in April.

These data will likely reinforce the notion that the Fed is making progress on inflation and will have room to cut rates later this year, even amid persistent strength in the labor market. The prospects for a rate cut in September are back on the rise and currently stand at 59.9% based on Fed funds futures.

The 2-day FOMC meeting ends today and policy will be announced at 1:00PM CDT this afternoon. Steady policy is widely expected. The statement and Powell's presser will be closely monitored for clues as to the likely policy path in H2.

PPI comes out tomorrow. Median expectations are +0.1%. Core PPI is expected to come in at +0.3%.

GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$3.09 (-0.13%)
5-Day Change: -41.67 (-1.77%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold was under modest pressure at the beginning of the U.S. session, but jumped in reaction to the below-expectations CPI print. The yellow metal is up for a third consecutive day, and more than half of Friday's plunge has now been retraced.



Earlier this week, I had deemed that 50% retracement level at $2,337.27 as important short-term resistance. Focus now shifts to the 61.8% retracement level at $2348.98.

A measure of confidence has been returned to the underlying uptrend, but the market is unlikely to prosecute the breach of $2,337.27 until after Fed policy is announced. Softer-than-expected consumer inflation is already pulling rate-cut expectations back toward the present, but the Fed could temper those expectations with a more hawkish tenor later today.

There is also PPI to worry about tomorrow.

Reuters reports that demand for gold remains strong in Asia, despite near-record high prices. Asian buyers are primarily seeking to hedge geopolitical and economic uncertainty, which has led to lower confidence in other investments such as stocks and real estate.

"The trend in the market has been that if the consumer wants to buy gold, they will. The price doesn't matter." – Albert Cheng, CEO of the Singapore Bullion Market Association

India remains an exception, due to price sensitivity. Indian gold demand has fallen to a 3-year low, although the recent setback in the price of gold has seen some buyers return.

Wells Fargo and UBS have reiterated their bullish outlook on gold. Buy the dips is the strategy according to UBS.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.111 (+0.38%)
5-Day Change: -0.591 (-1.97%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver rallied to new highs for the week in reaction to the CPI print. Trades back above $30 are encouraging, but unlike gold, the midpoint of Friday's range in silver at $30.331 remains protected at this point.



The 61.8% retracement level of the decline from Friday's high to Tuesday's low at $29.098 comes in at $30.592. A minor chart point is noted at $30.825.

I suspect the intraday range has been set at this point. Barring a dovish surprise from the Fed later today, further tests of the downside can not be ruled out.

The underlying trend remains decidedly bullish, with the fundamentals broadly supportive. Therefore recent losses are considered corrective in nature. What is in doubt is whether the corrective low is in place at $29.098 or not.

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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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