6/14/2024

Gold is poised for its first higher weekly close in four

OUTSIDE MARKET DEVELOPMENTS: French stocks are leading European markets lower amid mounting political uncertainty. The CAC index is down more than 2% today and is now trading lower on the year.

Concerns are rising that French President Macron's gamble to call snap elections will propel the National Rally (RN) party to a majority in France's National Assembly. The RN saw strong gains in the recent EU Parliament election. If the RN takes control of the French government, some worry that they will launch unsustainable fiscal spending.

Risk aversion in Europe is on the rise, which is helping both the dollar and gold. 

The BoJ held steady on rates, as was widely expected. They also indicated that they would reduce bond buying over the next 1 to 2 years. Details of that plan are expected to be revealed in July.

Favorable U.S. inflation data seems to be offsetting the reduction of Fed rate cut expectations to some degree. Yesterday's PPI report saw the largest decline since October. Both import and export price indexes for May declined more than expected this morning, -0.4% and -0.6% respectively.

While the Fed now projects just a single rate cut this year, down from a projection of three from the March FOMC meeting, policy remains data-dependent. Fed funds futures continue to show November as the most likely meeting for that cut.

However, further signs that inflation is moving back toward the Fed's 2% target, and/or indications of weakness in the labor market will see an increase in bets for a rate cut in September. The probability of a Sep rate cut currently stands at 61.1%.

The World Bank raised its 2024 global growth outlook to 2.6%, up from a 2.4% projection in January. This upgrade comes largely due to the resilience of the U.S. economy. “U.S. growth is exceptional,’’ said Ayhan Kose, the World Bank’s deputy chief economist.

"Exceptional" seems a bit dramatic given the tumble in Q1 GDP to 1.3%, versus 3.4% in Q4-23. However, growth is expected to accelerate to 2.5% in Q2.

GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +25.98 (+1.13%)
5-Day Change: +$38.10 (+1.66%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold continues to trade in a choppy manner in the lower half of last Friday's big $99 range. A close above $2,293.71 (07-Jun close) seems likely at this point, which would confirm the first higher weekly close in 4 weeks.



There were solid inflows of 12.1 tonnes into gold ETFs last week. North America and Europe led the charge with +4.4 tonnes each. The appetite of European investors for gold remains strong, spurred by political and economic uncertainty that has led to risk aversion. The sharply lower price at the end of last week likely contributed.



The underlying fundamentals in the gold market remain broadly supportive, and the longer-term trend is still decidedly bullish with the yellow metal less than 5% off the record high of $2,449.34 that was set less than a month ago.

A number of analysts have reiterated their bullish outlooks and suggested buying the dip. However, it is not a foregone conclusion that the corrective low is in place.

A higher weekly close today would be encouraging. A breach of Wednesday's high at $2,339.48 would be better yet. Secondary resistance is marked by the 61.8% retracement level of last Friday's plunge at $2348.98.

SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.291 (+1.00%)
5-Day Change: +$0.046 (+0.16%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver is trading higher on the day, but generally consolidative at the low end of yesterday's range. While gold has been able to hold last Friday's low, the white metal extended losses on Thursday to set a fresh 4-week low at $28.719. 



Silver needs to close above $29.172 to record a higher weekly close. However, a convincing move back above $30 and a breach of Wednesday's high at $30.169 is needed to ease short-term pressure on the downside.

However, at this point, a challenge of support at $28.467 (61.8% retracement of the leg-up from $26.049 to $32.379) can not be ruled out. The overseas low at $28.887 offers an intervening barrier ahead of Thursday's low at $28.719. 

Prospects for stronger economic growth in H2 should help underpin silver, as it derives the majority of demand from industrial applications. A resumption of the uptrend in gold should also help, as silver offers a less expensive alternative to the yellow metal as a means of portfolio diversification.


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