6/21/2024
Gold and silver tumble intraday on solid U.S. PMI readings
OUTSIDE MARKET DEVELOPMENTS: Weak PMI data in Europe and the UK have weighed on the euro and pound respectively. The euro is threatening the 7-week low set against the dollar last week at 1.0667 on bets that further ECB rate cuts are in store to temper rising growth risks.
While the BoE held steady earlier in the week, a rate cut is widely believed to be in the offing. Sterling slid to a 5-week low of 1.2631 versus the dollar.
The gist of FedSpeak this week has been that while we're moving in the right direction, getting inflation back to the 2% target will take some time, and patience is required. This messaging combined with more dovish stances overseas is underpinning the dollar. The dollar index jumped to a fresh 7-week high, buoyed by weakness in the euro and pound.
The markets however continue to like the idea of two rate cuts this year. Fed funds future still put the probability of a Sep cut at around 60%. Former St. Louis Fed President Bullard said he sees two rate cuts this year. During his time on the FOMC, Bullard was one of its more hawkish members.
U.S. S&P flash manufacturing PMI rose to 51.7 for Jun on expectations of 51.0, versus 51.3 in May. The services PMI print was 55.1, above expectations of 54.0, versus 54.8 in May. These data offset some of the signs of weakness seen yesterday and will likely temper Sep rate cut expectations.
Leading indicators (-0.4% expected) and the Dallas Fed Index come out later this morning.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +4.03 (+0.17%)
5-Day Change: +33.81 (+1.45%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34
Gold was sustaining yesterday's gains into early U.S. trading, but rotated lower on the day following better-than-expected U.S. PMI data. A second consecutive higher weekly close is suddenly in jeopardy. The yellow metal must end the session above $2,333.05 to preserve the higher weekly close.
It looks like some of the bets on two rate hikes that were put on yesterday are now getting unwound. A breach of yesterday's low at $2,328.18 would create an outside day and would be troubling from a technical perspective.
The fact that the 07-Jun low at $2,287.64 has held for two weeks was encouraging for the bull camp. The magnitude of retracement seen through overseas trading bolstered the notion that the corrective low was in place. However, price action today suggests the bears still have some sway in the short term.
That doesn't necessarily mean new cycle lows, but possibly more consolidative trading within the range set on 07-Jun. Where we end today's session and early action next week will tell us a lot.
Perhaps not surprisingly there were 12 tonnes of North American outflows from gold-backed ETFs last week. This happened in the wake of the near-$100 sell-off of 07-Jun. Inflows from Europe were 7 tonnes amid rising economic and political concerns. The net change for the week was -4.6 tonnes.
Czech National Bank Governor Michl wants to grow the central bank's gold holdings from its current 40 tonnes to 100 tonnes over the next 5 years. This desire is consistent with the well-defined trend of robust central bank gold-buying that is expected to continue.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.281 (-0.91%)
5-Day Change: +0.961 (+3.25%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Silver tumbled on the solid PMI data, following gold lower. Nearly all of yesterday's gains have been retraced and the $29.716 low has been pressured. It seems like a strong U.S. manufacturing sector would be good news for silver, as the white metal derives most of its demand from industrial applications, primarily electronics.
Like gold, if yesterday's low is exceeded an outside day will be confirmed. An outside day with a lower close is a rather negative chart formation. Nonetheless, barring a complete rout, silver looks like it will still notch a second consecutive higher weekly close.
Today's close will be telling from a technical perspective.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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