6/27/2024

Gold and silver rebound from Wednesday's losses with focus on presidential debate and inflation data

OUTSIDE MARKET DEVELOPMENTS: The dollar has eased from yesterday's 8-week high, providing some relief for the precious metals. The pullback is seen as corrective in nature with interest rate differentials expected to remain broadly supportive to the greenback.

Sweden's Riksbank held steady on rates as expected, but the messaging was quite dovish with inflation seemingly in check and the economy slowing. "If inflation prospects remain the same, the policy rate can be cut two or three times during the second half," said Riksbank Governor Erik Thedeen.

U.S. market focus remains squarely on tonight's presidential debate and Friday's personal income and PCE data for May. Particular attention will be paid to the PCE chain price index as it is the Fed's preferred measure of inflation. Median expectations are unchanged, and an uptick of 0.1% in the core reading.

U.S. durable goods new orders rose 0.1% in May on expectations of +0.2%, versus a negative revised +0.2% in Apr (was +0.7%). Ex-transportation fell 0.1% and shipments came in at -0.3%.

Initial jobless claims fell 6k to 233k in the week ended 22-Jun, versus an upward revised 239k in the previous week.

U.S. advance goods trade deficit expanded to -$100.6 bln in May, outside expectations of -$96.0 bln, versus -$97.9 bln in Apr.

U.S. Q1 GDP was revised up to 1.4% in the third report in line with expectations, versus 1.3% previously. The GDP chain price index was revised to 3.1% from 3.0%. Core was revised up to 3.7% from 3.6%.


GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$17.11 (+0.74%)
5-Day Change: -$41.80 (-1.77%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34
Weighted Alpha: +21.84

Gold has retraced all of yesterday's losses and then some, buoyed by a setback in the dollar. Important short-term support at $2,287.64 was left untested yesterday as the trade awaits tomorrow's inflation data.



A downtick in inflation would likely be a positive for gold as it would heighten expectations for a sooner-than-later Fed rate cut. On the other hand, a hot inflation print would keep the Fed on hold and continue to pose a headwind for the yellow metal.

China's net imports of gold through Hong Kong fell 22.7% to 26.722 tonnes in May, versus 34.575 tonnes in Apr. This may be attributable to record high prices in May.

The CEO of MKS PAMP, the fabricators of the Fortuna gold bar being sold at Costco, says he has "not seen such dynamic physical markets." Certainly, Costco's entrance into the bar and coin market last year is having an outsized impact on the space.

Wells Fargo estimates that Costco is selling $200M worth of gold per month. That's more than 80,000 ounces every month, and that's being throttled by availability. Costco inventory typically sells out "within a few hours."

The following is a fascinating graphic from the latest Costco article, showing the decline in Americans' confidence in political and social institutions. The implication is that this broad-based loss of confidence is driving average investors to seek shelter in "the old-school store of value."



A recently commissioned World Gold Council survey shows that gold ownership is also on the rise among professional investors. "A staggering 85% reported an allocation to some type of gold investment, up from 69% in 2018," said the WGC. The survey suggests gold allocations will be steady to higher over the next 12-18 months.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.126 (+0.44%)
5-Day Change: -$1.638 (-5.33%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +31.30

Silver has bounced from the 6-week low set yesterday at $28.618. However, the new cycle lows set this week leave the downside vulnerable heading into the end of Q2 and H1.



It would take a rebound above $29.714/$29.721 to set a more favorable short-term tone. This level is defined by the high for the week from Monday and the halfway back point of the decline from last week's high at $30.824.

Such a move seems unlikely in advance of Friday's inflation data and the intraday overbought condition that has developed. Below-expectations inflation tomorrow could open the upside to more serious tests. Alternatively, hot inflation would keep focus on the downside.

Action tomorrow should be telling. Will corrective forces continue to dominate, or will the long-term up-trend reexert itself early in Q3?


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
312-549-9986 Direct/Text
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