6/28/2024

Gold hovers near unchanged for the month but appears poised for weekly, quarterly, and H1 gains
 
OUTSIDE MARKET DEVELOPMENTS: The U.S. Democratic Party is in panic mode following President Biden's debate performance last night. The President appeared feeble and was at times incoherent.

Very senior party officials and pols are reportedly having serious conversations about replacing Biden at the top of the ticket with just 130 days until election day. I suspect many Americans are wondering this morning if the true reigns of power are already not in Mr. Biden's hands. If they're not, who's running the country? If they are, should they be?

U.S. personal income rose 0.5% in May on expectations of +0.4%, versus +0.3% in Apr.

PCE climbed 0.2%, just below expectations of +0.3%, versus a negative revised +0.1% in Apr.

The PCE chain price index was unchanged, in line with expectations. The core PCE chain price index also matched expectations at +0.1%.

I see these data as broadly neutral, perhaps modestly heartening those calling for two rate cuts this year. Prospects for a Sep rate cut continue to hover around 60% despite recent hawkish FedSpeak that seems to be trying to dispel the two-cut notion.

The IMF has warned that U.S. high deficits and debt "create a growing risk to the U.S. and global economy." They called on the U.S. to raise taxes to address the issue. The IMF also revised down its U.S. growth outlook from 2.7% to 2.6%.

The latest ECB Consumer Expectations Survey suggests Eurozone inflation will continue to ease. This and the uptick in German unemployment to 6% should help keep the ECB on its recently initiated easing path.

Japan sacked Masato Kanda, Vice Minister of Finance for International Affairs within the Ministry of Finance, replacing him with Atsushi Mimura. Kanda had led unsuccessful efforts to support the yen through jawboning and direct intervention.

The yen has fallen to 38-year lows. Efforts to support the yen are expected to persist, but Japan's massive debt and demographic challenges are a millstone around the neck of monetary policy. Mimura faces those same challenges.

The dollar remains generally well bid with the yen on the ropes and scope seen for further ECB rate cuts. The dollar index retested the 8-week high set on Wednesday at 106.13. While this level remains intact thus far, a challenge of the high for the year at 106.52 seems likely. Beyond that, last year's high of 107.35 attracts. 

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$8.24 (+0.35%)
5-Day Change: +13.39 (+0.58%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34
Weighted Alpha: +23.04

Gold extended to a new high for the week of $2,338.03 following a generally uneventful PCE report for May. Most importantly, the Fed's favored measure of inflation suggested price risks are in check which may give the central bank room for at least one, and possibly two rate cuts this year.



The yellow metal appears poised for a higher weekly close. A close above $2,327.82 would confirm a fifth consecutive higher monthly close. With gold presently trading around $2,331.00 the monthly close is too close to call. Current pricing puts gold up 4.4% in Q2 and +13% in H1.

Tests of the downside this week have reinforced support marked by the 07-Jun low at $2,287.64. Bull camp confidence that the corrective low is in place has been bolstered. The 61.8% retracement level of the decline from last week's high has been pressured at $2,339.36. A breach of this level would bode well for a test of $2,367.22 (21-Jun high).

A new intraday low below $2,319.85 would deflate bullish optimism setting up potential for further probes below $2300.

I wrote yesterday about the "Costco effect" pulling average U.S. investors into the gold market and the warmer feelings toward gold among professional investors. An AP article this week reports that Poles have turned to gold amid high inflation and ongoing concerns about geopolitical instability in the region that has led to a migration crisis.

"In Poland, gold’s allure is intertwined with the enduring trauma of World War II, when it could ensure survival." This theme has been repeated around the world and throughout history. A client of a company I previously worked for told a harrowing tale of escaping Vietnam with his family after the fall thanks to their horde of gold tael bars.

A survey from SSGA and WGC showed that 76% of investors in the Asia/Pacific region have some allocation to gold. Nearly half have allocations of 1% to 4.9%. That 24% have no allocation to gold means there is significant room for demand to grow.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.396 (-1.37%)
5-Day Change: -$0.180 (-0.61%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +32.99

Silver set a 5-session high of $29.587 following the PCE report, but the high for the week at $29.714 was not seriously challenged. The white metal fell to a 5-week low midweek and appears poised for a lower weekly close and the first lower monthly close in four.

 

Based on a current price of $29.30, silver is up about 17% for Q2 and +23% for H1. The longer-term trend remains bullish, but I'd need to see further evidence to convince me the corrective low is in place.

UBS believes U.S. rates and the dollar need to start coming down in H2 to open the upside for silver and draw investors back into ETFs. Today's data seem to favor at least one Fed rate cut this year, but even once Fed easing is underway I think interest rate differentials will underpin the dollar for some time.

UBS believes industrial demand, particularly from the photovoltaic sector, will remain strong. They also see mine output contracting marginally this year. Strong demand and reduced supply bode well for the price of silver in H2, even if the dollar remains supported.


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