Gold consolidates recent gains, as silver remains firm above the midpoint of the recent range

OUTSIDE MARKET DEVELOPMENTS: The Commerce Department is investigating semiconductor and pharmaceutical imports from a national security perspective. This is thought to be a precursor to another round of tariffs with the goal of repatriating those critical industries to the U.S.

President Trump indicated that he was considering pausing tariffs on cars to give the industry time to adjust their supply chains. This comes on the heels of last week's sweeping 90-day pause on levies on goods imported from most countries and the exemption of electronics from China.

While the White House says all these concessions are temporary, there is a sense that a more pragmatic approach to trade has emerged in the wake of last week's volatility. Reportedly, there has also been progress in getting new trade deals negotiated.

Individual companies are also making plans to increase production in America. Nikkei reports that Honda is considering shifting auto production to the U.S. from Mexico and Canada so that 90% of the cars sold here are made here.

Reduced trade and recession angst have contributed to improved risk appetite, and the major U.S. stock indexes are modestly higher on the week. Although stocks are still well off their highs for the year amid ongoing uncertainty.

Fed funds futures continue to suggest at least 75 bps in easing is in the offing this year. Prospects for a 25 bps in June have dimmed recently, leaving July as the most likely timing for that first cut.

The dollar index is trading higher today, but upticks are seen as corrective after the greenback plunged to three-year lows on Friday. Uncertainty associated with President Trump's policies, and the sometimes erratic nature of their deployment, have reduced the haven appeal of both the dollar and Treasuries. This seems to be accelerating the de-dollarization trend that is already underway.

Trump may view a weaker dollar as a benefit to reducing the trade deficit, as it makes U.S. goods and services cheaper for foreign buyers. Of course, that FX benefit is eroded when U.S. trading partners apply retaliatory tariffs.  

Emire State Index rebounded 11.9 points to -8.5 in April, above expectations of -12.0, versus -20.0 in March. "New orders fell modestly, and shipments edged lower. Delivery times held steady, and supply availability worsened. Inventories continued to expand. Employment was little changed," according to the New York Fed.

Export Price Index was unchanged in March, in line with expectations, versus a revised +0.5% in February (was +0.1%). 

Import Price Index fell 0.1% on expectations of unch, versus a revised +0.2% in February (was +0.4%).


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$9.33 (+0.29%)
5-Day Change: +$241.58 (+8.10%)
YTD Range: $2,607.16 - $3,243.89
52-Week Range: $2,281.97 - $3,243.89
Weighted Alpha: +40.48

Gold is higher, but narrowly confined within Monday's range. With a new record high set just yesterday, focus remains on the upside amid ongoing haven interest and a weak dollar.



With some level of calm in global markets today, the haven bid has been reduced somewhat. However, elevated trade tensions, persistent price and growth risks, and the ongoing de-dollarization trends that are contributing to central bank demand are seen as broadly supportive.

The massive influx of physical gold into Comex warehouses that started earlier this year as an attempt to avoid tariffs and then turned into a self-perpetuating arbitrage trade is starting to reverse itself. News that gold would be exempt from tariffs caused the arb opportunity to evaporate as the large contango between spot and futures began to normalize.

Bloomberg reports that "Comex stockpiles fell each day last week, with Friday’s outflow the biggest in more than a year and worth about $700 million." Without the big price incentive to keep physical metal in New York, look for gold to redistribute back to gold trading hubs in London, Asia, and the Middle East.

I think the redistribution will happen gradually based on demand, as there are costs associated with flying gold around the world. At this moment, there aren't premiums at other centers that would draw the gold back.

Chinese demand for gold was robust in March. The World Gold Council reported that gold ETFs attracted C¥5.6bn in inflows in March, contributing to record Q1 inflows. Meanwhile, the PBoC added 2.8 tonnes to reserve holdings. It was the fifth straight month of official sector gold buying.

Yesterday's low at $3,198.36 protects more important support marked by Friday's low at $3,174.99. The old record high from 03-Apr at $3,264.72 provides a secondary downside barrier to watch.

On the upside, today's overseas high at $3,231.37 stands in front of Monday's record high at $3,243.89. Penetration of the latter would keep gold on track for a push to the next Fibonacci objective at $3,290.11. Beyond that, $3,300 and $3,500 remain valid objectives.

Silver remains generally well bid in the upper half of the broad $34.543/$28.565 range. The white metal managed to eke out a new high for the week, but consolidating gold and ongoing worries about global growth risks are containing the upside thus far.



The 50- and 20-day moving averages are converging just above the market at $32.515/583. A push through this area could provide further confidence to the bull camp, leading to a challenge of the 78.6% Fibonacci level at $33.264.

On the other hand, a retreat below today's low at $32.125 would set up a retest of $31.895/833.  Below the latter, more formidable support marked by the midpoint of the range and the 100-day MA at $31.554/$31.477 comes into play.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.