Gold retreats into the range on trade optimism, awaits FOMC policy statement

OUTSIDE MARKET DEVELOPMENTS: Treasury Secretary Bessent will travel to Switzerland tomorrow to meet with Swiss President Karin Keller-Sutter.  "While in Switzerland, Secretary Bessent will also meet with the lead representative on economic matters from the People’s Republic of China (PRC)," according to the Department of the Treasury.

Markets are encouraged that China and the U.S. are set to begin talks, underpinning risk appetite. However, that's being counterbalanced by rising geopolitical tensions.

India fired missiles at what it called "terrorist infrastructure sites" within Pakistan, raising tensions between the two nuclear-armed neighbors. Pakistan claims to have shot down five Indian jets and drones and vowed further retaliation.

The U.S. and Houthi rebels in Yemen have reportedly reached a ceasefire agreement. Some see the deal as a precursor to nuclear talks with Iran.

The Houthis were quick to clarify that the ceasefire did not extend to Israel, and that those attacks would continue. “There is no turning back from supporting Gaza, no matter the cost," said Houthi leader Mahdi al-Mashat. Israel has struck key Yemeni infrastructure this week.

Russia and Ukraine continue to trade attacks, a day before a three-day ceasefire is slated to take effect. When recently asked about Ukrainian strikes on Russian territory, Putin ominously said: “There has been no need to use those (nuclear) weapons ... and I hope they will not be required.” 

The Fed is expected to remain on pause when it announces policy this afternoon. The statement and Chairman Powell's responses to questions will be dissected for clues as to when the next rate cut might occur. However, in light of recent tariff uncertainty, I expect the Fed to keep its cards close to the vest.

MBA Mortgage Applications rebounded 11.0% in the week ended 02-May after falling 4.2% in the previous week. The 30-year mortgage rate eased to 6.84% from 6.89% in the previous week.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$38.68 (-1.13%)
5-Day Change: +$100.35 (+3.05%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +49.53

Gold has retreated from the two-week high set early in the Asian session at $3,431.63 as news that the U.S. and China would hold trade talks this week in Switzerland sapped the haven bid. However, rising geopolitical risks are providing some underpinning.



This week's gains stalled just shy of the 78.6% retracement level of the decline from the record high. Nonetheless, the magnitude of the retracement thus far suggests that the corrective low is in place at $3,204.91.

However, progress toward a trade deal with China, or evidence that deals are being struck with other major trading partners, could put the yellow metal under heavier pressure within the range. This strikes me as a scenario where a symmetrical triangle (a series of lower highs and higher lows) is likely to form.

Such a pattern is considered a continuation pattern within the dominant trend. In the case of gold, the dominant trend remains decisively bullish. Further near-term attacks on the $3,500 level are anticipated, with longer-term potential still seen to $4,000.

Initial support is marked by the Asian low at $3,365.18. The more important zone to watch is $3,326.29/18.27/08.12, where Tuesday's low, the halfway back point of the recent rally, and the 20-day MA are all in close proximity.

 

Silver has once again failed to sustain gains above $33, despite optimism on the trade front and a fresh round of Chinese stimulus. While price action remains confined to yesterday's range, the fact that silver is underperforming gold is troubling.



The 50- and 20-day moving averages are being pressured at $32.677/636. A breach of this level would clear the way for a return to the $32.00 zone, which is highlighted by Monday's low at $32.009.

Silver may have to dip further into the range to gather itself for a more serious test of key highs above $34. A drop below $32 would shift focus to the 100-day MA at $31.777 initially, but potential at that point would be to $31.152/114, where the halfway back point of the rally from $28.565 corresponds with the 200-day MA.

I'm going to remain suspicious of upticks above $33 as long as 25-Apr high at $33.662 is intact. I see the upside as limited until the high for the year at $34.543 and the more important 22-year high from October at $34.853 are negated. I also want to see the gold/silver ratio fall back below 100.


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

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