Gold set to notch a higher weekly close as rising geopolitical tensions offset trade optimism

OUTSIDE MARKET DEVELOPMENTS: Optimism about weekend trade talks between the U.S. and China continues to underpin risk appetite. While a comprehensive deal is unlikely to come out of these initial meetings in Switzerland, it appears that both sides are keen to de-escalate trade tensions. That's a great place to start.

"Chinese officials have grown increasingly alarmed about tariffs' impact on the economy and the risk of isolation as China's trading partners have started negotiating deals with Washington," according to reporting by Reuters.

Rising geopolitical tensions, most notably now between India and Pakistan, are counterbalancing the optimism on trade. India sent missiles into Pakistan earlier in the week in retaliation for what it called a terrorist attack.

Pakistani fighter jets reportedly shot down at least two Indian warplanes on Wednesday. Both India and Pakistan have nuclear weapons, so the stakes are extraordinarily high.

Today's U.S. economic calendar is empty, but there is a whole lot of FedSpeak happening today. From what I've seen thus far, most of the speakers are towing the line on patience.

Fed funds futures reflect fading rate cut expectations. June is presently off the table, and odds for a 25 bps cut in July are slightly better than 50-50. Less than 75 bps in cuts are currently implied for year-end.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$17.04 (+0.52%)
5-Day Change: +$96.56 (+2.98%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +46.39

Gold has rebounded from a four-session low of $3,280.91 and appears on track for a higher weekly close. Heightened geoplitical tensions are offsetting the loss of haven interest associated with optimism on trade.



As noted in previous commentary, gold has not seen consecutive lower weekly closes this year. In fact, there have only been three lower weekly closes in total!

I continue to think we're going to see a period of consolidation within the $3,495.89/$3,204.91 range. While there will be opportunities on both sides of the market, the dominance of the underlying uptrend warrants a bias toward an eventual upside breakout.

A breach of chart/Fibonacci resistance at $3,431.63/33.62 is needed to clear the way for another go at the $3,500 zone. An eventual move to new all-time highs would shift focus to $3,575.04 based on a Fibonacci extension and boost confidence in the longer-term $4,000 objective.

The World Gold Council believes investor flows into ETFs will remain supportive for some time. "Near-term momentum may ebb and flow, but expectations for continued market volatility – driven by concerns such as future trade policy and inflation – should provide a level of support to flows over the medium-to-long term," according to the WGC.

There have been five consecutive net monthly inflows. Asian inflows were particularly strong in April, reaching a record high US$7.3 bln (69.6 tonnes). While U.S. inflows moderated somewhat versus February and March, it was the second strongest April on record.

The WGC also noted that "net cumulative flows through the first four months of the year have already outpaced 2020’s historical performance."

On the downside, I'm watching the 20-day moving average at $3,318.90 on a close basis. It looks to be pretty well protected. Secondary supports are noted at $3,300.00/$3,293.06 and $3,280.91.

Silver is poised for its fourth higher weekly close in five. A close above the 20- and 50-day moving averages at $32.715/730 would provide some additional encouragement to the bull camp.



However, recent heaviness on trades above $33 remains a concern. Positive reports from the weekend trade meetings in Switzerland between the U.S. and China might knock the gold/silver ratio back below 100 and allow silver to attempt to break out to the upside without the help of gold.

Significant tiers of resistance are noted at $33.662 (25-Apr high), the high for the year at $34.543, and the 22-year high from October at $34.853. It would take a breach of the latter to truly consider the longer-term uptrend off the $11.703 from March 2020 to be back underway.

On the downside, today's low at $32.271 now provides an intervening barrier ahead of more substantial support at $32.009/$31.975. The rising 100-day moving average should further bolster the latter next week. The 01-May low $31.762 is another important level to watch.


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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