Gold consolidates Monday's losses, awaiting fresh inputs on trade, geopolitics, and economy

OUTSIDE MARKET DEVELOPMENTS: Risk appetite remains elevated as trade optimism continues to ease fears of a trade war and tariff-driven global recession. The U.S. and China agreed to roll back tariffs for 90 days while a broader trade deal was negotiated, boosting confidence that deals with other key trading partners will also be reached.

The market is eager to see that additional progress. While we continue to hear that more deals will be forthcoming, Treasury Secretary Bessent cautioned that a deal with the EU may take some time.

Speaking on Bloomberg, Bessent said that the EU has a “collective action problem,” which is hampering trade negotiations. “I think the US and Europe may be a bit slower,” he said.

Reduced growth risks caused Fed rate cut expectations for June to fall off the table this week. Fed funds futures put the chances of a 25 bps cut at just 8.4%, down from 30.5% a week ago and 64.4% a month ago. The market now only expects 52 bps of easing by year-end, with the first 25 bps cut not fully priced in until October. 

The trade was worried that tariffs enacted in April would result in an upside inflation distortion, but CPI unexpectedly cooled. Headline CPI fell to 2.3% y/y, the lowest print since February 2021. Core CPI was unchanged at 2.8%.

There's still plenty of uncertainty surrounding trade and the economy, and the Fed has been clear that it's in no hurry to adjust rates. However, cooling inflation gives the doves some fodder for conversation at the next FOMC meeting.

You may recall that core PCE inflation – the Fed's preferred measure – fell to 2.6% y/y in March, tying June as the lowest reading since March 2021. Median expectations for April are 2.8%, but I suspect that if we see the CPI results replicated in PPI and import/export prices, PCE inflation expectations will be trimmed.

On Monday, Treasury announced a $258.4 bln budget surplus for April, a $48.9 bln increase (+23.3%) versus last April. Surpluses in April are not uncommon due to incoming tax receipts, but this surplus was the second-largest on record.

A surge in customs receipts (tariffs) contributed $15.6 bln to total receipts. That's an increase of $9 bln f(136%) from a year ago.

NFIB Small Business Optimism Index declined by 1.6 points to 95.8 in April, versus 97.4 in March. The Uncertainty Index fell 4 points to 92 but remained well above the historical average of 68. “Uncertainty continues to be a major impediment for small business owners in operating their business in April, affecting everything from hiring plans to investment decisions,” said NFIB Chief Economist Bill Dunkelberg.

CPI rose 0.2% in April, below expectations of +0.3%, versus -0.1% in March; 2.3% y/y, down from 2.4% in March. Core rose 0.2% on expectations of +0.3%, versus +0.1% in March; 2.8% y/y, unchanged from March.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$18.78 (+0.58%)
5-Day Change: -$186.58 (-5.44%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +37.93

Gold is consolidating Monday's losses, trading at the low end of yesterday's range. The absence of fresh news on the trade front and an easier dollar are providing the yellow metal with some modest buoyancy.



The major stock indexes have recouped the losses since President Trump's initial "Liberation Day" tariff announcements. Gold, on the other hand, remains comfortably above the $3,114.61 open from 02-Apr, suggesting there's more to gold's strength than just its safe-haven status.

However, additional good news on trade and/or further dialing back of geoplitical tensions would perpetuate the unwinding of risk-aversion positioning. That could prompt a retest of support at $3,209.84/$3,204.91 (Monday's low/01-May low) for gold.

A drop below $3,200 would suggest additional downside potential to Fibonacci support at $3,165.84 (61.8% retrace of the leg-up from $2,961.83 to the record high at $3,495.89). The rising 50-day moving average is currently at $3,152.64, adding some significance to this secondary support area.

While I remain confident in the underlying uptrend, it's very difficult to determine where the buyers will step back in during a correction. At this point, the downside still seems to be vulnerable to further tests.

The halfway back point of yesterday's decline at $3,267.46 has successfully capped the upside thus far. The overseas high at $3,262.11 bolsters this level. A minor chart point at $3,280.91 protects the more important $3,320.44/$3,325.08 area, where the 20-day MA corresponds closely with yesterday's high.

Silver probed back above $33 in overseas trading, but once again, these gains could not be sustained. The white metal made another run at the upside in early U.S. trading, but the intraday rally has faltered ahead of $33 thus far.



Today's high at $33.197 bolsters last week's highs at $33.231/239 as a key short-term resistance. The 20- and 50-day moving averages come in at $32.752/765 today and remain significant on a close basis.

The bull camp can feel somewhat encouraged by the sustained drop below 100 in the gold/silver ratio. However, a breach of support in the ratio at 97.574 (23-Apr low) is still needed to really boost confidence for a run at key highs in silver at $33.662 (25-Apr high), the high for the year at $34.543, and the 22-year high from October at $34.853.

Today's intraday low at $32.546 and a minor chart point at $32.271 protect Monday's low at $31.969. The latter stands in front of the key 01-May low at $31.762.


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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