Gold set to end May little changed amid competing fundamentals

OUTSIDE MARKET DEVELOPMENTS: The Court of International Trade's tariff reprieve was short-lived as an appeals court granted a stay. The CIT judgement is "temporarily stayed until further notice while this court considers the motions papers,” the appeals court ordered.

Meanwhile, President Trump has accused China of violating a preliminary trade agreement struck in Geneva earlier in the month, which had dialed back tensions between the world's two largest economies.

"...China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY," the President wrote on TruthSocial.

Trade tensions may be escalating, with geopolitical and fiscal risks still elevated. Markets head into month-end with a bias toward risk aversion, but U.S. shares are poised for monthly gains.

The U.S. trade balance narrowed dramatically in April to a 19-month low of -$87.6 bln from a record-wide -$162.3 bln in March. Goods exports rose 3.4%, while imports plunged a record -19.8% to $276.1 bln after importers front-ran tariffs in preceding months.

Personal income remained strong in April, providing ongoing support for disposable income and consumption. The PCE inflation ratcheted lower to 2.1% from 2.3% in March.

The Atlanta Fed's GDPNow estimate for Q2 growth was adjusted significantly higher to +3.84% from +2.18% previously. In light of today's data, I expect many analysts to raise their expectations for Q2 growth.

Despite the modest contraction in Q1 GDP, optimism of a growth rebound in Q2, and taming inflation leaves the Fed sidelined. Fed funds futures continue to suggest potential for a 25 bps rate cut in October and 50 bps in total cuts by year-end.

Goods Trade Balance narrowed sharply to -$87.6 bln in April, well inside expectations of -$141.5 bln, versus a revised -$162.3 bln in March (was -$162.0 bln).

Personal Income rose 0.8% in April, above expectations of +0.3%, versus a positive revised +0.7% in March (was +0.5%). PCE rose 0.2%, in line with expectations. The PCE chain price index rose 0.1% m/m, dropping the annualized pace of inflation to 2.1%. Core inflation fell to 2.5% y/y from 2.7% in March.

Chicago PMI fell 4.1 points to 40.5 in May, below expectations of 45.0, versus 44.6 in April. 

Michigan Sentiment was revised up 1.4 points to 52.2 for May, versus 50.8 preliminary read, unchanged from a 34-month low of 52.2 in April.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$22.46 (-0.68%)
5-Day Change: -$52.94 (-1.58%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,287.64 - $3,495.89
Weighted Alpha: +43.68

Gold heads into the end of the week and month-end, generally consolidative. The yellow metal is poised to end the week lower after trading within the confines of last week's range. Gold is essentially unchanged from April, with an inside month set to be confirmed.



While today's economic data moderated growth risks, trade tensions seem to be back on the rise. Geopolitical and fiscal worries remain elevated, and the mix of fundamental influences has kept gold within recent ranges.

From a technical perspective, price action since the record high was established in April still appears to be corrective within the long-term uptrend. A breach of last week's high at $3,365.41 would bode well for a move back above $3,400 with potential for fresh record highs and continuation of the dominant trend.

A close below the 20-day moving average at $3,290.84 would suggest modest vulnerability for the week ahead. Thursday's low at $3,251.28 will be bolstered by the 50-day MA by midweek. If this level gives way, potential would be for further retracement toward $3,206.90/$3200.00.

Silver continues to straddle the $33 level. While a weekly loss is likely, the white metal seems on track for a higher monthly close.



President Trump called out China for violating a preliminary trade agreement, hiking trade tensions once again. This provides a headwind for silver, keeping the gold/silver ratio elevated near 100.

I'm still watching the 20-day moving average at $32.957 and the 50-day $32.696 as short-term support. The low from 22-May at $32.694 bolsters the latter.

On the upside, a breach of the 22-May high at $33.690 is needed to clear the way for tests above $34. However, key highs at $34.543 and $34.853 are seen as formidable resistances.


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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