Gold firms on heightened haven interest and a weak dollar

OUTSIDE MARKET DEVELOPMENTS: The UN's nuclear watchdog organization has ruled that Iran is, in fact, in violation of its non-proliferation obligations. Iran responded angrily, threatening to escalate its enrichment activity.

The UN finding raises the risk of Israeli attacks on Iran's nuclear facilities. Iran has threatened to target U.S. bases in the Middle East if it is attacked, and would most certainly retaliate against Israel.

Market sentiment has swung to risk-off, and oil prices rose. Acknowledging the heightened risks, President Trump said the U.S. was moving personnel out of the Middle East because it "could be a dangerous place." More talks between the U.S. and Iran are slated for this weekend in Oman, but hopes for a deal are fading.

A day after trade tensions cooled between the U.S. and China, President Trump reminded the world that the pause on reciprocal tariffs is mere weeks away. "At a certain point, we're just going to send letters out ... saying, 'This is the deal. You can take it, or you can leave it,'" Trump said.

The PPI report confirmed that inflation remained subdued in May, a day after CPI data revealed the same. Rate cut expectations for the remainder of the year edged back above 50 bps, with the first 25 bps cut priced 

Looking ahead to next week's FOMC meeting, cooler inflation allows the Fed to lean more dovish, but the central bank will stay on hold amid ongoing tariff and growth uncertainty. Nonetheless, any move on rates next week seems highly unlikely.

The tilt toward dovishness, along with heightened geopolitical and trade tensions, has weighed on the dollar. The dollar index fell to a more than three-year low of 97.60.

PPI rose a scant 0.1% in May, below expectations of +0.2%, versus -0.5% in April; 2.6% y/y, up from 2.4% in April. Core +0.1%, below expectations of +0.3%, versus -0.4% in April; 3.0% y/y, versus 3.1% in April.

Initial Jobless Claims were steady at 248k in the week ended 6-Jun, above expectations of 241k. Continuing claims surged 54k to 1,956k in the 31-May week, the highest since November 2021.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$9.30 (+0.28%)
5-Day Change: +$32.97 (+0.98%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,295.86 - $3,495.89
Weighted Alpha: +46.91

Gold reached a new high for the week, buoyed by heightened haven interest and three-year lows in the dollar. While the yellow metal remains confined to the range within the range, a more bullish short-term bias is emerging.



A breach of last week's high at $3,401.81 is needed to put the record high back in play. A Fibonacci level at  $3,416.97, as well as the May highs at $3,431.46/63 provide additional intervening barriers.

A convincing push above $3,400 would bode well for an upside extension to the $3,596.20 Fibonacci objective, and bolster confidence in the scenario that calls for an eventual challenge of $4,000.

The ECB reports that gold has overtaken the euro as the second-largest reserve asset. According to the ECB's annual currency assessment, as of the end of 2024, gold accounts for nearly 20% of official global reserves, while euro reserves stand at 16%.

The dollar remains the dominant reserve asset at 46%. However, a trend toward de-dollarization accelerated in recent years amid concerns about U.S. weaponization of the greenback.

Today's Asian low at $3,344.27 marks first support. The 20-day moving average bolsters Wednesday's low at $3,320.62 and protects Monday's low at $3,297.69. The 50-day MA has risen to $3,282.15, providing additional support in this zone. The 29-May low at $3,251.28 is considered key short-term support and appears to be well protected at this point.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.046 (-0.13%)
5-Day Change: +$0.600 (+1.68%)
YTD Range: $28.565 - $36.875
52-Week Range: $26.524 - $36.875
Weighted Alpha: +26.76

Silver traded back below $36 as the gold/silver ratio continued to rebound from the 90 support zone. However, the white metal recovered intraday with help from increased haven interest, strength in gold, and a weak dollar.



I offered some words of caution in yesterday's commentary, noting that Friday's low at $35.654 was the "more significant level to watch." Today's low is $35.656 and the short-term significance of this support level has been reinforced.

Last week's major range breakout is the dominant technical feature on the silver chart. Sights are set on the February 2012 high at $37.430, with intervening barriers noted at 36.632 and 36.820/875.

An eventual push to 13-year highs above $37.430 would lend credence to a Fibonacci projection at $38.750, and make $40 increasingly attractive.


PLATINUM

I wrote much of the following in response to a request for comment on platinum from Reuters this morning. Platinum surged above $1,200 this week, a level last seen in June of 2021. 

The supply side of the platinum market is in turmoil, and a third straight year of deficit is expected. Infrastructure in South Africa – the world’s largest source of platinum – is a hot mess. That, along with labor strife, has adversely impacted mining operations.

This seems unlikely to resolve anytime soon amid weak growth, high unemployment, and plunging foreign investment stemming from political instability and policy uncertainty. The U.S. has already cut aid to South Africa, and sanctions are reportedly being considered.

Tensions between Russia and the West are rising as the war in Ukraine drags on, increasing the likelihood of more sanctions against the world’s second-largest producer of platinum. Russian platinum production has not been included in sanctions thus far, but that could change if new punitive measures are deployed.

Meanwhile, adoption of electric vehicles has slowed significantly, implying heightened demand for conventional vehicles with the added possibility of higher catalyst loading to reduce emissions. Catalytic converters for ICE vehicles are the biggest source of platinum demand. Additionally, record-high gold prices have shifted some jewelry demand to platinum.  

I see potential to the 2021 high at $1339.35 initially. A breach of this level would establish 11-year highs and shift focus to $1,500, supported by the aforementioned supply/demand fundamentals.

We’ll see technical corrections as platinum is a very small and thinly traded market. However, the South African problems are going to persist for some time, perhaps resolved only with political upheaval. Meaningfully increasing output in Zimbabwe, Canada, and the U.S. would take years, if not decades.

A peace deal between Russia and Ukraine would reduce tensions and instability in the market, but wouldn’t materially move the needle on supply.

It seems supply is destined to remain constrained for the foreseeable future. Any tempering of the price rise will likely have to come from the demand side. Palladium is the obvious substitute, but Russia and SA are the biggest suppliers of that metal as well.

Revived EV interest is perhaps the best bet for reducing PGM demand. Technological improvements might do that, but the quicker path would be higher government subsidies. I'm not sure there's much appetite for that right now. In fact, the pendulum seems to be swinging the other way.

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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