Gold firms as cool PPI boosts rate cut expectations and weighs on the dollar

OUTSIDE MARKET DEVELOPMENTS: Producer inflation unexpectedly cooled in June, with headline PPI dropping to 2.3% y/y from 2.7% in May. Core PPI tumbled to 2.6% y/y from 3.2% in May.

Drilling a little deeper, goods prices did rise 0.3%, but that inflation was offset by a drop in transport and warehousing costs along with lower services prices. Nonetheless, one might reasonably expect that tariff-associated inflation would first be reflected in wholesale prices, but the trajectory since the beginning of the year has been downward.

The White House will make hay with the headline numbers, touting that tariffs have not led to higher inflation, despite warnings from President Trump's detractors. With inflation in check – at least for now – look for Trump to escalate pressure on Jerome Powell and the Fed to resume easing.

Most of yesterday's drop in rate cut expectations stemming from June CPI data have been reversed. While a July cut remains off the table, prospects for a 25 bps cut in September rebounded to 62.9% from 54.5% yesterday, versus 65.8% a week ago. Close to 50 bps in cuts are once again priced in for year-end, with the first 25 bps cut most likely to occur in October.

Yields and the dollar are under pressure. The dollar index has retreated from a three-week high set early in the U.S. session and appears poised to end its eleven-session win streak. Nearly half of the July rally has already been retraced. A breach of that retracement level and the 20-day MA at 97.69/64 would return credence to the longer-term downtrend.

Russia launched another massive drone and missile attack against Ukraine. The attack comes just a day after President Trump escalated pressure on Russia to end the war within 50 days or face massive tariffs.

MBA Mortgage Applications fell 10.0% in the week ended 11-Jul, versus +9.4% in the previous week. Purchases dropped 11.8%, while refis fell 7.4%. The 30-year mortgage rates rebounded to 6.82% from a 13-week low of 6.77%.

PPI was unch in June, below expectations of +0.2%, versus a revised +0.3% in May (was +0.1%); 2.3% y/y, down from a revised 2.7% in May (was 2.6%). Core was unch, below expectations of +0.2%, versus a revised +0.4% in May (was +0.1%); 2.6% y/y, down from a revised 3.2% in May (was 3.0%).

Industrial Production rose 0.3% in June, above expectations of +0.1%, versus a revised unch in May (was -0.2%). Cap use rose to 77.6% on expectations of 77.4%.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$9.42 (+0.28%)
5-Day Change: +$21.00 (+0.63%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,354.48 - $3,495.89
Weighted Alpha: +37.78

Gold rebounded to approach Monday's high for the week at $3,374.11, as cooler-than-expected PPI saw rate cut expectations rebound. This put pressure on yields and the dollar, providing additional lift for the yellow metal. Additionally, escalating trade tensions and the latest Russian attacks on Ukraine are underpinning safe-haven interest.



While firmer today, gold remains confined to the range that has dominated since mid-May. The midpoint of the broader range is at $3,311.51. The midpoint of the range-within-the-range is at $3,352.57. The 50-day MA is at $3,323.70 and the 20-day is at $3,334.02.

The above convergence of important levels heightens the significance of the symmetrical triangle apex at $3,327.24. This suggests a breakout could be close at hand. While my analysis continues to tilt in favor of an upside breakout, these stale prices are trying the patience of the bull camp.

Last week's ETF data illustrates this nicely. While global gold ETFs saw an eighth straight week of net inflows, it was a mere 1.8 tonnes. North American investors were net sellers for a second consecutive week.

This suggests to me that there is risk for a false downside breakout. A close below the 20- and 50-day MAs would heighten that risk. A retreat below $3,300 would leave more important supports at $3,284.61 (9-Jul low) and $3,256.02 (30-Jun low) vulnerable to tests.

On the other hand, fresh highs for the week above $3,374.11 will spark additional buying interest. However. $3,400 must be regained to clear the way for a retest of the 16-Jun high at $3,449.14. Above the latter, the record high at $3,500 would be back in play.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.362 (+0.99%)
5-Day Change: +$1.491 (+4.10%)
YTD Range: $28.565 - $39.119
52-Week Range: $26.524 - $39.119
Weighted Alpha: +33.86

Silver rebounded from a new low for the week, buoyed by encouraging inflation data and the corresponding drop in yields and the dollar. The white metal is still trading lower on the week after failing to sustain 14-year highs above $39, but other industrial metals are providing underpinning.



Copper remains well bid near record highs as a result of the recent tariff threat. Meanwhile, platinum is back on the bid after President Trump threatened to levy 100% tariffs on Russia if they don't end the war in Ukraine.

The U.S. gets 70% of its silver from Mexico and Canada. While silver is generally exempt from tariffs based on the US-Mexico-Canada Agreement, rising trade tensions and President Trump's unpredictability have elevated concerns. Canada and Mexico could also implement export controls on silver as a retaliatory measure.

Today's earlier low at $37.557 now protects the more important $37.288/244 level. The latter is marked by the previous cycle high and the halfway back point of the leg up from $35.369 (24-Jun low) to Monday's high $39.119.

The 61.8% retracement level of the aforementioned move and the 20-day MA are noted at $36.801/747. It would take a break of this zone to raise the prospect for a deeper correction, or at least another consolidative phase.

The halfway back point of the retreat from $39.119 peak comes in at $38.338. A breach of this would lend credence to the bullish scenario that targets $40 and $41.610.


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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