Gold firms to 5-week highs, bolstered by risk aversion, lower yields, and a retreat in the dollar

OUTSIDE MARKET DEVELOPMENTS: Market sentiment has tilted toward risk-off as some companies are acknowledging that tariffs negatively impacted Q2 earnings. For example, GM said tariffs "sapped $1.1 billion from the results." While Q2 earnings have been generally favorable thus far, there are worries that the tariff impact will be amplified in Q3.

The Trump Administration remains optimistic that trade deals will be cut before steep tariffs kick in next month.  "The next two weeks are going to be weeks for the record books. President Trump is going to deliver for the American people," Commerce Secretary Howard Lutnick told Face the Nation on Sunday.

The EU is said to be preparing retaliatory measures ahead of the looming trade deal deadline. President Trump has already said that retaliation would be met by in-kind tariff increases. The block is also reportedly considering deploying “anti-coercion” measures, which would be a substantial escalation toward a trade war.

Tensions between the White House and the Federal Reserve ratcheted higher after a Trump ally in Congress accused Fed Chair Powell of lying to Congress about the Eccles Building renovation and requested a criminal referral from the Justice Department. Treasury Secretary Bessent subsequently called for an investigation into the “entire Federal Reserve Institution,” but doesn't see a reason for Powell to "step down right now."

Uncertainty about the implications of such investigations is weighing on the dollar. The dollar index has been under pressure since setting a three-week high on Thursday. Nearly 61.8% of the recent corrective gains have been retraced, and the move back below the 20-day MA returns credence to the dominant downtrend.

Policy expectations, however, remain fairly static. Fed funds futures currently imply 46 bps in cuts by year-end with the first 25 bps cut likely to occur in October.

The FOMC is widely expected to hold steady when they announce policy next week. Fed Governor Waller has pledged to dissent when that happens. The trade is hoping to get some clarity on when the easing campaign will resume, but I suspect the policy statement will be 

Ukrainian President Zelensky confirmed that a new round of peace talks with Russia will resume in Istanbul on Wednesday. Moscow isn't hopeful about progress toward a peace deal and launched fresh drone attacks against Ukraine overnight.

Richmond Fed Index fell 12 points to a 10-week low of -20 in July, below expectations of -3, versus a revised -8 in June (was -7). 


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$10.34 (-0.30%)
5-Day Change: +$71.99 (+2.16%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,354.48 - $3,495.89
Weighted Alpha: +41.28

Gold has moved decisively back above $3,400, boosted by heightened haven demand, lower yields, and a weaker dollar. The yellow metal has reached five-week highs and pressured resistance marked by the $3,449.13 high (16-Jun).

 

The move constitutes an upside breakout of the symmetrical triangle formation. A breach of $3,449.13 would bode well for a retest of the record high around $3,500. A measuring objective off the breakout suggests potential to $3,778.44. Existing upside targets are at $3,596.20 and $4,000.00.

The World Gold Council read recent price action similarly. They concluded that the "range continues to look mature, and we may be close to this being resolved higher for the completion of a “triangle” continuation pattern."  The WGC went on to note that "tariff impacts are slowly appearing in inflation data and investors are starting to price this in further down the curve."

Bucking my expectations, global ETFs saw net inflows of 6.6 tonnes last week. European investors accounted for most of that, but even North American investors added 1.3 tonnes, despite the consolidative market.

The COT report showed net speculative long positions in gold futures rose 10.1k contracts to a 15-week high of 213.1k. It was the third consecutive weekly rise in net spec long positioning.

CFTC Gold speculative net positions

The $3,400 zone now marks first support and protects today's overseas low at $3,383.95. More important support is defined by Monday's low at $3,346.01, which is bolstered by the 20- and 50-day moving averages.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.089 (-0.23%)
5-Day Change: +$1.237 (+3.28%)
YTD Range: $28.565 - $39.119
52-Week Range: $26.524 - $39.119
Weighted Alpha: +42.92

Silver is extending its rally, driven by rising trade tensions, higher copper, lower yields, and a retreat in the dollar. The white metal has exceeded the 14-Jul high at $39.119, establishing fresh 14-year highs.



The latest round of gains bodes well for attainment of the $40 objective. Beyond that, The Fibonacci objective at $41.610 would be in play.

Former highs at $39.119/049 protect today's overseas low at $38.736. Better support at $38.092/000 should keep last week's low at $37.557 at bay. The 20-day moving average should rise to bolster the latter by the end of this week.


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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