Gold retreats as Japan trade deal boosts risk appetite

OUTSIDE MARKET DEVELOPMENTS: The White House has announced a trade agreement with Japan that lowers reciprocal tariffs from 25% to 15%. In exchange, Japanese markets will be opened to U.S. "Cars and Trucks, Rice and certain other Agricultural Products, and other things," according to a TruthSocial post from President Trump.

Japan will also invest $550 bln in the U.S. to support Japanese businesses, and “create Hundreds of Thousands of Jobs." The Japan deal overshadows trade deals inked with Indonesia and the Philippines.

Markets are celebrating the news with major U.S. indexes trading at or near record highs amid heightened risk appetite. Several key trade deals still need to be made, and time is growing short if you believe August 1 is a hard deadline.

While the market is displaying some level of optimism, at least the EU is preparing for failure. Meanwhile, talks with South Korea, India, Canada, and Mexico, among others, appear to have stalled. 

Copper surged to fresh record highs near $6 after Trump reiterated that 50% tariffs will take effect on August 1 and would include refined products. Bloomberg reports that a number of copper-laden ships are racing to U.S. ports to beat the deadline.

The Fed is expected to remain on hold when the FOMC meets next week. However, the prospect of dovish dissenters would stoke easing expectations for subsequent meetings and keep the dollar on the defensive.

MBA Mortgage Applications rose 0.8% in the 18-Jul week, versus -10.0% in the previous week. The 30-year mortgage rate edged up to 6.84% from 6.82% in the previous week.

Existing Home Sales fell 2.7% to a nine-month low pace of 3.930M in June, below expectations of 4.000M, versus a revised 4.040M in May (was 4.030). Near-record prices and high mortgage rates continue to weigh.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$8.39 (-0.24%)
5-Day Change: +$74.53 (+2.23%)
YTD Range: $2,607.16 - $3,495.89
52-Week Range: $2,354.48 - $3,495.89
Weighted Alpha: +42.68

Gold has retreated from the five-week high set in Asia $3,435.01, as news of a trade agreement between the U.S. and Japan sapped safe-haven interest. However, dollar weakness continues to provide some underpinning.



While resistance marked by the 16-Jun high at $3,449.13 remains untested, the technical bias remains to the upside. There is still plenty of trade uncertainty lingering as the August 1 deadline approaches, which should continue to provide support.

Prospects for dovish dissenters at next week's FOMC meeting are also supportive of gold, due to the bearish dollar implications. Fed funds futures are currently implying 45 bps in cuts by year-end.

A breach of $3,449.13 is needed to clear the way for a retest of $3,500. New record highs above the latter would bolster confidence in previously established objectives at $3,596.20 (Fibonacci) and $4,000.00 (psychological).

The retreat below $3,400 is somewhat troubling, but yesterday's low at $3,383.95 remains protected thus far. If this level gives way, an outside day would be confirmed, shifting focus to 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: +$0.063 (+0.16%)
5-Day Change: +$1.528 (+4.03%)
YTD Range: $28.565 - $39.445
52-Week Range: $26.524 - $39.445
Weighted Alpha: +45.45

Silver extended to a new 14-year high of $39.517, within 50¢ of the $40 objective. The white metal is being buoyed by fresh record highs in copper, firm gold, and a weaker dollar.



A short-term move above $40 would highlight the $41.610 Fibonacci objective.  Above that, the scenario that calls for an eventual challenge of all-time highs around $50 would gain considerable credence.

While silver has eased from the highs, setbacks are likely to attract buying interest. The $39.156/000 zone marks first support. Yesterday's low at $38.736 stands in front of more formidable support at $38.092/000 and last week's low at $37.557. The 20-day moving average bolsters the latter.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.