Gold weighed by hot inflation data, but strong silver provides some underpinning

Outside Market Developments: PPI for April came in hotter-than-expected, reinforcing expectations that the Fed will leave rates higher for longer. Headline PPI accelerated to a 40-month high of 6% y/y, versus 4.3% in March. Core PPI rose to a 5.2% annual pace, also a 40-month high, from 4% in March.

Both CPI and PPI surged in April, driven primarily by higher energy prices associated with the Iran conflict. Core measures, excluding food and energy, rose more modestly, suggesting the inflation spike was largely energy-driven rather than broad-based.

Fed funds futures continue to reflect a decreasing probability of easing this year. In fact, the implied Fed funds rate for December is currently 3.72%, suggesting a tilt toward modest tightening risk.

Hotter inflation, more hawkish policy expectations, and some trade optimism attributed to the Trump-Xi summit in Beijing,  pushed the dollar index to new highs for the week. However, persistent U.S. fiscal concerns and ongoing global de-dollarization are seen as headwinds for the greenback.

President Donald Trump arrived in Beijing on Wednesday – his first visit to China since 2017 – for a high-stakes two-day summit with Chinese President Xi Jinping. The meetings are slated to focus on trade and agriculture purchases, the Iran conflict, Taiwan arms sales, technology/AI restrictions, and efforts to stabilize U.S.-China relations.

Markets are likely to swing sharply on headlines from the Trump-Xi summit and Middle East developments in the coming days. Positive progress – such as Chinese pressure on Iran to stabilize the Strait of Hormuz, new trade/agriculture deals, or eased Taiwan tensions – could quickly lower oil prices, cool inflation fears, and spark a risk-on rally in equities while weighing on the dollar and yields. Conversely, deadlock or escalation in either arena would reinforce stagflation risks, pushing oil and yields higher, pressuring growth stocks, and supporting safe-haven flows.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$21.07 (-0.46%)
5-Day Change: -$3.82 (-0.08%)
YTD Range: $4,100.32 - $5,595.02
52-Week Range: $3,127.12 - $5,595.02
Weighted Alpha: +40.37

Gold continues to trade modestly lower on the week, weighed by evidence of accelerating inflation, dimming hopes for Fed easing, and a firmer dollar. The yellow metal is consolidating below the 100-day moving average, awaiting directional cues from the Trump-Xi summit, and//or fresh headlines out of the Middle East. Strong silver underpins.



A revival of Middle East de-escalation optimism and lower oil prices are probably needed to generate a convincing move above the 100-day MA. If that were to happen, it would bode well for a short-term retest of the mid-April high at $4,886.18. A subsequent breach of that level would favor further retracement toward $5,000.

If gold is unable to sustain recent tests above the 20-day MA ($4,684.06), scope would be seen for a retreat to the $4,600 zone. If $4,600 is penetrated, further retracement toward last week's low at $4,503.02 would have to be considered.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$0.148 (+0.17%)
5-Day Change: +$10.228 (+13.22%)
YTD Range: $61.036 - $121.630
52-Week Range: $31.701 - $121.630
Weighted Alpha: +158.72

Silver is pushing higher for a seventh straight session, hitting nine-week highs above $89, as strong supply-demand fundamentals and hopes for a productive U.S.-China summit override inflation worries and a firmer dollar. Optimism around ongoing tech and AI infrastructure expansion is driving expectations for robust industrial demand, while the market is simultaneously on track for a sixth consecutive year of a structural supply deficit.



The gold/silver ratio has tumbled below 56 for the first time since early March, establishing 15-week lows and reflecting an outperforming silver market. This move highlights silver’s strong industrial supply/demand dynamics, versus gold's more traditional safe-haven appeal.

Despite the recent tailwind, silver remains in the lower half of the broad range that was established earlier in the year. A short-term push above $90 would bode well for a challenge of the midpoint of the range at $91.88. Above that, the March high at $96.393, and $98.433 (61.8% retracement of the decline from $121.630) would be back in play.

I think it would take a retreat below the 100-day MA at $81.113 to take the wind out of silver's sails at this point. Recent lows at $85.725 (Wednesday) and $83.096 (Tuesday) provide good intervening supports.


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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