Gold firms on revived de-escalation optimism, while silver lags

Outside Market Developments: Risk appetite is elevated heading into the weekend amid the latest rebound in optimism over Middle East de-escalation. On Thursday, U.S. and Iranian negotiators reportedly reached a tentative memorandum of understanding to extend the current ceasefire by 60 days, fully reopen the Strait of Hormuz, and lift the U.S. naval blockade.

Emphasis on the word "tentative." We've seemingly been on the verge of a peace deal numerous times over the course of the war, only to see them fizzle. The latest deal still requires final approval from President Trump and confirmation from Iran.

Negotiations on Iran’s nuclear program will begin with that sign-off. Given the red-line nature of U.S. demands on Iran's nuclear capabilities, this suggests there is still plenty of potential for any deal to unravel.

There's a growing perception that Iran is attempting to drag negotiations out until the pressures of global energy prices and broad inflation force President Trump to cut a more Iran-favorable deal. Trump, on the other hand, likely wants to wrap the war up quickly to hopefully preserve GOP congressional majorities. The risk is that he may see further attacks on Iran as the more expedient option.

Stocks remain well bid near record highs on the hopes for peace. Zerohedge amusingly noted, "Futures Hit Another Record High After Pricing In Same 'Iran Deal' Every Day For The Past Month."

Stocks are also garnering support from tech/AI earnings momentum. Dell shares surged after reporting a massive earnings beat on Thursday, which was driven largely by explosive AI server revenue. This prompted an upgrade to full-year guidance.

U.S. stock buoyancy and AI/tech optimism do attract foreign capital inflows into U.S. equities, which requires foreigners to buy dollars and provides underlying support for the greenback. Recent TIC data shows consistent net foreign inflows into U.S. assets.

Markets interpreted the April PCE data (released Thursday) as showing stubbornly elevated but largely in-line inflation. Headline PCE inflation came in at +3.8% y/y (hottest since May 2023) and core at +3.3% y/y (highest since October 2023).

While multiweek lows in oil further tamp inflation worries and rate-hike expectations, the dollar index remains in the upper half of this year's range. A breach of formidable chart/Fibonacci support at 97.62/50 is needed to confirm a weaker tone within that range.

Next week, markets will focus on fresh U.S. economic data, particularly the May employment report on Friday, alongside ISM Manufacturing (Monday), JOLTS (Tuesday), and ADP private payrolls (Wednesday). These releases will help gauge the health of the U.S. labor market with implications for the policy outlook. Upcoming FedSpeak may provide additional clues, although the new Fed chair favors less talk, lest policymakers become "prisoners of their own words."

Middle East headlines and corporate results are expected to remain key themes driving risk sentiment. Further progress or setbacks on the U.S.-Iran framework in particular will move markets.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$42.52 (+0.95%)
5-Day Change: +$11.99 (+0.27%)
YTD Range: $4,100.32 - $5,595.02
52-Week Range: $3,251.28 - $5,595.02
Weighted Alpha: +30.12

Gold appears on track to notch a higher weekly close after falling to a nine-week low on Thursday. It would be the first higher weekly close in three. Nonetheless, gold seems likely to register its third consecutive lower monthly close.



Gold probed briefly below the 200-day moving average earlier in the week, but rebounded on revived hopes for a peace deal. However, I would categorize the rebound thus far as somewhat tentative, with the market having grown weary of the deal/no-deal swings in recent weeks.

Short-term closes above the 20-day MA at $4,587.45 and the 50-day at $4,632.58 are needed to establish a more bullish technical tone. Such a move would target the $4,686.24 Fibonacci level initially, but potential would be back to the May high at $4,773.13. Beyond the latter, the $5,000 zone would be back in play.

On the other hand, a failure to move convincingly – and sustain gains – above $4,600 would leave the 200-day MA vulnerable to further tests. Certainly, setbacks to de-escalation have the potential to put the yellow metal back under pressure.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: -$0.221 (-0.29%)
5-Day Change: +$0.120 (+0.16%)
YTD Range: $61.036 - $121.630
52-Week Range: $32.763 - $121.630
Weighted Alpha: +105.19

Silver is little changed on the day, teetering on the verge of a third consecutive lower weekly close. However, the white metal does appear poised to end the string of lower monthly closes at two. As of this writing, silver is up about 2.5% in May.



Today's lack of upside follow-through is somewhat of a concern given the ongoing tech/AI outperformance, and in particular the big Dell beat. I would have expected silver to be leading on the rebound. I'll be watching the gold/silver ratio closely next week.

That being said, the ability of silver to hold above $70 this week is encouraging to the bull camp. A close above the 50-day MA at $75.925 would bode well for tests of the 20-day at $78.088 and good chart resistance at $78.820/886. Penetration of the latter is needed to shift attention back to the $80 zone.

If silver can't maintain gains above $75 early next week, Thursday's low at $71.808 would be vulnerable to a retest. Minor intervening supports are noted at $74.629. $73.585 and $73.153.


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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