6/010/2024

Gold and silver have recovered somewhat from Friday's rout

OUTSIDE MARKET DEVELOPMENTS: The precious metals rebounded modestly in overseas trading on Monday, but the sharp losses seen on Friday leave the downside vulnerable.

Gold was initially pressured on Friday by news that China's central bank did not buy any gold in May as the yellow metal reached record highs. China's gold reserves held steady at 2264 tonnes.

The PBoC had bought just under 2 tonnes of gold in April, well below its average of 18 tonnes since they resumed reporting in Nov 2022. Nonetheless, the end of the PBoC's 18-month buying spree caught the market by surprise.

Is this just a pause in PBoC buying, or does this signal a significant policy shift? My bet is on the former as I see reserve diversification remaining a persistent theme in China.

The precious metals were hit again on Friday when U.S. nonfarm payrolls beat expectations. Resilience in the jobs market further reduced the likelihood of a Fed rate hike in September. 

The Fed's 2-day FOMC meeting begins on Tuesday and policy will be announced on Wednesday. Steady policy is widely expected. Investors will be paying close attention to the policy statement, economic projections, and Powell's presser for clues as to when the Fed will start to ease.

U.S. CPI for May comes out on Wednesday and PPI on Thursday. Median expectations are +0.1% for both. The Fed is likely to note progress on inflation, but not enough to warrant a rate cute any time soon.

GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +4.39 (+0.19%)
5-Day Change: -50.69 (-2.16%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold is up modestly from Friday's 5-week low at $2,287.64. Friday's plunge of more than $80 (nearly 3.5%) was the biggest 1-day drop since November 2020. The range on Friday was just shy of $100!



News that China had bought no gold in May combined with a U.S. payrolls beat weighed heavily on the yellow metal. While the May low at $2,281.97 was approached, this important support level remains intact thus far.

The intraday climb back above $2300 eases the immediate pressure on the downside. However, momentum on today's bounce is not terribly impressive, so further tests of the downside must be considered.

Former supports at $2,315.47/$2,318.36 and $2326.73 now provide resistance. These levels protect the more important halfway back point of Friday's range at $2,337.27. A breach of this level would offer some encouragement to the bulls.

While Friday's move and the sharp losses in late May were certainly dramatic, the retreat off the all-time high at $2,449.34 on 20-May to Friday's low is "just" 6.6%. These losses are considered corrective within the longer-term uptrend. 

However, if $2,281.97 (01-May low) gives way, a more protracted corrective phase with potential to $2.204.41/$2,200.00 would become likely.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.547 (+1.88%)
5-Day Change: -0.962 (-3.13%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver is trading at the low end of Friday's large $2.37 range. The sharp losses realized on Friday leave focus squarely on the downside. Intraday upticks have been lackluster in terms of momentum, but they have relieved the short-term oversold condition somewhat. Further tests of the downside are likely. 



The magnitude of the retreat off the 11-year high at $32.379 (21-May) is now almost exactly 10%. Fresh lows would shift focus to the $28.467 (61.8% retracement of the leg-up from $26.049 to $32.379).

A convincing rebound above $30 might encourage the bulls, but I suspect the bears will be sellers ahead of this level. More important resistance at $30.764 (halfway back point of Friday's range) must be cleared to set a more favorable short-term tone.


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Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
Tornado Precious Metals Solutions by Zaner
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