6/18/2024

Gold caught a bid following weak retail sales data as U.S. yields and the dollar fell

OUTSIDE MARKET DEVELOPMENTS: FedSpeak on Monday generally affirmed the likelihood of a single rate cut this year. Philly Fed President Harker warned that no cuts or two cuts were also possibilities, depending on incoming data.

There's more FedSpeak on the calendar for today from Cook, Barkin, Collins, Logan, Kugler, Musalem, and Goolsbee.

Fed funds futures show that the market continues to lean toward two cuts, the first in September and then again in November. This scenario was reinforced today by weak U.S. retail sales data.

U.S. retail sales rose 0.1% in May, below expectations of +0.3%, versus a negatively revised -0.2% in Apr. Ex-auto fell 0.1% on expectations of +0.2%, versus a negatively revised -0.1% in Apr.

U.S. yields and the dollar fell in reaction, providing some intraday support for the precious metals.

U.S. industrial production for May comes out later this morning. Median expectations are +0.4%. Capacity utilization increased to 78.7% in May, just above expectations of 78.6%, versus a negatively revised 78.2% in Apr.

U.S. business inventories for Apr are expected to come in at +0.3%.

The RBA held steady on policy in line with expectations. Governor Bullock expressed some uncertainty in the presser amid simultaneous growth and price risks. "Earlier on when we were raising rates it was quite obvious what we had to do. It's not so obvious now," she said.
 
The PBoC held steady on policy earlier in the week. This was also widely expected as the Chinese central bank is constrained by a weak yuan.

GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$10.63 (-0.46%)
5-Day Change: -3.35 (-0.14%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold started the U.S. session on the defensive having set a new low for the week overseas, but price action remains confined to Friday's range. The yellow metal caught a bid following the weak retail sales data as U.S. yields and the dollar fell.



Softness in the consumer sector can ease price pressures but is a harbinger of mounting growth risks. As the Fed is data-dependent, it will be interesting to hear the tenor of today's FedSpeak. Fed funds futures now put the odds of a 25 bps rate cut in Sep at 60%. That's up from 56.7% yesterday and 46.8% a week ago.

Nearby supports and resistances remain unchanged from yesterday.

I'm watching the low from 13-Jun at $2.296.92 on the downside to keep the more important $2,289.43/$2,287.64 lows at bay.

On the upside, the overseas high at $2,325.23 protects Friday's high at $2,334.92 and last week's high at $2,339.48.

The World Gold Council's latest Central Bank Gold Survey revealed that 29% of survey respondents said they "intend to increase their gold reserves in the next twelve months." That's the highest level the WGC has observed since the survey began in 2018. The survey also shows that 81% of respondents believe global central bank gold holdings will increase over the next 12 months.



This certainly takes some of the sting out of the news from 07-Jun that China's PBoC had bought no gold in May. It is likely that they only paused their buying. The survey results reinforce my expectation that global central banks will continue to expand their gold reserves amid "an increasingly complex geopolitical and financial environment."


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: -$0.332 (-1.13%)
5-Day Change: -0.082 (-0.28%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver has formed an outside day, exceeding both yesterday's high and low. The $29 zone has attracted buying interest in recent weeks.



Today's retail sales miss prompted an intraday rebound as the dollar retreated. However, weaker demand for consumer electronics and cars could be seen as a negative for silver.

At this point, last week's low of $28.719 remains protected by Friday's low of $28.887. Fresh highs today would be encouraging, shifting focus to last week's high at $30.169.

BofA remains bullish on silver, targeting $35 within the next 2 years. They see the global economy "turning the corner," which will not only increase industrial demand for the white metal but pull investors into the market.


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