6/20/2024

The precious metals surged to 2-week highs despite dollar strength

OUTSIDE MARKET DEVELOPMENTS: The Bank of England held steady on rates by a vote of 7-2. That's one more dissenter than at the May MPC meeting, suggesting the BoE is moving cautiously toward that first rate cut. For now, the bank rate remains at 5.25%.

The policy summary noted, "The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated."

The Swiss National Bank surprised with their second rate cut. The policy rate now stands at 1.25%. "[U]nderlying inflationary pressure has decreased again compared to the previous quarter" according to the statement.

Norges Bank also announced policy today. They left the policy rate unchanged at 4.5% which was widely expected. 

U.S. initial jobless claims fell 5k to 238k in the week ended 15-Jun on expectations of 233k. That's down from a 10-month high of 243k in the previous week. Continuing claims jumped 15k to a 5-month high of 1,828k.

U.S. Housing Starts tumbled 5.5% to 1.277M in May, well below market expectations of 1.382M, versus a negatively revised 1.352M in Apr.

The Philly Fed Index dropped to a 5-month low of 1.3 in Jun, well below market expectations of 4.0, versus 4.5 in May. That's down significantly from the 2-year high of 15.4 seen in Apr. The ISM-adjusted index rose modestly from April's 4-month low of 47.2 to 47.6.

Despite the generally disappointing U.S. data, Treasury yields are rising today, providing a lift for the dollar. Minneapolis Fed President Kashkari made note of the resilience of the U.S. economy and said it may take a year or two to bring inflation down to the 2% target. Kashkari is a moderate hawk and I would categorize that statement as moderately hawkish, consistent with 'higher-for-longer' messaging.

GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +11.36 (+0.49%)
5-Day Change: +35.84 (+1.56%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34

Gold jumped to 2-week highs in overseas trading and extended those gains early in the US. session. Generally soft U.S. data have bolstered expectations that the Fed is on the verge of pivoting. While today's SNB cut and the BoE's 'dovish-hold' seem friendly to that line of thinking, FedSpeak continues to slant hawkish.



More than 61.8% of the near-$100 plunge on 07-Jun has now been retraced. The next retracement level is at $2,365.66 (78.6%). Beyond that, focus shifts back to the 07-Jun high at $2,386.90.

Israel has warned of the potential for "all-out war" in Lebanon following threats from Hezbollah. Israel's Foreign Minister said earlier in the week that "operational plans for an offensive in Lebanon were approved and validated."

The prospects for a widening conflict in the region are driving safe-haven interest in gold. Hezbollah also threatened Cyprus, warning that allowing Israel to use Cypriot airports and bases would be dealt with as "part of the war."

A Global Trade Research Initiative (GTRI) report revealed that India agreed to import 200 metric tonnes of gold annually from the UAE with a 1% tariff concession as part of a trade agreement signed in 2022. This drove a 147.6% surge in gold imports from $3 bln in FY23 to $7.6 bln in FY24.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.498(+1.67%)
5-Day Change: +1.388 (+4.79%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379

Silver surged back above $30 in overseas trading, taking out resistance at $30.169 (last week's high). Gains mounted in early U.S. trading after soft economic data heightened prospects for a sooner-than-later Fed rate cut.



More than 61.8% of the decline off the 07-Jun high at $31.516 to the 13-Jun low at $28.719 has now been retraced. Short-term focus is now on the 78.6% retracement level at $30.917. Above that, $31.516 is back in play.

Former resistance at $30.169 now marks initial support. This level is reinforced by the U.S. session low at $30.104.

The aforementioned GTRI report showed a 60x increase in silver imports from the UAE from $29.2M in FY23 to $1.74 bln in FY24. Not surprisingly, Indian importers like the 8% duty on UAE silver far better than the 15% duty on imports from other nations.

In fact, the tariff differential makes UAE silver cheaper even though they are not a producer. The UAE is a processor of silver, importing large bars and converting them to grain (shot) for export.

India is now concerned about lost tariff revenue and the arbitrage opportunity of their own making.


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