7/3/2024

Gold and silver jump on rising Fed rate cut expectations

OUTSIDE MARKET DEVELOPMENTS: Markets seem to be reading yesterday's comments by Fed Chairman Powell at the Central Banking Forum in Portugal as dovish. U.S. yields and the dollar have weakened, providing a lift for the precious metals.

In my view, Powell didn't say anything new or exciting. The market however has latched on to his statement that "we are getting back on the disinflationary path.” That's just another way of saying we've made progress on inflation, but Powell added that more data are needed before the Fed can start easing policy.

Nonetheless, the prospects for a September rate cut have edged higher. Fed funds futures put the probability at 62% this morning. Attention now turns to this afternoon's release of the minutes from the June FOMC meeting to see if any additional clues are revealed.

ECBSpeak out of Portugal suggests the European Central Bank is on hold for July due to "sticky inflation." However, mounting growth risks likely warrant additional rate cuts later in H2.

The U.S. ADP Employment Survey saw private payrolls increase by 150k in June, below expectations of +165k, versus an upward revised +157k in May.

Initial jobless claims were 238k in the week ended 29-Jun, above expectations of 235k, versus an upward revised 234k in the previous week.

Challenger layoffs declined to 48.8k in June, versus 63.8k in May. That's the lowest print since December.

The U.S. trade deficit widened to -$75.1 bln in May, inside expectations of -$76.4 bln, versus a revised -$74.5 bln in April. Both imports and exports dropped. The deficit remains well off the historic wide of -$101.9 bln from March 2022.

Factory orders fell 0.5% in May, below expectations of +0.3%, versus a negative revised +0.4% in April (was +0.7%).

Services PMI rose modestly to 55.3 in June from 55.1 in May. However, services ISM tumbled to 48.8 in June, well below expectations of 52.5, versus 53.8 in May.

Today's generally weak U.S. economic data – and neutral jobs data – may give the Fed room to make their first rate cut sooner than later.  


GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$16.63 (+0.71%)
5-Day Change: +47.66 (+2.07%)
YTD Range: $1,986.16 - $2,449.34
52-Week Range: $1,812.39 - $2,449.34
Weighted Alpha: +23.29

Gold jumped in overseas trading helped by an easier dollar. Gains extended in early U.S. trading and the yellow metal has reached a 2-week high of $2,354.41.


With resistances at $2,337.90/$2,338.03 and $2,339.36 negated, the 21-Jun high at $2,367.22 is the next attraction. While short-term price action has been rather choppy, June's range is intact and June's range was within May's.

Taking all that into consideration, trading since the all-time high was set at $2,449.34 on 20-May sure looks like a continuation pattern within the dominant uptrend. A breach of the June high at $2,386.90 would offer additional encouragement to the bull camp. However, such a move may prove difficult ahead of tomorrow's holiday session given the developing overbought condition.

The World Gold Council's mid-year outlook notes that gold has benefitted this year from "continued central bank buying, Asian investment flows, resilient consumer demand, and a steady drumbeat of geopolitical uncertainty."

The WGC sees gold garnering support in H2 from falling yields along with, "investors looking to hedge bubbling risks amid a complacent equity market and persistent geopolitical tensions."


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CDT: +$0.648 (+2.19%)
5-Day Change: +1.471 (+5.11%)
YTD Range: $21.945 - $32.379
52-Week Range: $20.704 - $32.379
Weighted Alpha: +36.72

Silver surged back above $30 overseas and added to those gains in early U.S. trading. The white metal is up over 3% on the day, buoyed by growing confidence that the Fed will cut rates twice this year.



Today's gains constitute an upside breakout of the bear channel that developed over the 6 weeks since silver established an 11-year high at $32.379 on 21-May. As noted in yesterday's commentary, I like it when silver leads on rallies. I really like it when there's buy-in from the gold market.

The $30.824 high from 21-Jun is the next resistance level I'm watching. Given the intraday overbought condition that has developed and tomorrow's holiday, look for the upside to be somewhat limited ahead of Friday's jobs data. However, the underlying uptrend has regained some credence with today's gains.

Today's FOMC minutes remain a potential wild card.

Maria Smirnova, chief investment officer for Sprott Asset Management said, "We expect silver prices to continue to improve, driven by low interest rates, more robust physical, ETF purchases and increased industrial demand.”


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