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Gold & Silver Focus on US PCE Report


We are surprised the gold market is tracking in positive ground this morning considering the sharp upside breakout extension in the dollar, slightly higher US treasury yields and perhaps most importantly in the face of comments from the Fed’s Waller indicating he needed at least two more months of favorable inflation data to be comfortable cutting rates. This morning, the CME Fed watch tool pegs the odds of a June 12th rate cut at only 55.4% compared to 64% yesterday. On the other hand, seeing Bitcoin climb back toward this week’s highs should help underpin gold into what has become an ultra-critical US PCE report release. While recent gold market action appears to have been focused on something other than classic supply and demand fundamentals, seeing Chinese gold imports from Hong Kong drop 48% on a month over month basis and seeing projections that Indian March gold imports could drop 90% from the price surge should begin to unnerve the bull camp. The sharp reduction in Indian imports is also likely the result of “price shock” from a series of record high prices, which in turn has injured speculative investment demand and is likely beginning to trim physical/jewelry demand. Fear of slumping gold demand is also justified given recent Indian government restrictions on the issuance of fresh gold loans after the government perceived growing systematic risk to Indian financial companies dealing in gold derivatives. Certainly, a long list of potential incendiary geopolitical issues are providing flight to quality long interest in gold and silver, and we also think strong gains in bitcoin has resulted in spill over buying of gold. However, in today’s action, the focus of the gold and silver trade should lock onto the US PCE release with that report likely to provide significant input on when the US will likely cut rates this year.

gold and silver bars on black background


Even though May copper managed to flare higher and posted a temporary three-day high overnight, the charts remain bearish, and copper is likely to see significant macroeconomic influences from the US PCE report. However, the bull camp should be cheered following news that Chinese copper smelting companies posted strong profits after agreeing to concerted 10% capacity cuts last week. While the May copper contract managed to reject a portion of the initial range down extension yesterday, fundamental, and technical conditions remain in favor of the bear camp. In fact, not only has positive economic news on China been absent for weeks, but Chinese data of any kind has been absent for weeks which in our mind favors the bear camp in copper. Even the supply side of the equation favors the bear camp in copper with the Chinese recently announcing their intentions to step up consumption of domestic scrap copper.


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