Written Commentary
PRECIOUS METALS
Gold: June COMEX contracts are down 1.50% to $4,575 as a higher dollar and oil prices fueled inflation fears. Market expectations for Fed policy remain modestly on the hawkish side, though no change in policy is priced by markets. Oil prices climbed to over $113 a barrel after Iran’s Fars news agency reported that a US warship was hit with missiles and turned back from the Strait of Hormuz. However, US Central Command said no US Navy ships had been struck. Gold is likely to remain sensitive to the geopolitical landscape, which in turn frames the global inflation outlook. Brent crude above $100, stalled peace talks, and persistent uncertainty on the Strait of Hormuz are likely to prevent cap gold’s upside until inflation risks ease.
Last week’s policy statement showed three members voted to remove the easing bias language in the monetary policy statement, a signal that there is growing worry on the board over the rise in inflation and a potential hurdle to future policy-easing this year. Still, longer-term inflation expectations have only shown a mild increase. TIPS markets show the 5-year breakeven at 2.69%, the 10-year breakeven at 2.48%, and the 5y5y forward rate is at 2.27%. With the 5y5y forward near 2.25%, well below the 2.5% de-anchoring threshold, the Fed retains optionality to treat the near-term CPI/PCE acceleration as transitory, underscoring the FOMC’s hawkish hold while not forcing a more aggressive pivot. Despite firmer near-term inflation pressures, we maintain our view that the Fed will deliver a rate cut later this year, most likely in the fall.
Silver: Silver futures are down 3.75% to $73.11.
BASE METALS
Copper: Copper prices moved lower, with July COMEX contracts down over 1% to $5.92, while the LME is closed for holiday. ISM manufacturing data showed a solid expansion in factory activity, alongside a sharp upturn in input prices. The headline figure came in at 52.7, unchanged on the month and the highest since August 2022, indicating an expanding manufacturing sector. Supplier deliveries have lengthened further, moving deeper into “slower” territory, which in ISM terms signals tighter supply or stronger demand (or both) along industrial supply chains. Raw material inventories at manufacturers remain in contraction, and customers’ inventories are reported as “too low,” according to the latest report. Global copper pricing remains heavily influenced by macro risk (growth concerns from the Iran conflict and higher energy prices) and Chinese demand behavior. Macro risks and higher energy prices being the main catalysts that could weigh on copper.
China’s manufacturing data was friendly to prices, showing that the sector expanded in April at its fastest pace since the end of 2020 thanks to surging new orders. Meanwhile falling copper stocks on the SFHE, down 4.6% from last week to 192,025 tons, point to stronger demand inside China in comparison to LME and COMEX warehouses. Overall, Chinese manufacturers grew more optimistic about the year-ahead outlook, with sentiment improving from March and running above the average of the past two years. Analysts are not expecting any near-term measures of high-profile monetary easing from the PBOC.
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