Issue 64 – The week of May 8th, 2023

Key Resistance and Supports: Upcoming Week

Reports of Note due out this week:

The big news will be the latest inflation readings that will be released this week for April, with the Consumer Price Index (CPI) and Producer Price Index (PPI) coming out on Wednesday and Thursday.

Monday should be quiet with the US release Wholesale Inventories.

Tuesday again will be very quiet with Fed Gov. Philip Jefferson and New York Fed President Williams speaking.

Wednesday will see the Consumer price index and Core CPI released at 8:30. The CPI is projected to have climbed 0.4% in April after rising 0.1% in March.

The PPI (Producer Price Index) will follow on Thursday at 8:30AM. This index tracks inflation from the standpoint of manufacturers and wholesalers. Prices are expected to have risen 0.3% in April. The Bank of England policy makers will meet and are expected to raise the key bank rate by 25 basis points to 4.5%.

Friday will see the release in the University of Michigan Consumer Sentiment Index-Preliminary Reading (May). U.K. Gross Domestic Product (GDP) for Q1for 2023.

Geopolitics

Gold volatility has caught the market’s attention. US inflation data, Wednesday, will shed light on the extent of cooling of price pressures – core CPI is expected to have eased in April from 5.6% in March. Friday’s strong US jobs report triggered a scaling back in Fed rate cut expectations for July – down to 36% from a 60% chance before the data. If price pressures do not ease as expected, it could lead to a reassessment of the 75 bps of rate cuts priced in by the end of the year.

In the meantime, the spot price of gold has experienced volatility, briefly reaching a high. The surge in gold prices is attributed to macroeconomic uncertainty and safe-haven demand amid concerns over the U.S. and/or global economic recession. Additionally, signals that the Federal Reserve might be done with raising interest rates may have also contributed to the rise in gold prices.

Chinese consumers bought 198 tons of gold jewelry over the quarter, 41% of the global total, with demand resurging upon the removal of zero-Covid measures. However, high and volatile prices dented demand in India, which saw the weakest first quarter for three years. Overall, jewelry demand was relatively flat in the first quarter, with China offsetting the decline in India. Demand in Europe weakened, with Germany seeing a 73% fall in demand. The World Gold Council (WGC) attributed this to real interest rates turning positive and the rise in the euro gold price, which triggered profit-taking among investors.

Total gold supply increased by 1% year-on-year, driven by a first-quarter record high in mine production of 856 tons and higher recycling of 310 tons. The prices of precious metals diverged, with gold and silver falling after reaching their highest levels in over 2-2/3 years and nearly 14 months, respectively, while platinum and palladium rose. The gold/silver ratio has been in a downward trend in the past few weeks, dropping from the year-to-date high of 91.83oz to the below 80oz.

Calls continue for an end to the dominance of the US dollar in international trade. Brazilian President Luiz Inácio Lula da Silva has urged developing nations to work towards replacing the US dollar with their own currencies and has supported China’s efforts to boost the renminbi’s role in global commerce. Argentina has struck a similar deal with China that allows its companies to pay for Chinese imports with yuan. Argentine President Alberto Fernández and his Brazilian counterpart have vowed to work on a mechanism that would allow for the use of their national currencies instead of the US dollar in their bilateral trade. These calls reflect a broader global trend of countries looking to reduce their reliance on the US dollar and diversify their trading relationships, in part due to concerns about the stability of the US economy and the potential risks posed by US economic sanctions.

As shifting global economic landscape contributes to the volatility in gold prices, investors are increasingly viewing gold as a safe-haven asset amid macroeconomic uncertainty. Furthermore, the changing gold consumption patterns across the globe, with China leading the way in gold jewelry demand, highlight the growing influence of the Asian market in shaping the global gold industry. On the supply side, increased mine production and recycling have contributed to a modest year-on-year growth in the total gold supply.

The Call

Expecting a roller coaster this week with gold and silver seeing similar volatility to last week. We have inflation indicators CPI and PPI coming out midweek which will drive this volatility again. Oil has tested the mid 60’s and is now north of 73.00 which along with the  US Dollar weakening of late should help the precious metal sector move higher. Still looking for a pullback to the 1930 to 1950 area which could come with mixed readings on inflation midweek.

Silver dipped like gold on Fridays Non Farm payrolls number. We are seeing a strong move in the gold silver ratio with a move to the 78.75 area.  This is a bullish sign with silver trying to lead the way higher and a close above 26.25 would confirm higher prices. 

Last Week in Review

Gold opened the week at 1993 and had a trading range from 1978 all the way up to a new all time high Thursday evening of 2077.50. On Friday morning the US Non Farm Payrolls came out at 8:30AM and were much better than expected. Traders took profits after report reveals strong US job growth. Gold promptly dropped and after hitting a low of 2000 and settled at 2016.00.

Silver had a similar week with a low of 24.60 before rallying again on Thursday night making a new weekly high 0f 26.245. After the Non Farm Payroll Number was released silver sold off to 25.23 before recovering to close the week at 25.73.

Banking sector troubles intensified.

The Gold/Silver Ratio ended the week at 78.67 ounces of silver for 1 ounce of gold.

The FOMC meeting concluded Wednesday and resulted in a ¼ point increase in the US Fed Funds rate to a range of 5.00-5.25%.

	Gold	Silver
Open	1993	24.98
High	2077	26.24
Low	1977	24.60
Close	2017	25.75