Issue 69 – The week of June 12th, 2023

Key Resistance and Supports: Upcoming Week

Reports of Note due out this week:

This week’s key takeaways are the Bureau of Labor Statistics release its latest report on consumer inflation on Tuesday, followed by producer price data on Wednesday. The Federal Reserve will hold a two-day policy meeting with a decision on whether to increase or pause interest rate hikes due out Wednesday afternoon. There is a slew of reports due out on Thursday including Retail Sales and Initial Jobless Claims

• Monday will be a quiet day for Economic reports with the only the Federal budget release at 2:00 PM.
• Tuesday at 8:30 AM we will see the release of the Consumer Price Index for May and Core Inflation Rate for the month of May and the Core Inflation rate YoY. The CPI is expected to have risen 0.2% in May, slowing from a 0.4% rise in April. The consensus is for an annual rate of 4.1% down from 4.9% the month before.
• Wednesday we will see the release of the May Producer Price Index, which tracks wholesale inflation. The median forecast is for a monthly decline of -0.1%after a 0.2% gain in April, while the annual rate is projected to slow to 1.5% from 2.3% the month before. Then at 2:00 PM, the Federal Reserve will deliver its decision on interest- rate policy followed by Fed Chair Powell press conference at 2:30 PM. The Fed has raised rates for the last 10 meetings in an effort to cool inflation.
• Thursday, we see the Weekly Initial Jobless Claims in the US at 8:30AM. This is followed by Retail Sales from the Census Bureau, giving us insight on consumer shopping trends.
• Friday is Triple Witching in the Equity markets. At 10:00 AM we see the preliminary reading (June) for the University of Michigan Consumer Sentiment Index. All in all, a very busy week!

Geopolitics

Here are some summaries of news headlines we have been paying attention to from the past week. 

In the upcoming weeks, the Federal Reserve is expected to announce its decision on interest rates, following a series of 10 rate hikes implemented over the past year. These rate adjustments by the Fed have been driven by the goal of curbing inflation. For investors in gold, the decisions made by the Fed regarding interest rates have significant implications. If the recent indications from the Fed are any indication, with the possibility of further rate hikes on the horizon, gold prices may be affected. Consequently, there is a likelihood of a temporary decline in gold prices if the Fed decides to raise rates again. However, it is important to consider various contributing factors that can help mitigate these effects, particularly for long-term investors.

The Bank of Korea (BOK) has recently concluded that it is more advantageous for them  to maintain its dollar liquidity rather than increasing its gold reserves for foreign exchange purposes. The BOK’s Reserve Management Group has emphasized the importance of adopting a cautious approach when contemplating an increase in the proportion of gold within foreign exchange reserves. Several factors were cited by the group to justify this decision, including the potential for a global economic downturn, geopolitical risks, unpredictability in gold prices, the existence of positive real interest rates, and the challenges associated with selling gold for immediate liquidity requirements.

In China and India, the demand for physical gold has slowed down, leading some dealers to offer discounts. The decline in demand is speculated to be linked to the end of the wedding season in India and the absence of major festivals and celebrations in the near future. However, there continues to be demand for gold from the People’s Bank of China, as it is considered a safe haven against economic risks.

Former President Donald Trump now faces a total of 37 counts in a federal indictment related to his handling of classified documents after leaving office. He is the first former president to confront federal charges. The indictment outlines 37 charges against the former U.S. president, accusing him of mishandling classified documents and providing false information to authorities about them, all of which are related to national security. Trump has vehemently denied any wrongdoing and criticized the federal indictment as “ridiculous” and “baseless” during his initial public appearances following the unsealing of the charges.

Over the weekend, several mines in Quebec were forced to halt their operations due to the province’s measures to combat more than 150 forest fires in the region. The closure of roads and access restrictions to forests were expanded to a larger area in Quebec starting from June 4 in order to prevent the ignition of new fires. As a result, companies such as Patriot Battery Metals Inc., Osisko Mining Inc., Wallbridge Mining Company Ltd., and Archer Exploration Corp. suspended their activities and evacuated their workers. Additionally, Rio Tinto Ltd. had to shut down its 418km railway line in Quebec.

Canada is currently grappling with an intense wildfire season, which is projected to be the worst on record. So far this year, approximately 3.3 million hectares have been consumed by wildfires. As of Monday, more than 400 active fires were raging across the country, leading to the evacuation of thousands of residents. Smoke from Quebec wildfires has affected air quality as far south as New York City. Meanwhile, Alberta, a province that contributes nearly 15% to the nation’s GDP through oil and natural gas refineries, has battled 632 wildfires this year alone. Although the number of wildfires in Alberta has decreased by half since a state of emergency was declared in mid-May, approximately 80 separate and active wildfires are currently burning.

On Saturday, Ukrainian President Volodymyr Zelensky confirmed the commencement of the counter-offensive. Ukraine has claimed to have liberated four villages in the southeastern part of the country as part of its much-anticipated counter-offensive. Officials reported that the national flag was once again flying over Storozhove in the Donetsk region. Similar scenes were witnessed in the neighboring settlements of Blahodatne, Neskuchne, and nearby Makarivka, though these villages are relatively small. Moscow has not yet confirmed any withdrawal. 

According to Ukraine, Russia has destroyed another dam in the Russian-controlled region of Zaporizhzhia. This comes after the major Kakhovka dam was destroyed a week ago, resulting in flooding and mass evacuations. Valeriy Shershen, a spokesperson for the Ukrainian military, stated on Sunday that the destruction of the second dam near the village of Novodarivka had caused flooding on both banks of the Mokri Yaly river. Mr. Shershen claimed that Russia intentionally blew up the dams in the region to halt Ukraine’s advance towards occupied areas. Russia, on the other hand, has denied blowing up the Karhovka dam and instead blamed Ukraine for the destruction.

The Call

Markets rose this week and the S&P 500 entered bull market territory. This week will bring crucial information on inflation and the Federal Reserve’s decision on interest rates. Australia and Canada raised interest rates last week and this could be a pre cursor to the Fed’s move on Wednesday. If the Fed raises rates this would be bearish for gold and silver and the U.S. Dollar would strengthen. However, a pause in rates would be bullish for the metals and a rally towards the highs would begin. Volatility is the call as there are numerous important reports due out during the week!

Last Week in Review

• Gold opened the week at 1960 and had a trading range from a low of 1937 up to the high of 1973. The prized metal spent the week consolidating again with a two-week range of 1930.00 to 1983.00. Gold closed out the week basically unchanged at 1961.00.

• Silver opened the week at 23.62 and dipped down to the low of 23.24 Monday morning. Silver then made a higher high every day and closed out the week at 24.55, posting a one month high.
• The U.S. Dollar Index softened this week to close at 103.55 from a high of 104.40.
• The Gold/Silver Ratio ended the week stronger at 80.62 ounces of silver for 1 ounce of gold . Silver performed much better this week than gold as consolidation continues.

• The Bank of Canada surprised the markets with a 25-basis point interest rate increase on Wednesday to a 22 year high of 4.75%. Markets and analysts immediately forecast another increase next month to ratchet down an overheating economy and stubbornly high inflation.

• Australia’s central bank on Tuesday lifted its benchmark interest rate for a 12th consecutive time, to 4.1%, and warned further rises could follow.

	Gold	Silver
Open	1960	23.62
High	1973	24.55
Low	1937	23.25
Close	1961	24.32