Weekly round -up for Stonex Bullion

Probe into the Fed has been dropped; clears the way for Warsh to take over at the Fed

Gold and silver continue to trade in very narrow ranges as they watch the evolution of the geopolitical background and many market stakeholders still prefer to stand aside and wait for more clarity. As a result both metals are being strongly influenced by the relevant moving averages while gold, as we can see in the chart below, is concentrating as much on Interest rates and yields as on anything else for short term guidance. From a technical standpoint gold’s attempted rally was rebuffed at the start of last week by resistance from the 50 day moving averages. As we write spot is encountering resistance from the 10-day moving average at $4,760 and is struggling with the 20-day average. Further back, at the end of March, it found support from the 200-day average at $4,090; this indicator is currently at $4,247. The picture is similar with silver; with spot trading close to $75, with upside resistance at $78 and $79 from the 10D and 50D respectively, and 20D coinciding with spot.

When price action has been so very tight it almost invariably presages a break-out; and at present, with the prevailing winds in the international environment, it is hard to call in which direction. The longer the Middle East remains in turmoil, the more long-lasting will be the knock-on impact on prices and fabricators as retailers are increasingly likely to pass through cost pressures through to the consumer when margins come under increased pressure.

Indeed the March inflation figures jumped, posting 3.3% CPI Y/Y vs 2.4% in February. This was of course heavily influenced by the energy sector, which was up at 12.6% Y/Y after just 0.4% in February. This makes it even less likely for us to see any cuts coming from the Fed in the near or indeed the medium term. The swap markets are currently pricing no change over the course of this year although economists are looking for an easing towards year end and a likely cut in the first quarter of 2027. Meanwhile in the background the latest numbers suggest that the US labour market is stable.

One significant development came at the end of last week when the Department of Justice dropped Its probe into the overspend on the renovation of the Fed Buildings and the President's implication that Jay Powell may have been less than open with the statements that he has made to Congress on the subject, As a result Senator Thomas Tillis, a Republican member of the Senate Banking Committee, has dropped his block against the appointment of Kevin Warsh as the successor to Chair Powell (and confirmed his support for him) when the latter’s term In office draws to a close on 15th of May.

Gold, 2Y and 10Y yields; correlation positive again; 10Y correlation 0.37, 2Y, 0.45.

Source; Bloomberg, StoneX

This takes an element of uncertainty out of the market, but it is interesting to note that it has had no immediate effect on the gold price which might have been expected to drop in those circumstances. This could well be a part reaction (or non-reaction!) to comments made by Mr Warsh earlier in the week that some have interpreted as meaning that Fed communication with the public may be more restrained than under the stewardship of Chair Powell. Mr. Warsh also appears to want to make some radical changes to the way monetary policy is structured. So we could yet be in for some months of uncertainty as conditions evolve.

On COMEX the outright managed money long positions in gold reflected the caution in the OTC market with outright longs slipping slightly in the week to 21st April, from 390.1t to 384.7t and shorts inching higher to 95.5t from 94.2t. Silver was on the defensive (and prices were slipping) with longs coming off from 2,374t to 2,147t while shorts expended from 544t to 698t. On the Exchange Traded Funds gold slipped by 10.6t last week, with 14.1t coming out of North American funds, minor gains of 2.8t in Europe and just 0.5t of gains in the Far East, to a total of 4,136.6t. Gain year-to-date; 107.2t., while silver has enjoyed only eight days of net creations so far in April from a total of 18 trading days; year-to-date posts a loss of 2,137t to a total of 24,084t.

Following our comments last week about strong Chinese imports of silver In March, we now have the official numbers from the Government, as illustrated by the accompanying chart. Strong imports and a sluggish international market mean that China was a net importer of silver for the first time since import numbers were made available at the start of 2023, with March reported imports of 399t and exports of 292t.

China; silver international trade (t)

Outlook: risk of some easing

With the Fed on alert over inflation and bond yields likely to rise accordingly gold may yet come under some pressure. Silver’s fundamentals have been easing and any dip in gold is likely to be exceeded in silver.

Gold and stressed markets

Gold, below three key moving averages - just

Source; Bloomberg, StoneX

Gold:Brent ratio

Gold COMEX positioning, Money Managers (t)

COMEX Managed Money Silver Positioning (t)

Source for both charts: CFTC, StoneX

The S&P, gold and copper; gold:S&P easier at 0.34 while S&P:Cu is 0.65

Source; Bloomberg, StoneX

Gold, silver and copper; silver-gold 0.83 (tighter) silver-copper, 0.61 (steady)

Silver, one-year view; moving averages bearish; flirting with support from the 50D average

US five-year and 30-year yield

Source; Bloomberg, StoneX

Gold in key local currencies. Year-to-date, up 14% in Rupee terms, the strongest of the key measures, but only 7.7% in Swiss francs.

Source: Bloomberg, StoneX

Gold:silver ratio; steady as both metals mark time

Source: Bloomberg, StoneX