Gold and Silver Pull Back to End Week

 

Gold and Silver Pull Back to End Week

(Bullion News Network) – The spot price of gold pulled back today, erasing most of its Thursday gains amid a news-heavy trading day. Silver moved similarly, with the precious metal shedding just under $0.30/ozt after gaining on Thursday. The price action slightly favored gold, driving the gold-silver ratio slightly higher into the 99.50-99.60:1 range. The stock market dipped hard near midday after U.S. President Donald Trump suggested that China may have violated its trade agreement with the United States. Fear of another revival of the longstanding trade war between the world’s two largest economies drove the Nasdaq, Dow, and S&P 500 sharply lower. Markets largely recovered by the closing bell as traders digested favorable inflation and consumer sentiment reports released Friday morning, with the Dow and S&P 500 heading toward marginal gains and the tech-heavy Nasdaq lagging behind.

Heading into today, traders were looking forward to a fresh inflation reading with the April Personal Consumption Expenditure (PCE) index, as well as another consumer sentiment report for the month of May. The PCE report fell in line with forecasts, increasing 0.1% from 0.0% in March to 0.1% in April. The year-over-year PCE continued to fall, shedding another 0.1% compared to March. The slowing inflation rate led to a bit of movement in the Fed futures market, although a rate cut in June still seems highly unlikely. CME FedWatch now projects a 5.4% probability that the FOMC will vote to cut interest rates by 25 basis points in June, up from 2.2% yesterday but considerably down from 63.2% one month ago.

The final May revision of consumer sentiment outpaced expectations, increasing to 52.2 compared to a median forecast of 50.8. This movement coincided with another data surprise to end the week: personal income. Personal income rose 0.1% in April compared to March, outpacing the median forecast, which projected a 0.4% drop, by 0.5%. These data sets come on the heels of a series of dour consumer sentiment readings, as well as warnings from economists that the White House’s historic slate of tariffs may lead to higher prices and a slowing U.S. economy. 

On the tariff front, Trump suggested today that China may have violated the trade truce, which the U.S. and China signed in Switzerland on May 12th. The country “totally violated its agreement” with the United States, Trump said in a Truth Social post. Wall Street dropped immediately in the aftermath of the post, which could potentially derail the unsteady trade peace between the two largest economies on the planet. For now, the truce, which lowered America’s reciprocal tariffs on China from 145% to just 30%, is slated to continue until August 12th. It is unclear at this point how the White House will respond to the alleged trade truce violations committed by China. 

A legal battle is also currently underway to determine the legality of Trump’s sweeping tariffs. The Court of International Trade moved to block rump’s tariffs, arguing that the president exceeded his legal authority under the Emergency Economic Powers Act, which was the law the U.S. leader used to bypass Congress and institute a historic slate of tariffs earlier this year. Last night, an appeals court paused the trade court’s ruling, granting the Trump administration the freedom to continue with its tariff plans – at least for now. While the pause on the lower court ruling won’t last forever, it certainly stands to inject a new source of regulatory uncertainty into U.S. markets.

CNN’s Fear and Greed Index, which models which of the two core emotions seem to be motivating Wall Street, logged another day in “greed” territory. Of particular note to precious metal investors is the index’s safe haven demand index, which shows safe haven demand on the rise. This index measures the difference in 20-day returns between stocks and bonds, with ratios favoring comparably safer bonds taken as a signal for fear and ratios favoring stocks suggesting greed. The index peaked at a year-long high of 15.85% in favor of stocks on May 16th but has been on a steady decline, clocking in at 4.10% today. Although the index is still solidly in “greed” territory, its negative trajectory means that safe haven demand may be on the rise.

The big data release next week will concern the labor market. Initial jobless claims are due on June 5th, followed by May unemployment data, hourly wages, and consumer credit reports on Friday, June 6th. These reports could play a key role in the FOMC’s vote in June. Given that gold prices tend to thrive in environments characterized by falling interest rates, surprises on these labor reports could impact the value of safe haven assets, particularly gold and silver.

Gold and silver will both end the day and week in the red. The gold-silver ratio is largely unchanged but logged a moderate loss compared to Monday’s closing ratio.