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Silver Futures Market News and Commentary
Jun Comex gold (GCM19) on Friday closed down -10.50 (-0.82%) and July silver closed down -0.151 (-1.04%) at a 5-1/2 month low. Precious metals sold off Friday with Jun gold at a 2-week low and Jul silver at a 5-1/2 month low after a rally in the dollar index to a 2-week high sparked fund selling in precious metals. Also, silver prices sank on demand concerns after China signaled a lack of interest in resuming trade talks under the current U.S. threat to escalate tariffs. With no resolution to the trade war in sight, silver prices are selling off on concern the trade war will curb economic growth and demand for industrial metals. Another negative for gold prices is reduced inflation expectations that curb demand for gold as an inflation hedge after the 10-year T-note breakeven inflation rate slid to a 1-1/2 month low Friday. Gold prices still have support on safe-haven demand from Brexit risks that sent GBP/USD down to a 4-month low Friday after UK government spokesman said talks with the opposition Labour party had ended without reaching a Brexit deal. In addition, gold has support from geopolitical risks in the Middle East after attacks earlier this week including drone attacks on two Aramco pumping stations and the sabotage of several tankers near the Strait of Hormuz. U.S. tensions with Iran remain high as the U.S. sends a carrier group and bombers to the Middle East and as news emerged on Thursday that Iran has been outfitting small boats with missiles for a possible attack on U.S. assets. Fund liquidation of gold is negative for prices as long gold positions in ETFs fell to a 4-1/2 month low last Friday. Big Picture Gold-Silver Market Factors: Bullish factors include (1) the FOMC's move in January to a neutral policy, (2) low U.S. inflation that is dovish for Fed policy after U.S. Q1 GDP data showed that the Q1 core PCE deflator rose by only +1.3%, below the Fed's 2.0% target and the smallest pace of increase since Q2 2017, (3) expansive Bank of Japan and European Central Bank monetary policies, although the ECB ended its quantitative easing program in Dec 2018, (4) an easier monetary policy by China's central bank, which cut the bank required reserve requirement ratio by 100 bp on Jan 4, and (5) safe-haven demand due to trade tensions, stock market volatility, and global geopolitical risks involving Iran, North Korea, and Venezuela. Bearish factors include (1) fund liquidation as long gold positions in ETF's fell to a 4-1/2 month low May 8, (2) strength in the dollar as the dollar index recently rallied to a 1-3/4 year high, and (3) tighter dollar liquidity as the Fed draws down its balance sheet.
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