Gold Slumps As China Snaps Streak of Monthly Spot Purchases

The price of gold was hit with a flurry of negative headlines this week to kick off the month of June. On Thursday night, a surprise report from the People’s Bank of China (PBoC) revealed that China’s Central Bank had not purchased any gold in May for the first time in eighteen months. The report shocked overnight gold futures culminating in a 3.3% decline during Friday’s trading session. 

Gold market computer algos sold the news out of China while most American traders were still asleep. It is unclear if the PBoC is stopping its purchases altogether or waiting for the market to pull back to get a better entry point. After buying gold for eighteen consecutive months, the price has risen substantially and is much more expensive today than it was in 2023. 

Another factor out of China that weighed on precious metals was a disappointing import reading for May. The data also impacted the price of copper with July futures falling by nearly 5.0% on Friday. 

In the United States, a stronger-than-expected jobs report for May hit most asset classes. The concern for traders is that stronger employment figures provide ammo for the Fed to keep interest rates hiked for longer. Although both the Bank of Canada and the European Central Bank announced their first rate cuts earlier this week, the Fed has been stubborn in maintaining its goal of 2.0% inflation. It will be interesting to see how the Fed reacts following next week’s release of the May CPI report. 

Still, most traders are still pricing in at least one rate cut this year, potentially in September ahead of the US Federal Elections. Most analysts believe that gold is still in a clear bullish uptrend, although it has been long overdue for a correction. The news out of China could potentially be the first domino to fall for gold to take a much-needed breather over the next couple of months. 

For the week, gold COMEX August 2024 futures contracts closed at $2,311.10. Silver COMEX July 2024 futures contracts settled below $30.00 at $29.27, and Copper’s July 2024 futures contracts closed at $4.447.

Precious Metals Stocks and ETFs Weekly Performance

The MIGL Kitco Gold Miners Index tumbled at the end of the week and hit its lowest mark since early May. On Friday, nineteen of the twenty components in the index were flashing red following the news out of China and the US economic data. The lone positive stock in the index on Friday was Corvus Gold (NYSE: KOR). Some of the worst-hit companies included the larger miners like Barrick Gold (NYSE: GOLD), Agnico Eagle Mines (NYSE: AEM), and Alamos Gold (NYSE: AGI). 

It was ugly for larger precious metals miners as well, with Newmont Gold (NYSE: NEM) losing 5.0% on Friday and 4.0% for the week. Freeport-McMoran (NYSE: FCX) slumped by 3.9% on Friday and tumbled by 7.6% for the week on the weakness of copper and gold. BHP Group (NYSE: BHP) closed lower by 2.5% on Friday, while Rio Tinto (NYSE: RIO) sank by more than 2.2% for the week. 

Gold ETFs struggled as well with both the Van Eck Gold Miners ETF (NYSEARCA: GDX) and the Van Eck Junior Gold Miners ETF (NYSEARCA: GDXJ) suffering significant losses. Both funds fell by about 7.0% on Friday and posted weekly losses of 5.4% and 7.1% respectively. The iShares Gold Trust (NYSEARCA: IAU) and the SPDR Gold Trust (NYSEARCA: GLD) both fell by 3.6% on Friday and posted weekly losses of 2.0%. 

For silver, the Kitco MISI Silver Miners Index had a similar performance with just one of the nine components trending higher on Friday. The index lost about fifteen basis points during the week as Silver futures tumbled back below the $30.00 price level. The iShares Silver Trust (NYSEARCA: SLV) sank by 6.5% on Friday and 4.2% overall, posting one of its worst trading weeks in several months. 

What’s in Store Next Week for Precious Metals?

As always at the start of a new month, the markets will be waiting on the latest economic data. This will come in the form of the May CPI and Core CPI reports on Wednesday and the May PPI report on Thursday. We will also get another Bank of Japan monetary policy decision on Thursday which could have a direct impact on global asset markets. Finally, on Friday the preliminary University of Michigan Consumer Sentiment report will provide an insight into consumer confidence for June. 

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