Metals drop on PCE report, and BHP won't get Anglo

Precious and industrial metals end the week on a down note, noted mining audiences manager Michael McCrae. On Saturday McCrae recorded Kitco Roundtable. Metals fell after the latest data showed the U.S. housing market underperformed expectations in May, and more investors become spooked about a broader market downturn. In mining news, both Pilbara Minerals and Vale announced big expansion plans. 

Gold, silver and copper were all flat this week after big economic news from the Fed, noted Michael McCrae, mining audiences manager. On Saturday McCrae recorded an episode of Kitco Roundtable. On Wednesday the Consumer Price Index was released. The CPI declined to 3.3% on a yearly basis in May from 3.4% in April The latest inflation data was weaker than expected. The number was reassurance for the Fed that it is making progress in taming inflation. Later on Wednesday the Federal Reserve announced that it sees one rate cut this year, down from three estimated in March. The Federal Reserve's interest rate estimate, also known as the dot plot, shows the Fed funds rate ending the year above 5.00%. Interest rates were unchanged within a range of 5.25% to 5.50%.Gold was roughly back where it started, at the $2,330 level, ditto with silver at the $29 level. In industrial metals, copper was flat, too, at the $4.50 level. 

Commodities sold off this week on the personal consumption expenditures report released on Friday, noted mining audiences manager Michael McCrae. On Saturday McCrae recorded Kitco Roundtable sponsored by Snowline Gold. The report was mixed. Inflation tracked sideways and consumer spending weakened. Analysts say there is little clarity that U.S. central banks will be able to cut rates in the fall.On Wednesday it was announced that  BHP (ASX: BHP) ended its attempt to buy Anglo American (LON: AAL). The deal topped at $49 billion. 

The Federal Reserve put the brake on the metals rally.On Friday mining audiences manager Michael McCrae recorded Kitco Roundtable sponsored by Snowline Gold. At the start of the week, gold prices rallied to a record high above $2,450 an ounce as markets started to solidify expectations that the Federal Reserve was on track to cut rates two times this year, according to a report by Editor Neils Christensen. But at the May FOMC meeting, the minutes showed a general lack of confidence around the inflation outlook and much uncertainty around the timing of potential rate cuts. It also appeared that the Fed thought disinflation is further out. The news weighed on metals.Gold ended the week down about $100 lower. Gold finished the week at the 2,330 an ounce level. Silver shed $2 and was down at $30 an ounce. Copper was down nearly 7%. After surging to an all-time high on Monday of $11,000 a ton, hawkish comments by the Fed and reluctance to spend on copper at such high prices by Chinese factories saw the metal fall. 

Just ahead of the weekend, silver prices have broken above $30 an ounce, hitting an 11 year high, and the metal  is up nearly $10 for the year, noted mining audiences manager Michael McCrae. On Saturday McCrae recorded Kitco Roundtable sponsored by Snowline Gold.  Silver miners have broken higher. This month First Majestic is up 16%, Hecla Mining gained 14% and Endeavour Silver jumped 46%. Soaring silver prices have pushed the gold-silver ratio below 80 points, and it has been trading at its lowest level since August. The low ratio gives hope that the metal could keep rising. Mass protests erupted in New Caledonia regarding voting rules for an upcoming independence referendum. French troops have been deployed and a state of emergency has been imposed. New Caledonia has about 10% of the world's nickel reserves, and is ranked the fourth largest producer. Nickel jumped about 5% this month to about 21,000 a ton. 

After two weeks of consolidation, gold is attracting some new bullish attention after holding initial support at around $2,300 an ounce, noted mining audiences manager Michael McCrae. On Saturday, McCrae recorded Kitco Roundtable. Bouncing off its lows at the start of the week, gold hit a two-week high finishing the week at $2,360 level, up about $30 for the week. Silver has managed to push back above $28 an ounce after holding critical support levels. Copper soared finishing the week near $4.65 a pound. In another measure, copper broke through the magic $10,000 a ton level. Copper could face headwinds with Chinese manufacturers refusing to pay high copper prices. Reuters reported that the Philippines wants to add three more processing plants in an "effort to develop a downstream industry for its abundant nickel resources, after nations such as China and the United States expressed interest in the mining sector."

The gold market is spinning its wheels, caught in a stalemate, which could create some profit-taking among investors and weigh on prices in the near term, noted mining audiences manager Michael McCrae. On Saturday McCrae recorded Kitco Roundtable. Heading into the weekend, markets continue to digest the disappointing nonfarm payrolls numbers. The U.S. economy created 175,000 jobs last month, according to the Bureau of Labor Statistics. The monthly figure missed expectations as economists were looking for job gains of 238,000.At the same time, the unemployment rate increased, and wages didn’t rise as much as expected.This was initially good news for the gold market, and prices briefly popped; however, in a fatigued market, many traders used the rally to sell. The gold market has managed to hold support above $2,300 an ounce, but it is ending the week with a roughly 1% loss.After its massive $400+ rally, the gold market continues to consolidate and trend lower as sentiment normalizes. The focus again turns to the Federal Reserve’s monetary policy and interest rates.According to analysts, gold investors need more clarity from the Federal Reserve as a rate cut this summer becomes increasingly unlikely.

Given higher than expected inflation print this week, the Federal Reserve is less likely to lower interest rates. On Friday mining audiences manager recorded Kitco Roundtable. Gold investors could see higher volatility next week as the Federal Reserve is expected to signal it will not be ready to lower interest rates before the summer.The weakness comes as the Federal Reserve’s preferred inflation gauge – the core Personal Consumption Expenditures (PCE) index – showed that inflation remains higher than preferred, rising 2.8% over the prior year in March, above estimates for 2.7% On Wednesday the Fed will make an interest rate announced followed by a press briefing by U.S. Federal Reserve Chair Jerome Powell.Mid week Bloomberg reported that BHP Group has made an unsolicited offer for Anglo American. BHP Group is the world's largest diversified miner with a market cap of about $150 billion. The deal could equal $39 billion making it one of the largest mining deals in decades. BHP is interested in Anglo American's copper assets. Anglo American is expected to produce 730–790 kt of copper in 2024 mostly due to operations in Chile and Peru.