Today's Gold and Silver News - July 4th

Image Source: Unsplash

Gold Stocks Enter the Contrarian Dream Zone

The gold complex came under more pressure this week on the reiteration by the US, UK, and European central banks that they are willing to do whatever it takes to combat inflation at the Annual ECB Forum on Wednesday. This was followed by more selling into quarter-end on Thursday, despite U.S. 10-year Treasury yields moving below 3%.

During the European Central Bank live-streamed event from Portugal, Fed Chair Jerome Powell said the central bank was running against the clock to beat inflation. Fed policymakers have no choice but to keep raising interest rates to achieve this, although there is no guarantee that it can provide a soft landing for the economy, Powell said.

“Is there a risk we would go too far [with rate hikes]?” Powell stated. “Certainly, there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.” The U.S. has experienced continuously higher inflation for more than a year, and it would be "bad risk management" to just assume that those longer-term inflation expectations "will remain anchored indefinitely in the face of persistent high inflation," Powell added.

Getting inflation back to the Fed's 2% target will involve "some pain," the increasingly frustrated Fed chair reiterated, but noted that "the worst pain would be from failing to address this high inflation and allowing it to become persistent." Read More

Gold Sinks Below $1,800 as Recession Fears Boost Dollar While India Increases Import Tax

Gold has surprisingly fallen below the important psychological threshold of $1,800 an ounce amid a strengthening US dollar and after India, the world’s second-largest buyer of gold increased the import tariff on the precious metal.

This fresh plunge has seen gold fall to levels last seen in early February with the metal failing to prove itself immune to the wider sell-off on equities as investors once again are in risk-off mode as concerns increase that the global economy is heading for a recession.

This unusual reaction where other risk-off assets such as the dollar, the Japanese yen, and bonds are gaining yet gold has fallen markedly illustrates how much the likelihood of further large interest rate hikes by the Federal Reserve is dominating market sentiment. While rising interest rates are beneficial for the US dollar and bonds, gold’s lack of yield reduces its appeal to the extent that even a sell-off on equities hasn’t spared it from falling.

Having now fallen below $1,800, gold will need to quickly climb back above this key threshold to avoid the metal adopting a much lower range than the $1,820 to $1,850 an ounce range it had been operating for the last few weeks. Read More

Silver’s Torrid Spell Continues With Price Plunging to 2-Year Low Amid Recession Fears

Silver has once again been punished in the context of a broad market sell-off with the metal now trading below $20 an ounce at its lowest level in almost two years.

Silver has endured a torrid few months ever since the Federal Reserve announced in April that it would be adopting a much more hawkish stance to try and curb inflation. Ever since then every negative market driver has been leapt upon to pour fresh pain on the price of silver and today is no different.

The lower trading volume of silver compared with gold has resulted in these downward moves being more marked on silver with the metal also suffering from its greater industrial exposure at a time when investors are fearing a global recession is looming.

Silver seems unable to find any footholds right now with each week bringing fresh declines to see the price fall through levels that could have been considered supports.

For the time being, the metal is one to avoid but as soon as the sentiment turns more favorable buyers will have a great opportunity to buy a key component of the energy transition and electric vehicle revolution. The question investors have to keep on asking themselves is when that moment will finally come? Read More

The Metals, Money, and Markets Weekly - "G" is for Gruesome

Mickey Fulp rounds up metal action for the week of July 1, 2022.

Listen to the podcast

Fed to err on the side of too many rate hikes: Why is gold at $1,800?

Markets are anticipating the Federal Reserve to err on the side of tightening, with Chair Jerome Powell admitting this week that the real mistake would be failing to get inflation under control. 

Recession fears and the hawkish Federal Reserve triggered bouts of volatility this year - the S&P 500 had its worst half of the year since 1970, while Bitcoin saw its largest quarterly drop in more than a decade. For gold, however, it has been steady sailing, with the precious metal down just 1% since the start of the year. 

Analysts believe the precious metal has done a "spectacular job" of storing value. But many are neutral on the precious metal until more U.S. data show inflation peaking and growth slowing. 

The headline keeping many investors cautious this week was Powell stating that the U.S. central bank could take things too far and potentially risk a recession for price stability. 

"Is there a risk we will go too far? Certainly, there is a risk. But it's not the biggest risk to the economy. The bigger mistake to make would be to fail to restore price stability," Powell said during a policy panel at the ECB Forum on Central Banking in Sintra, Portugal.

At the time of writing, August Comex gold futures were trading at $1,808.50, roughly unchanged on the day.

Making gold harder to read were many investors rebalancing their portfolios for the second half of the year in light of rising recession calls, OANDA senior market analyst Edward Moya told Kitco News. 

"There are some concerning calls from others that gold could be vulnerable to some further selling pressure here. That is if the dollar remains fairly supported," OANDA senior market analyst Edward Moya told Kitco News. "It is tough to assess the market's true views. We are seeing significant repositioning. But the outlook for gold should still be fairly sideways. Next week, there will be a lot of focus on whether or not we see any signs that Fed members are becoming more optimistic that inflation is cooling." Read More

Other potential outcomes from quantitative tightening by the Federal Reserve

The Federal Reserve’s monetary policy composed of aggressive rate hikes in tandem with a balance sheet reduction is intended to achieve price stability through lower inflation. The Federal Reserve is assuming that it can effectively reduce inflation without creating a recession. While this is one possible outcome, at best achieving this goal will be exceedingly difficult, and at worst impossible to accomplish.

Image Source: Kitco News

Russia’s invasion of Ukraine has had a profound impact on commodity prices, supply chains, inflation, and a steep contraction of global growth. The impact of Russia’s war is that the Federal Reserve can only impact core inflation resulting in no major real reduction of inflation and an economic contraction. Therefore, a key risk to the global economy is the possibility that inflation will remain persistent and elevated together with contracting economic growth, the definition of stagflation.

Currently, inflation globally continues to run exceedingly hot. Today the European Union reported that inflation hit a new record in June. Headline inflation in Europe came in at 8.6% YoY exceeding the inflation level of the United States which is at 8.3% (CPI reading for May). Inflation in advanced economies is currently at its highest levels recorded during the last 40 years. Read More

Sentiment shows gold’s fair value is around $1,800… for now

Gold prices could fall below $1,800 an ounce as sentiment in the marketplace continues to have a slightly bearish tilt; however, market analysts are not expecting any major route in gold as the precious metal continues to stand its ground, faced with rising interest rates worldwide.

The latest Kitco News Weekly Gold Survey shows that sentiment is relatively neutral among Wall Street analysts and Main Street investors.

David Madden, Market Analyst at Equiti Capital, capital said that $1,800 an ounce could represent fair value for gold in the near-term as the market continues to be caught as rising interest rates boost the U.S. dollar but also creates more volatility for equity markets.

“I think the U.S. dollar has a slight advantage over gold as a safe-haven asset,” he said. “Although gold looks comfortable trading around $1,800, the technical picture shows price could move lower in the near-term.”

The comments come as the gold market ends its third week in negative territory. August gold futures last traded at $1,800.80 an ounce, down more than 1.5% from last Friday. Adding to the dismal technical outlook, the gold market ended June with its third-straight loss.

Despite the dismal start to the second half of 2022 gold continues to outperform equity markets. The S&P 500 ended the first half of the year down 20%, it’s worst half-year performance since the 1970s.

“Gold is still doing what it’s supposed to,” said. Daniel Pavilonis, Senior Commodities broker at RJO Futures. “With all the rate hike issues, gold is holding its ground. The price is lower but it hasn’t broken down.” Read More

Gold is trading flat heading into the European open

Gold is trading flat at the start of the week at $1809/oz. Silver is trading 0.15% lower at just under the $20/oz handle. In the rest of the commodities complex, copper (-0.78%) continues to struggle but spot WTI has risen 0.21%. 

Equities moved higher in the Asia Pac area as the Nikkei 225 (0.84%), ASX (1.11%), and Shanghai Composite (0.42%) all posted gains. Futures in Europe are mixed.

In FX markets AUD and NZD both moved higher against the dollar but USD/JPY pushed 0.22% higher. In the crypto space, BTC/USD is trading at $19,151.

News from the weekend: Read More

Disclaimer: These articles are provided for informational purposes only. They are not offered or intended to be used as legal, tax, investment, financial, or any other advice.