Here’s What You Might Have Missed Last Week (Ending 6.30.23)

Here’s What Happened in the Gold Market This Week - Day by Day

On Monday, gold prices rose and attempted to stay above $1900. Gold had gained $11, reaching $1934. Similarly, silver saw an increase of 37 cents, reaching $22.88. Ole Hansen from Saxo Bank stated that a close above the 21-day moving average, which was at $1950, was necessary to change the market's cautious stance. The timing of a potential peak in interest rates was possibly delayed, according to signals from the US Federal Reserve. The market's response in the following weeks depended on economic data and its impact on the likelihood of rate hikes. 

On Tuesday, gold traded sideways during quiet summertime trading due to concerns about more aggressive rate policies in other countries, which affected sentiment towards the dollar. It experienced a $2 decline, reaching $1923. On the other hand, silver saw a 5¢ increase, reaching $22.92. Wisdom Tree highlighted significant decreases in silver stored in vaults in London and New York, questioning where all the silver had gone. The answer provided by the Dublin-based investment firm was "retail dominated markets."

On Wednesday, gold made further progress towards reaching the $1900 level as concerns about a recession eased and markets processed the likelihood of additional rate hikes in the second half of the year. However, it experienced a decline of $7.50, reaching $1908.50. Similarly, silver faced a decrease of 27¢, trading at $22.66. According to Matt Simpson from City Index, strong economic data strengthened the dollar and caused gold prices to retreat towards their June low. He mentioned that the current pricing seemed to be influenced by technical factors, with bearish traders taking profits.

On Thursday, gold saw a slight increase in lackluster summertime trading, rising by $3 to reach $1913, while silver also gained 17¢, trading at $22.93. Saxo Bank's Ole Hansen believes that despite the Federal Reserve's ongoing battle with inflation affecting the short-term outlook, gold maintains a bullish stance driven by factors such as anticipated dollar weakness, eventual peak in interest rates, strong central bank demand, persistent inflation, and geopolitical tensions. However, short-term demand for gold through ETFs and futures has been impacted, with a reduction of 42 tons in bullion-backed ETF holdings over the past month, leaving them just 33 tons above a three-year low witnessed before the March banking crisis.

On Friday, gold and silver prices saw a modest decrease, primarily due to quieter summertime trading and a lack of major news developments. Asian and European stock markets were largely on the rise, with U.S. stock indexes also anticipated to open firmer. Key U.S. data for the day includes the personal income and outlays report for May, which includes the PCE price indexes, closely watched by Federal Reserve Board members. Meanwhile, China's manufacturing sector continues to contract, with the PMI for June registering at 49.0. Finally, the Eurozone's consumer price index for June recorded a year-on-year increase of 5.5%, down from May's increase of 6.1%.

Gold Faces Pressure from Strong GDP Growth while Housing Market Struggles

Gold bulls are finding it challenging to defend the crucial $1,900 support line as the US economy exhibits stronger-than-expected growth in the second quarter. The GDP expanded by 2.0%, surpassing the anticipated 1.4%, driven by increased exports and consumer spending. Consequently, gold futures dipped to $1,908 per ounce, influenced by the positive economic data. This response aligns with the nature of gold, as its appeal as a safe-haven asset diminishes with positive economic growth, providing the Federal Reserve more leeway to raise interest rates for inflation control. Higher interest rates typically strengthen the dollar, detracting from gold's allure. Interestingly, although the US housing market is experiencing a downturn, with a decline in the number of potential homebuyers for the third consecutive month, it hasn't significantly impacted gold prices, which have managed to stay above the significant $1,900 per ounce level.

So, Why Might This Matter?

US Housing Market: When the housing market is strong, it indicates a robust economy, reducing the need for gold as a safe-haven asset during times of uncertainty. Conversely, a weak housing market can contribute to economic uncertainty, leading investors to seek the safety of gold, potentially driving up its price.

GDP: A strong GDP growth signifies a healthy economy and reduces the demand for gold as investors tend to favor riskier investments during such times. This lowers the demand for safe-haven assets like gold. Conversely, in the case of weak or negative GDP growth, which indicates economic uncertainty or a recession, investors may turn to safer assets like gold, driving up its price.

Inflation Continues to Weigh on Gold as U.S. PCE Climbs 0.3% in May

Gold prices remain under pressure amid rising inflation pressures which align with market expectations. The U.S. Department of Commerce reported a 0.3% increase in its core Personal Consumption Expenditures (PCE) price index in May, which met economists' predictions. However, the 4.6% rise in inflation over the past year slightly surpassed forecasts and remained more than double the Federal Reserve's target. Despite this, the gold market struggles to find a solid direction with August gold futures trading at $1,916 an ounce, down 0.10% for the day. Interestingly, headline inflation is dropping quicker than core prices, with annual inflation at 3.8%. Meanwhile, personal income rose 0.4%, exceeding the 0.3% expected increase, suggesting consumers are building a financial safety net as income outpaces spending. 

Why are gold prices wavering in the face of high yet cooling PCE inflation?

The Personal Consumption Expenditures (PCE) data measures inflation, or how prices of goods and services are changing. The U.S. Federal Reserve uses this to guide their decisions on monetary policy. If PCE data shows increasing inflation (costs are going up), people often buy more gold as it holds its value over time, driving up gold prices. But if PCE data shows decreasing inflation (costs are stable or increasing slowly), the need for gold as a safety against rising costs decreases. So, less demand can cause gold prices to fall. However, it's important to note that many other factors also affect gold prices, including global economic conditions, political events, and changes in the supply and demand for gold.

Is It Time to Take a Contrarian Position on Gold?

Some experts recommend taking a contrarian position in gold, despite the strong U.S. economy and rising equity markets. The average gold price has remained above $1,900 this year, with potential for all-time highs in 2023. Not surprisingly, contrarians take a long-term perspective in both gold and silver, highlighting the latter as another attractive opportunity amidst the transition to green energy. Meanwhile, the U.S. economy's resilience and re-pricing of monetary policy expectations have led to downward pressure on gold prices. Central banks worldwide adopt a more hawkish stance, focusing on fighting inflation. Although a recession seems unlikely, short-term gold outlook is uncertain, with potential for prices to fall below $1,900. However, geopolitical risks and strong central bank demand limit the gold sell-off, supporting its holding.

The Countries That Hold the Most Gold

Indian households have accumulated an impressive 21,000 tonnes of gold, surpassing the reserves of the World Bank. These holdings represent about 40% of India's nominal GDP and demonstrate the enduring trust placed in gold as a reliable and stable safe haven asset. As economic uncertainties persist, gold's tangible and intrinsic qualities continue to attract investors, offering a sense of security amidst market volatility. This contrast in gold ownership highlights the potential wisdom that could be adopted by a wider population, including Americans. And in case you’re wondering, here’s a report that lists the top 20 countries with the highest gold consumption by year. It uncovers shifting trends and changes in their gold consumption patterns and explores the primary industries driving gold consumption

A Copper Supercycle Amid Supply Shortage Concerns?

Amid the ambitious energy transition goals set by governments worldwide, the demand for copper is expected to skyrocket, potentially surpassing supply over the next decade if new mines are not built. Eurasian Resources Group's CEO, Benedikt Sobotka, warns that the industry must increase supplies, but faces challenges such as higher costs and complex mining locations. Sobotka and billionaire mining investor Robert Friedland express concerns about the limited supply of copper, with Friedland warning of a potential "train wreck" and a tenfold increase in copper prices. BloombergNEF and S&P Global highlight the significant growth in copper demand, especially from electric vehicles, which require double the amount of copper compared to internal combustion engine vehicles. Despite recent slumps, experts remain optimistic about the future of copper, projecting a supply peak in 2024 and emphasizing the challenges ahead in meeting increasing demand due to factors like resource nationalism and ESG requirements.

Global Silver Deficit Grows as Demand Surpasses Production

The World Silver Survey, an annual report by The Silver Institute, reveals a growing global silver deficit due to high demand and limited production. The deficit reached 154 million ounces in 2022 and 129 million ounces in 2023, the second-largest in years. The shortage is fueled by silver's increasing use in renewable energy, electronics, and emerging technologies. Notably, the survey overlooks recent advancements in solar panel technology and the military sector's silver consumption. This expanding range of silver applications puts pressure on available supplies, suggesting the gap between demand and production is larger than previously thought.

What’s Going On Next Week?

Monday, July 3, the day begins with the release of the ISM manufacturing report for June at 10:00 am, followed by the construction spending data for May. It is important to note that all markets will close early on this day.

Tuesday, July 4 is a holiday in observance of July 4th, and as a result, all markets will be closed.

Wednesday, July 5, the day starts with the release of the ADP employment report for June at 8:15 am. This is followed by the factory orders data for May at 10:00 am. In the afternoon, at 2:00 pm, the minutes of the Federal Reserve's June FOMC meeting will be published.

Thursday, July 6 begins with the release of the initial jobless claims data for July 1 at 8:30 am. This is followed by the U.S. trade deficit figures for May at the same time. At 10:00 am, the job openings data for May will be released, along with the ISM services report for June.

Finally, on Friday, July 7, the day concludes with the highly anticipated jobs report for June. This report includes important information such as the unemployment rate and hourly wages, and it will be released at 8:30 am.