By: Rhona O'Connell, Head of Market Analysis
Last week saw gold and silver hold in narrow ranges as the markets awaited the outcome of the Federal Open Market Committee (FOMC) meeting with its associated dot plot (in which the members project their expectations for the fed funds target rate at the end of this year, next year and further out). In the event the FOMC did what the markets had been expecting and paused in its rate hiking cycle, but clearly leaving scope for further rises, while the dot plot was more hawkish than previously with the median expectation for a fed fund target of 4.6% at end-2023. Gold prices had rallied before the outcome of the meeting, responding to actual inflation numbers, as the Producer Price Index numbers came out some hours before the FOMC Statement and were a lot more benign than the markets had been expecting.
The knee-jerk reaction to this was that with factory gate price rises abating, this had negative implications for bond yields and by association this would be positive for gold prices. This, as we have discussed before, is very different from the markets 40 years ago when benign inflation numbers would have put downward pressure on gold prices, but now we have a much wider array of inflation hedges in the professional market and gold is responding more closely to financial management and others forms of risk (e.g. geopolitics and financial risk).
Consequently, gold had risen from $1,942 on the opening of COMEX to touch $1,960 in the wake of the PPI figures, but those losses were reversed after the Statement and Jay Powell’s Press Conference for a renewed test of $1,930 in London the following day. Then, the losses were recouped all over again on weak US Retail Sales and the price ended the week effectively unchanged from a week earlier, at $1,960.
All of this points to a gold market that, following the banking issues that started in March and then the debt ceiling wrangling, is continuing to look further afield than just the Fed.
Selected US economic numbers, mid-June
Source: Bloomberg, StoneX
Spot gold, technical
Source: Bloomberg, StoneX
Spot silver , technical
Source: Bloomberg, StoneX
Silver is following suit and, given that the economic outlook is slowing on both sides of the Atlantic (and the European Central Bank has a particularly thorny problem to deal with following the latest economic numbers and a depressing ZEW Survey), along with continued disappointments from China, is a relatively encouraging performance. Our current projections for the market balance are for a surplus, prior to any investment activity, equivalent to almost ten weeks’ demand this year so silver is going to be reliant on renewed gold buoyancy and sustained investment activity if the price is to attack $26 with any conviction, or indeed move much higher.
To that end the most recent numbers from the CFTC show further long liquidation, albeit light, among Money Managers in the gold sector, with additional shorts coming in, taking the net long to 232t, the lowest since mid-March. The outright longs, at 344t, are only slightly higher than the twelve-month average, which stands at 332t. On the silver floor, there was some fresh buying interest and further short covering, taking the net long to 2,089t while the outright long position, at 6,264t is just 50t higher than the twelve-month average, suggesting that the speculative overhang of recent months has been more or less dissipated.
| 19 June 2023 | Previous week | % change | Year-to-date | Range Jan 2022 onwards | Range as % | ||
| Min | Max | ||||||
| Gold (pm LBMA price) | 1,959.75 | 1,960.30 | -0.03% | 6.32% | 1,628.75 | 2,048.45 | 25.77% |
| Silver (LBMA price) | 23.99 | 24.32 | -1.34% | -3.64% | 17.77 | 26.03 | 46.45% |
| Platinum (pm LBMA price) | 987.00 | 1,001.00 | -1.40% | -8.78% | 831.00 | 1,128.00 | 35.74% |
| Palladium (pm LBMA price) | 1,398.00 | 1,324.00 | 5.59% | -22.12% | 1,324.00 | 2,315.00 | 74.85% |
| S&P 500 | 4,425.84 | 4,293.93 | 3.07% | 15.73% | 3,577.03 | 4,425.84 | 23.73% |
| $:€ | 1.0937 | 1.0749 | 1.75% | 2.53% | 0.9594 | 1.1062 | 15.30% |
Source: Bloomberg, StoneX
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