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(Kitco News) - Weak inflation this week has pushed the gold market to a three-week high, with prices holding solidly above $1,950 an ounce, and while sentiment is once again turning bullish in the marketplace, there are still reasons to be cautious at these levels.
Gold is not out of the woods just yet and can still be mauled by the bears as the Federal Reserve’s monetary policies remain the most prominent driving force in the marketplace. Yes, both CPI and PPI this past week cooled more than expected. Consumer prices are up 3.0% for the year, its lowest annual increase since March 2021. At the same time, core inflation rose 4.8% for the year last month.
The Good news for consumers is that inflation is definitely going in the right direction; however, they remain elevated, which means that the Federal Reserve is probably not ready to declare victory in its battle against higher consumer prices. But we are closer to the end, breathing new life into the market for now.
While gold prices appear to be on the right side of $1,950, it is still some ways from breaking out as investors continue to sit on the sidelines. According to some analysts, the gold market needs a clear sign from the Fed that it is done raising interest rates before investors jump back into the market.
But that is enough about gold.Silver is the metal attracting some serious attention this week, with prices ending Friday above $25 an ounce. Silver prices are up $1.87 for the week again of more than 8%; its best weekly performance since mid-March.
According to some analysts, the dual headwinds for silver are starting to dissipate. With the Federal Reserve close to its peak rates, silver is benefiting from shifting monetary policy expectations.
At the same time, even in this aggressive monetary policy environment, the economy has been reasonably resilient, which supports silver’s industrial usage. Analysts note that silver should outperform gold if the Federal Reserve can thread the needle and achieve a soft landing.
“There continues to be asymmetric upside risks in Silver which hinges on investor resubscription, the return of Chinese buying & restocking and the convincing rollover in the US$ once the Fed pauses and expectations shift to consecutive rate cuts,” said Nicky Shiels, metals strategist at MKS PAMP in her mid-year precious metals outlook.
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| Gold remains an important strategic asset even if the market faces Fed rate hike headwinds - Invesco's Hooper |
Investors are starting to realize that the world needs a lot more silver for renewable energy if we are going to meet net-zero goals by 2050.
Although silver has a bright future, the headwinds surrounding the fed have not gone away completely. Commodity analysts at TD Securities warn investors that silver’s break breakout move into a sustainable bull market is at least three months away.
One sector of the silver market that investors should keep an eye on is physical demand. Demand for silver bullion was fairly dismal in the first six months of 2023, according to sales data from the U.S. Mint and the Perth Mint.
The U.S. Mint said that in the first half of 2023, the mint sold 9.7 million one-ounce America Eagle Silver coins, down 9% compared to the first six months of 2022. The U.S. Mint’s American Eagle Gold bullion sales were down only 1% in the first half.
The Perth Mint’s silver sales were even worse. In the first half of the year, the Perth Mint sold nearly 9.7 million ounces of silver, down 16% from 11.5 million ounces sold in the first half of 2022.
If this rally in silver is going to last, this is one trend that needs to reverse.
That is it for this week.
Have a great weekend.
