Prices of gold and silver continued a steady upward trend on Wednesday, June 12 following a positive turnaround on Wall Street as investors were bullish over near-term rate cuts as U.S. inflation data showed that prices are rising at its slowest pace in nearly three years.
Following Tuesday, June 11 inflation data report, gold prices moved by $15.60 at $2,341.90, while silver prices were up $0.659 at $29.90. Similar performance was witnessed on Wednesday, with gold prices rising 0.92% by midday, adding roughly $21.50, and silver gaining 2.25% adding $0.66.
Investors were pleased after May's inflation data report revealed month on month consumer price index rose 0.1%, gaining 3.4% annually. Month-on-month inflation moved sideways, and was up 3.3%, while core CPI (excluding food and energy) rose 0.2%, ending the year-over-year core CPI at 3.4%.
The positive inflation data helped push U.S. stocks higher on Tuesday with investors sinking their teeth into an optimistic outlook that the Federal Reserve will begin cutting interest rates in the coming months. Some experts expect to see rate cuts starting as soon as September.
The benchmark S&P index rose 1.24% gaining 66.92 points by the start of the morning, while the Dow Jones Industrial Average opened at 195.92 points higher, or 0.51%. Elsewhere the tech-heavy Nasdaq Composite added 1.82% climbing 315.86 points to 17,659.40.
With the Fed now in focus, and the Federal Open Market Committee (FOMC) nearing the end of their June meeting with the decision to leave their target rate unchanged at 5.15%-5.50%, investors are hopeful that the near-term rate cuts would provide a positive turnaround for the precious metals market.
What To Expect In The Second Half Of The Year
Many on the market remain optimistic that the second half of the year will bring a positive turnaround for indices, and more importantly for the yellow metal.
In the run-up to their June meeting, many Fed officials are seeing less chance for multiple rate cuts this year, and have instead penciled in at least one interest rate cut for 2024. This would further reinforce the Fed's earlier decision to leave rates higher for longer, further attempting to put a damper on sticky inflation.
However many in the market may be viewing the decision to keep rates higher for longer, some argue that the high interest rate environment presents many buyers with an opportunity to take a more aggressive position on gold and other precious metals.
Historically, investors had fallen back onto gold and other inflation-hedging strategies during periods of uncontrollable inflation and an overheating economy. However, now that prices have continued a downward trend, and with interest rates still sitting at a two-decade high, would there still be an opportunity for many to take a position on gold before expected rate cuts?
With the expectations of a 25 basis point rate cut as early as September this year, the outcomes for gold could remain positive, should rates come down or stay the same.
One determining factor that could see investors piling into gold, even as prices remain elevated at reaching records, is that gold performance has held steady against wider geopolitical tension that has become more widespread across the Middle East and parts of Africa.
A rate decrease wouldn't necessarily impact the direct performance of gold, seeing that investors are pricing in various economic factors. Overall, optimism regarding the future of U.S. interest rates is now tremendously higher compared to several years ago.
An S&P Global Survey showed that investor optimism rose 28% in May, considered the highest reading since 2021.
Forward-looking uncertainty, including the weakening of the dollar, China's stagnation, the Bank of Canada lowering interest rates, and unrest in the Middle East will continue to give gold a stronger face-off against negative surprises, and could possibly have enough steam left to rally above $2,500 before the end of the year.
Apart from this, demand for gold has strongly risen in recent years, largely due to banks snapping up the yellow metal in response to Western sanctions on Russia since the invasion of Ukraine in February 2022.
Though gold has historically been a safe haven for investors during periods of hot-bed inflation, the current environment of uncertainty has helped make gold more than a safe haven, but instead, an asset that can provide near and long-term buoyancy.
Gold prices have largely benefited from the broader metals rally, with the market seeing commodities such as copper and silver entering new market records.
For instance, in May, silver prices breached a new record, reaching $32.45 per troy ounce. This peak was marked as the white metals' highest performance in nearly 11 years.
During the same trading period in May, platinum levels continued to move higher, reaching a peak of $1,100.60 per troy ounce, marking the highest the metal has moved since the turn of the year before beginning to slide lower.
Though some experts believe that the recent gains made by some precious metals might leave them looking overbought, others are calling this an opportunity for many investors to begin seeing profitable margins now taking shape in their portfolios.
However, the current price trends of gold and other precious metals are not necessarily a call for investors to begin shorting the commodity market, but instead hold out a long position on metals, especially gold as interest rates remain unchanged and policymakers calling for at least one rate cut this year.
The Bottom Line
In the current market, we're seeing a lot of moving parts that have created a sort of distorted reality for investors, many of which are unsure of their position, as the market continues to move in a direction we haven't seen in quite some time.
Though we are most likely to see interest rates remain higher for longer, with a potential rate cut on the books for as early as September, there's still too much uncertainty that's weighing on policymakers' decision to bring rates down.
Although wider macroeconomic conditions have created endless headwinds for investors in recent years, the current outlook resembles a somewhat more positive image compared to the same period last year.
Gold and other commodities remain somewhat stable, and with prices trending upward, gold could become the hedge against multiple factors, outside of inflation. Investors, however, need to remain in a safe territory that provides them with enough liquidity to move in the right direction, while keeping their interest diversified across the market with equal spreads and an opportunistic forward-looking position.
