Welcome to a very brief overview of recent market performance. The essentials are captured in the table below and each week we will show a chart of interest.
Lift-off: Gold took off last week in the wake of the FOMC meeting midweek, after which the Fed Chair Jerome Powell left the door open for at least two cuts this year (which, to be fair, the markets had been expecting) and more than one observer is suggesting that a 50-point cut may be in the offing. After running up to test $1,411/oz on an intraday basis the price has seen an inevitable correction, but has held up above $1,400 over the weekend. This is the first time in a number of years that gold has risen in price after a Fed meeting, including those where the Statement was as expected, and reflects the wholesale change in sentiment in the market.
Interestingly there was an increase in the number of short contracts held by Money Managers on COMEX in the week to 18th June, suggesting that some had already thought that the market was due to correct; events overtook them and we almost certainly saw a lot more short-covering in the latter part of last week. Understandably the outright long position increased and the net long on COMEX stood last Tuesday at 468 tonnes, the highest since 27th March 2018 when gold was trading at $1,341/ounce.
Silver has at last come to life, responding to gold’s activity. It is important to remember that silver has a dual personality, sometimes acting in response to gold, and sometimes acting more as a base metal. What has been happening in recent months is that with gold trading in such a narrow range (6% low-to-high between mid-November and end-May) silver has had little traction from gold and has therefore been concentrating more on the base metals complex, which has been taking a moderately bearish view of the global economic outlook. When gold is more active, as it is now, silver will respond accordingly and will in all probability be more volatile as it is regarded as “poor man’s gold” and in a bull phase, the gold: silver ratio is likely to narrow as speculators leverage their gold positions by trading silver in the same direction (bull phase or bear). Indeed silver will often move before gold does, although this time it took a while to wake up.
Thought for the week
Coin sales accounted for 7.1% of physical gold demand last year (excluding GFMS) and has averaged 6.6% from 2000 to 2018 inclusive
Chart of the week: Retail demand for coins and bars, and approximate contained gold value (annual number multiplied by annual average price, so only a very rough approximation).