Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
Gold has effectively continued its period of price consolidation, with the price trading between $1,387 and $1,426/ounce (intra-day basis) over the past week and building a bank of support in the $1,385‑$1,400 band. The professional market is continuing to focus on background supportive elements, including the increasing tensions in the Gulf (the UK Government is now sending a second vessel into the region), rhetoric rising again between the United States and China, and also showing a positive response to the comments from Federal Open Market Committee (FOMC) Chairman Jerome Powell at the end of the week. Mr. Powell referred to the trade war, underwhelming industrial signals and low inflation and this has endorsed market expectations of a rate cut at the next FOMC Meeting. The latest Commitment of Traders report shows that in the week to 9th July gold saw some profit taking and the initiation of fresh shorts, which takes some of the heat out of the market and removes an element of speculative overhang, which would have provided upside resistance.
Rather like the trade war, the change in the interest rate cycle has now slotted more or less into the background and the markets overall are now looking elsewhere for guidance. In the United States this means that the corporate earnings reporting season, which starts this coming week, is attracting attention and any failure to live up to expectations may see corrections in the equities and a potential rally in Treasuries. Here too, the fact that gold is holding above $1,400 while the equity markets continue to post new highs, is encouraging for the bulls.
The strength in the equity markets, reflecting increased optimism that the Fed will be able to forestall recessionary forces, is not yet matched by conditions in Europe, where the European Central Bank is hinting that it may inject more stimulus into the economy. Concern over economic activity is still inhibiting silver, which has gained just 2% over the past month to trade in the region of $15.25, while gold has gained almost 6%%. On COMEX in the week to 9th July the managed money silver positions saw some profit taking in silver, but also some short covering, suggesting that the market may be positioning itself to play catch-up with gold, but it still looks as if it is going to struggle in the near term.
Thought for the week
Silver supply is virtually price-inelastic (except in extremis) with only 22% of supply in 2018 coming from primary silver mines
Gold and the S&P 500; five-year view; 16th July 2014=100