Written Commentary
GOLD
December gold futures are lower but are holding above the psychological $2500 per ounce level. Recent weakness is linked to the liquidation of a variety assets in light of yesterday’s sharp declines in stock index futures. This liquidation is probably a buying opportunity for gold, since the flight to quality influence is likely to reemerge and dominate, supporting the main trend for gold, which is higher.
In addition, there is growing pressure on the Federal Reserve to more aggressively pivot to accommodation. There is a 61% probability that the Federal Open Market Committee will lower its funds rate by 25 basis points at its September 18 meeting, and there is a 39% probability that the FOMC will reduce its key interest rate by 50 basis points in September. Late last week there was only a 30% probability that the Fed would be cutting by 50 basis points this month. Lower interest rates reduce the opportunity cost of holding non-interest-bearing assets, such as gold.
SILVER
December silver futures are a little higher today after yesterday’s sharp decline. Selling pressure on Monday was linked to a series of weak U.S. economic reports that sparked recession fears.
However, the pressure may be limited due to prospects of lower interest rates from the Federal Reserve this year.
COPPER
December copper futures are lower and are closer to the $4.00 per pound level, declining almost 3.0% so far in September. Weakness in copper is linked to weak U.S. manufacturing data, which reignited recession fears.
In addition, it appears there is weak demand from a large copper consuming country in Asia. Also, there has been pressure on copper due to recent gains in the U.S. dollar.
Expectations that the Federal Reserve will start cutting interest rates this month provided some support to commodity prices.
The bearish influence of prospects of weakening global demand for industrial commodities will probably outweigh the bullish influence of a Federal Reserve pivot to accommodation.
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