Written Commentary
GOLD
Gold futures are lower following weakness in commodities due to the influence of a hawkish Federal Reserve. Minneapolis Federal Reserve Bank President Neel Kashkari reaffirmed on Sunday, that it was a “reasonable prediction” to expect a single rate cut this year. This underscores increasing speculation of the possibility that U.S. interest rates might remain high for the near future. The Federal Open Market Committee last week signaled just one interest rate cut in its updated economic projections. The “dot plot” projections from FOMC members indicated that on average they expect only one interest rate reduction of 25 basis points this year, with four members predicting no cuts at all.
Traders will closely monitor Federal Reserve officials’ statements, as well as key economic releases such as retail sales, industrial production, and S&P Global PMIs scheduled to be released this week, to assess their impact on the Fed’s timing and the potential for a pivot to accommodation this year. This comes in light of recent cooling U.S. inflation data.
SILVER
July silver prices declined to near the $29 per ounce level, remaining near the one-month low of $28.73 touched on June 13 as a weaker industrial outlook offset support from a dovish turn by some major central banks. Partially countering the bearish influence of a weaker global economic outlook are dovish actions from major central banks earlier this month. The European Central Bank and the Bank of Canada lowered their key interest rates and the Bank of England will likely reduce its key interest rate at its August meeting.
Financial futures markets are now predicting there is a 65% probability that the FOMC will lower its fed funds rate by 25 basis points at its September 18 meeting, which is down from the 73% probability on Friday.
COPPER
July copper futures fell to $4.40 per pound, which is the lowest level since April 23. A recent softening in demand has taken prices well off the recent record highs that were made in mid-May when July copper futures advanced to a high level of near $5.20 per pound. Industrial output in Asia slowed more than expected in May, as copper inventories held near their highest level since 2020, despite seasonal factors that favor a drawdown.
Despite recent weakness in copper prices due to weaker near-term demand, the longer term supply and demand situation appears to be bullish for copper due to copper’s role in electrification through grid-scale energy and data-center infrastructure.
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