Written Commentary
GOLD
August gold futures advanced to near the 2383 per ounce level on Friday, hovering at two-week highs and likely to post its second weekly gain. This comes as mostly weaker than expected U.S. economic data reinforced the belief that the Federal Open Market Committee may reduce interest rates this year one or two times. In addition, there is some flight to safety buying in light of increasing geopolitical tensions in the Middle East.
Last week’s economic reports revealed a slowdown in the labor market and in price pressures, followed by a weak retail sales report on Tuesday. In addition, there was yesterday’s substantially lower than predicted housing starts and building permits numbers and a softer than predicted consumer sentiment report. Traders are now looking ahead to today’s PMI, existing home sales and leading indicators reports, which could provide additional insight into the state of the U.S. economy.
Prices are higher despite strength in the U.S. dollar. Underlying support for futures is coming from increasing evidence that the Federal Open Market Committee will be lowering its key interest rate in September.
SILVER
July silver futures were sharply higher yesterday, hitting the highest level in two weeks and tracking a gain in gold prices. However, most of those gains were given back today in light of slowing industrial demand for metals, which dampened investor sentiment.
Looking at the longer term situation for the silver market, the bullish influence of central banks becoming more accommodative is likely to offset the bearish influence of slowing industrial demand for metals.
Financial futures markets are now predicting there is a 66% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting, and a second rate cut is anticipated before the end of this year.
COPPER
July copper futures are lower today, giving back all of the gains that were registered yesterday when futures broke out above a one-month downtrend line on the daily chart. Capping gains for futures is weak demand from the world’s top consumers. Underscoring this is anticipated weaker demand from the home building industry after yesterday’s U.S. housing starts report showed starts at only 1.277 million when 1.373 million were expected.
Underpinning the market, however, are prospects of central bank accommodation.
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