Gold Prices Decline Amid Signs of Easing Inflation

Gold futures experienced a sharp decline on Monday, shedding $34 to settle at $2,363.50 for the most active August contract. This drop came despite recent economic indicators suggesting a cooling inflation rate and a contracting U.S. economy—factors that typically support gold prices.

The week ahead promises to be eventful for financial markets, with several key events on the horizon. Federal Reserve Chairman Jerome Powell is set to testify before the House and Senate, beginning Tuesday and concluding Wednesday. His testimony is expected to echo his recent assessment of the U.S. economy and inflation, presented last week at the European Central Bank forum in Portugal.

Powell's recent comments have been interpreted as having a dovish bias. He acknowledged significant progress in combating inflation, noting that the Fed's preferred measure, Core PCE, has "tumbled to 2.6% from 5.6% in mid-2022," which he called "really significant progress."

The Chairman will likely incorporate last week's jobs report in his testimony, which showed a substantial contraction in job growth from 272,000 in May to 206,000 in June. This slowdown in job creation aligns with the Fed's efforts to cool the economy and curb inflation.

Looking ahead, the Bureau of Labor Statistics is scheduled to release the June Consumer Price Index (CPI) report on Thursday, followed by the Producer Price Index on Friday. The Federal Reserve Bank of New York's estimates for the CPI report suggest a continued weakening of consumer prices, with consensus predictions indicating inflation declined to 3.1% year-over-year in June, down from 3.3% in May.

Despite these positive signs for inflation control, gold prices fell sharply on Monday. The dollar's strength played only a minor role in this decline, with the dollar index gaining a modest 0.11% to reach 104.987.

The disconnect between gold's price movement and the current economic backdrop is puzzling. Typically, signs of economic contraction and cooling inflation would support gold prices. One possible explanation for the sell-off is profit-taking by traders capitalizing on recent gains.

As market participants await Chairman Powell's testimony and the upcoming inflation reports, the gold market's reaction to these events will be closely watched. The interplay between economic data, Federal Reserve policy, and precious metal prices continues to evolve, presenting both challenges and opportunities for investors navigating these complex market dynamics.

Kitco Media

Gary Wagner

Time to Buy Gold and Silver

Tim Moseley

Gold investors eye $2,400 as market sees fewer barriers to the Fed’s easing cycle

Gold investors eye $2,400 as market sees fewer barriers to the Fed’s easing cycle teaser image

The gold market is ending the shortened holiday trading week with some fireworks as prices test resistance around $2,400 an ounce.

Disappointing economic data, including slowing momentum in the U.S. labor market, is raising market expectations that the Federal Reserve will lower interest rates in September. According to the CME FedWatch Tool, markets see a nearly 80% chance of a rate cut after the summer break.

Rising expectations for the start of a new easing cycle have pushed the U.S. dollar index to a three-week low and bond yields to a four-week high, which is providing a tailwind for gold as prices trade at a four-week high.

At the same time, silver prices have catapulted above $31 an ounce and are also trading at a four-week high.

August gold futures last traded at $2,399.60 an ounce, up more than 1% on the day, and up more than 2.5% since last Friday. September silver futures last traded at $31.685 an ounce, up 2.7% on the day and up more than 7% for the week.

The precious metals' latest momentum drive came after disappointing June employment data. Friday, the Bureau of Labor Statistics said that the U.S. economy created 206,000 jobs last month, beating expectations.

However, the unemployment rate increased to 4.1%, from May’s reading of 4.0%; economists were expecting to see an unchanged reading.

The report also revised April and May employment numbers lower by more than 100,000 jobs.

Ricardo Evangelista, Technical Analyst at ActivTrades, said that he would not be surprised if gold pushed to $2,400 an ounce next week.

“As predicted, today’s release of US employment data confirmed that the American labor market continues to cool down, albeit not in a pronounced way, but still enough to favor the case of Fed doves,” he said in a comment to Kitco News. “In the first half of the year the resilience of the US economy created headroom for the Federal Reserve to keep rates high for longer, so signs of a cool-down are likely to drive a softer US dollar, as well as lower treasury yields, in a dynamic that supports the price of bullion.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said it might be a little premature to call gold’s consolidation period over, but he remains optimistic that prices will eventually move higher.

“I would be a bit surprised to see the market go higher already, but then again, the recent correction was very shallow, indicating either strong underlying demand at lower prices or simply that already established longs saw no reason to reduce their exposure,” he said.

With the U.S. economy slowing down, the biggest risk for the gold market remains inflation, which will be critical data on next week’s calendar. However, many analysts note that even this risk is limited as slower growth will lead to easing price pressures.

Jonathan Petersen, Senior Markets Economist at Capital Economics, said in a note on Friday that he expects to see further weakness in the U.S. dollar as inflation pressures start to ease. This environment could continue to support gold prices.

“Next week’s inflation data out of the US is likely to reinforce that rate hikes from the Fed are off the table and no longer an upside risk for the dollar. Instead, the key emerging risk for the dollar now seems to be a weakening economy pushing Treasury yields even lower than we expect, even if it might benefit from a short-lived “safe-haven” bid if “risky” assets falter,” Peterson wrote.

Economists at TD Securities also do not see inflation stopping the Federal Reserve from cutting rates in September.

“While we still think that the Fed's decision to first ease mostly hinges on inflation outcomes, the ongoing softish signals stemming from labor market conditions and consumer spending suggest the Fed is likely to start considering its employment mandate more seriously in coming months,” the analysts said in a note Friday. “We remain optimistic that the Fed will first ease rates at its September FOMC meeting as we look for core PCE inflation to gradually moderate by then to a monthly pace that is consistent with a return to the inflation target.”

Along with Thursday’s Consumer Price Index, markets will be interested to hear what Federal Reserve Chair Jerome Powell will say during his two days of testimony before Congress next week.

Economic data to watch next week:

Tuesday: Powell testified before the Senate Banking Committee

Wednesday: Powell testifies before the House Financial Services Committee

Thursday: US CPI, weekly jobless claims

Friday: US PPI, Preliminary University of Michigan Consumer Sentiment

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley

Wall Street sees green lights for gold next week; Main Street jumps back on the bullish bandwagon

Gold finally shook itself out of its summer doldrums this week, as weak employment data helped the yellow metal rocket out of its recent holding pattern as it once again approached the $2400 price level.

Spot gold opened the week trading at $2,326.72 per ounce, remaining within a $15 range of that level on Monday and Tuesday. Then, Wednesday brought a raft of economic data and news events, with ADP employment, weekly jobless claims, and the ISM services PMI all released in the morning ahead of the July 4th Independence Day holiday in the United States, along with the minutes from the June FOMC meeting in the afternoon.

The data suggested a weakening jobs market in the United States, and the Fed’s minutes showed little inclination to raise rates. This combination helped to propel gold from flat on the week to its then-high of $2,363.77 shortly after 10:30 am EDT.

The yellow metal trended within a few dollars of its new high through the Independence Day holiday. Then, traders returned on Friday morning to receive definitive confirmation of what the week's earlier data had told them: employment, as per the non-farm payrolls report for June, was indeed faltering, with revisions subtracting over 100,000 jobs from the prior two months, while the unemployment rate ticked up unexpectedly to 4.1%.

This was all precious metals traders needed to see, and they proceeded to propel gold from $2,367 per ounce in the minutes before the release to fresh weekly highs above $2,390 by early afternoon.

At the time of writing, spot gold continues to trade at its highest levels in over a month, and within a few dollars of $2,400 per ounce.

The latest Kitco News Weekly Gold Survey shows virtually all industry experts seeing green for gold prices next week, while retail sentiment has also turned solidly positive once again.

“I like gold higher next week on lower interest rates and anticipation of a weaker US dollar,” said Marc Chandler, Managing Director at Bannockburn Global Forex. “A small shelf is near $2350. The early June high was near $2388, and that may be the initial target on the way to test the air above $2400.”

“Momentum indicators are favorable, and the five-day moving average crossed back above the 20-day average,” Chandler added.

Darin Newsom, Senior Market Analyst at Barchart.com, also sees further gains in gold’s near-term future. “August gold is nearing a possible end to its short-term uptrend, though early Friday morning finds it still has time and space up to the next target of $2,390.80,” he said. “While the intermediate-term trend remains down on the contract’s weekly chart, a higher close this week would be the second consecutive, setting the stage for a higher weekly close next week before resuming the downtrend.”

Mark Leibovit, publisher of the VR Metals/Resource Letter, was the lone voice of dissent this week. “Keeping my inverse index hedges on,” he warned. “Risk in gold in the weeks (possibly months) back to 2000 area.”

Analysts at CPM Group said in a note on Friday that their recommendation is to buy, with an initial target of $2,410.

“Gold prices could move higher in the next couple of weeks before potentially retreating,” they wrote. “There is building support for prices from the political environment in the U.S., Europe, the Middle East, and from many other parts of the world. There appears to be rising concern about President Biden’s ability to be reelected and, if reelected, manage the duties of the President. This rising uncertainty is supportive of gold prices. As the Democratic Party moves to find a replacement candidate would elevate uncertainties and concerns among investors, likely to be reflected in gold purchases.”

“Economically, the world continues to fare well, but the slowing down in economic output in many countries and regions is creating an underpinning of concern about economic trends in the near future,” they added. “Additionally, there are some rising expectations in financial markets that interest rates could move lower in the months ahead. Inflation has cooled and unemployment has risen only slightly.”

The analysts noted that gold prices have traded between $2,285.20 and $2,448.80 since early April, which has created firmer support and resistance levels. “The length of time that gold has traded within this range perhaps makes it more difficult for prices to break out,” they said. “Technical trading suggests a continuation of trading in this range until there is a catalyst to move prices outside of this range.”

“Prices are in an uptrend now, likely to test resistance levels before easing thereafter,” they concluded. “The seasonal weakness that typically takes hold of markets around this time of year appears to be on hold for the moment.”

This week, 12 Wall Street analysts participated in the Kitco News Gold Survey, and the overwhelming majority see green lights for the yellow metal. Ten experts, representing 83, expect to see gold prices climb higher next week, while one analyst, or 8%, predicts a price decline, and one other saw gold trending sideways in the week ahead.

Meanwhile, 164 votes were cast in Kitco’s online poll, showing Main Street investors walking on the sunny side of the street again. 108 retail traders, or 66%, look for gold prices to rise next week. Another 26, or 16%, expected the yellow metal to trade lower, while 30 respondents, representing the remaining 18%, saw prices trading sideways during the week ahead.

The Federal Reserve remains in the spotlight next week, with Fed chair Jerome Powell testifying before the Senate Banking Committee on Tuesday, and then the House Financial Services Committee on Wednesday.

Markets will also be paying close attention to U.S. CPI for June along with weekly jobless claims on Thursday, followed by the Friday release of U.S. PPI for June, followed by the preliminary University of Michigan consumer sentiment survey.

Adam Button, head of currency strategy at Forexlive.com, said the political environment is providing a unique bid for gold prices. “We are likely living through one of the all-time great moments in U.S. politics,” Button said. “It takes a great deal to move gold on U.S. politics, but Biden dropping out would do it.”

Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, said he wasn’t so sure that the weak jobs data had increased the likelihood of a Fed cut, but weakness among other asset classes was providing renewed bullish momentum for gold prices.

Cieszynski agreed that there were no surprises for markets in the June minutes. “The Fed was pretty clear when it came out with its forecasts that they're only cutting rates once this year, maybe before the election, maybe after, and that there's a lot of inflation still kicking around out there,” he said. “That hasn't gone away. Today's employment numbers were very stagflationary because the second you looked under the hood of the jobs data, it wasn't very good. The last month was revised down more than this month beat by, and wages and hourly earnings didn't go down, so there's really no reason to think that there's any change here.”

“The Fed is still on hold,” he added. “They only seem to talk dovish at all just to prop up the market, and otherwise, they're stuck.”

Cieszynski said that based on gold’s reaction on Friday, he thinks markets are dialing down the chances of further rate hikes, but they may be premature. “I think at this point it's just working down the odds of a rate hike,” he said. “I think there's just more conviction that even though the Fed wants to leave the door open to a rate hike to scare people, realistically they're probably not going to raise rates. They may not cut anymore. But it depends, right? If inflation starts to take off, then they may have to raise rates. It's very mixed here.

Cieszynski believes the biggest booster of gold this week was Bitcoin’s decline. “Bitcoin is just getting absolutely smoked again today, and I think we're starting to see some of that money coming back into gold and silver,” he said. “I consider them [both] alternative currencies, and when people are feeling aggressive and want to take on risk, they go charging off and buy Bitcoin. Now, I know there's also an event around this, why Bitcoin's getting depressed, but it was rolling over anyways, and when people are starting to feel more concerned, they go back into gold. I think that's what we're starting to see a little bit of here.”

Cieszynski also said he’s seeing broad-based weakness in equities, even if the strength of a handful of tech stocks continues to mask it. “The market seems to be crumbling underneath the top, and that's more favorable for gold,” he said.

He also agreed with the prevailing view that markets are growing more confident about a September rate cut but cautioned that this week’s moves could be misleading due to the holiday.

“I don't think much has really changed this week,” he said. “A lot of the trading has been distorted with all the holidays, and it's just generally a week that people go away on vacation. We can't really glean much out of this week given all the distortions.”

Cieszynski said that, on balance, he still sees gold in a strong position to make further gains.

“I'm bullish on gold for next week,” he said. “It looks like money's coming back in, and there's places for it to come from, because money's moving out of cryptos and money's moving out of equities, so it's clearly looking to go somewhere else.”

Michael Moor, Founder of Moor Analytics, was looking at the upside and downside potential for the yellow metal. “The trade above 23276 (-2 tics per/hour) warns of decent strength—we have attained $30.3,” Moor wrote. “The trade above 23437 (-1 tic per/hour) projects this upward $15 minimum, $45 (+) maximum—we have attained $14.2; but if we fail back below decently, look for decent pressure.”

And Kitco Senior Analyst Jim Wyckoff said improving odds of a Fed cut have boosted the technical picture for gold prices. “Steady-higher as the near-term chart posture for gold has improved, and the Federal Reserve is leaning a bit easier on its monetary policy,” he said.

Spot gold last traded at $2,388.51 per ounce at the time of writing for a gain of 1.33% on the day and 2.81% on the week.

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

Precious metals should shine in H2 2024 based on seasonal trends, summer price gains should be strong – MKS PAMP

Based on historical trends and regular seasonal performance, precious metals may be significantly underpriced going into the second half of the year, according to precious metals strategists at MKS PAMP.

In the company’s Precious Metals Seasonal Report released on July 3, the strategists wrote that a nuanced understanding of seasonal trends is important for metals investors.

“Seasonal trends alone don’t form the foundation of any trade or view, but it’s usually a useful supplement to existing ideas and helps explain away price out/underperformances,” they wrote. “Given we’re entering 2H, and after the recent strong price performance across most metals in 1H’24, it's worthwhile to provide a review of 1) how 1H 2024 performances stacked up against historical seasonal trends, and 2) provide a quick overview of the outlook for metals performances and how they ‘should perform’ into 2H and in this late summer (July 4th-Labor Day) period.”

They said that on average, second-half performances are more bullish than first-half performances historically for Gold, Silver, Platinum, Palladium, and Copper. “[A]verage 2H metals performances are 6x larger than average 1H metals performances (data was largely boosted by historical Palladium outperformance in 2H since 2010).

“Gold & Silver performances in 1H’24 directionally adhered to historical seasonal price performance norms; they rallied when they were meant to rally with Gold putting in average monthly gains 1H’24 of +2% and Silver of +3.6%/month,” they pointed out. “The notable seasonal out-performance was due to 1) Central Banks and Asia base building (Gold) and 2) fears of inflation/war/geopolitical/dedollarization risks trumping a HFL Fed hikes & a stronger US$ (Gold, Silver).”

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The platinum group metals (PGM) and copper, for their part, defied seasonal trends in the first half, with platinum and copper rallying when they would be expected to fall, while palladium posted large monthly losses when it should have seen mild gains. “The seasonal dislocation was due to 1) Platinum piggybacking Golds gains, 2) Copper capitalizing on strong fundamentals and macro participation, 3) Palladium losing out to paper shorts/positioning,” they wrote.

Statistically, gold prices posted average monthly gains of 2% in the first half of 2024 against a historical expectation of a 0.5% gain per month. “Silver rallied ~3.6% on ave per month in 1H (vs historical past ave gains of +0.2%); Platinum rallied +0.3%/month in 1H’24 (vs -0.1% losses),” they noted. “Palladium fell a chunky 2.4% / month in 1H’24 where it should put in 0.3% gains.”

Based on historical seasonal trends, MKS PAMP sees gold and silver prices posting decent gains. “[S]ince 2010, their past cumulative 2H gains are +1.4% and +2.2% respectively,” they wrote, “and Palladium should fly (cumulative gains of +10.4% in 2014). Platinum is meant to post minor losses (cumulative monthly losses of -0.7% in 2H).”

As for the short-term summer outlook, the strategists expect all the metals covered in the report to see strong performances.

“Precious metals are typically solid outperformers in late summer from July 4th into Labor Day, with Silver (+7.7%) & Gold (+4.4%) as macro investors take a step back from mainstay assets (DM equities are up marginally while US bonds typically fall and the USD$ traditionally falls -0.8%),” they said. “Some of this seasonal strength in Gold/Silver can be explained away by past dovish expectations around Jackson Hole, the 2011 European crisis & COVID monetary response (which skewed data around July/August), and preemptive buying ahead of the seasonal physical demand pickup in September. EM assets (from EMFX to equities) traditionally face headwinds over this peak summer lull.”

MKS PAMP summarized their position as follows: “if 1) markets start pricing in a Fed rate cutting cycle (HFL gives way), 2) macroeconomic data risk falls to US political risk in 2H’24, 3) broader acceptance of low likelihood of a large Global recession and/or large credit event, 4) paper positioning in Precious is lower than seasonal averages/trends —> then precious metals (especially Palladium) are rather underpriced heading into 2H.”

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

Gold prices test fresh session highs as ISM Services PMI drops to 48.8

The gold market has pushed to a fresh session high as activity in the U.S. service sector contracted sharply.

On Wednesday, the Institute for Supply Management (ISM) said its Services Purchasing Managers Index dropped to 48.8% in June, compared to May’s reading of 53.8%. The data was significantly weaker than expected, as consensus forecasts looked for a much smaller drop to 52.6.

The gold market has seen a solid bid through the early start of the North American session and the disappointing economic data is adding to the bullish momentum. August gold futures last traded at $2.372.80 an ounce, up 1.68% on the day.

The U.S. service sector is seeing its weakest activity since the economy was shuttered during the COVID-19 pandemic.

“In June, the Services PMI® registered 48.8 percent, 5 percentage points lower than May’s figure of 53.8 percent. The reading in June was a reversal compared to May and the second in contraction territory in the last three months,” said Steve Miller,Chair of the ISM Services Business Survey Committee.

Readings above 50% in such diffusion indexes signify economic growth and vice-versa. The farther an indicator is above or below 50%, the greater or smaller the rate of change.

The disappointing reading comes after the ISM said its Manufacturing PMI also fell deeper into contraction territory. Economists have said that the data raises the risks of an economic slowdown.

“Alongside a decline in the ISM manufacturing index, these surveys suggest that GDP growth will remain weak in the third quarter. They also add to evidence that labour demand is softening, and inflation will remain on a downward trend,” said Olivia Cross, North America Economist at Capital Economics.

Looking at the components of the report, the Business Activity Index dropped to 49.6%, down from May’s reading of 61.2. At the same time, the New Orders Index dropped to 47.3%, down from the previous reading of 54.1%.

Ahead of Friday’s nonfarm payrolls, the ISM report showed falling momentum in the labor market. The Employment Index dropped to 46.1%, down from May’s reading of 47.1%.

Adding to the positive environment for gold, the report noted easing price pressures. The Prices Index dropped to 56.3%, down from May’s reading of 58.1%.

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley

Gold Price News: Gold Ends Flat on Friday, Eyes On US

Gold News

Market Analysis

Gold prices ended little changed on Friday after US inflation figures came out in line with market expectations.

Prices did manage a modest intraday gain, rising to $2,340 an ounce in the mid-afternoon, European time, but trading at this level could not be sustained and prices slipped back to $2,327 an ounce later in the session, almost unchanged day-on-day.

The keenly-watched US core PCE price index, the US Fed’s preferred measure of inflation, nudged higher by 0.1% in May from April’s level, according to data released Friday. The slight uptick was in line with market expectations, providing little impetus for gold prices on Friday.

Gold’s bounce off the $2,300 an ounce mark on Thursday last week was a bullish signal in itself, as this is a level that was previously tested in early May and again in the second week of June. This suggests buyers are willing to step into the market at levels below $2,300. Other things being equal, this may help to solidify support further at this level.

However, Dutch bank ABN Amro on June 27 issued a research report saying it is cautious on gold prices going forward, and kept its forecast for December 2024 unchanged at $2,000 an ounce – more than $300 below current market prices: Gold Watch – Outlook for gold prices – ABN AMRO Bank

The bank’s rationale included a view that positive momentum is declining in gold prices; unusual positive relationships between gold, the US dollar and US treasury real yields are not expected to last; and a lack of a current shortage in physical gold.

Looking ahead, data releases on Monday include the preliminary German inflation rate for June, followed by the June US ISM Manufacturing PMI figures. After an unexpected decline in May, any further drops in US manufacturing activity could support calls for interest rate cuts.

Further ahead, the markets will also be watching out for Tuesday’s Euro Area inflation rate flash for June, a planned speech by US Fed chair Jerome Powell, and the US JOLTs job openings figures for May.

Kitco Media

Frank Watson

Time to Buy Gold and Silver

Tim Moseley