Gold grabbed most of the headlines last week as the yellow metal set a new all-time high on Tuesday, shattered that record a day later, and then shed those gains to close out the series of whirlwind trading sessions. It was a different story for silver, which struggled after China – a top consumer of the versatile commodity – adjourned its Third Plenum session last week without revealing any fresh economic stimulus measures as many hoped. Investors looking for green lights on interest rate cuts found plenty in dovish public remarks by Federal Reserve Chairman Jerome Powell and a string of his colleagues last week. Meanwhile, a flurry of key reports offered a mixed bag on the health of the economy, toplined by an unexpected spike in unemployment claims, surprise increases in both building permits and housing starts, and a decline in the Leading Economic Index (LEI) last month.
GOLD & SILVER:
Gold logged a rollercoaster of a week, hitting an all-time high of $2,483 per ounce on Wednesday, then plunging by Friday as it hovered around $2,400 an ounce. Late Friday afternoon, the yellow metal was down more than 1.5% for the day, squeezed by a stronger dollar, higher Treasury yields, and traders locking in their profits. Even with the slide, the outlook for gold remains relatively solid – the Fed is expected to start cutting interest rates in September and increasing jitters surrounding the U.S. presidential election figure to boost gold’s attractiveness as a safe haven in times of uncertainty.
It was a rough and tumble week for silver, as top metal consumer China adjourned its Third Plenum planning session absent an economic stimulus package. Like its yellow cousin, silver was also hampered by a firmer dollar. After Tuesday’s closing high of $31.27 an ounce, the gray metal fell for three straight sessions and was trading nearly 2% down late Friday afternoon at $29.20 per ounce. Near-term industrial demand for silver – including in China’s electric vehicle industry, among others – figures to aid in the commodity’s rebound.
ASSET SPOTLIGHT: Gold’s Room to Run
Gold’s high-flying act last week had plenty of bullion buyers wondering whether the commodity’s record run was a fluke or for real. A new analysis by J.P. Morgan might give investors good reason to be a little bullish on the yellow metal. The paper projects gold averaging $2,500 per ounce by the fourth quarter and $2,600 per ounce next year, with those new record prices being driven by heightened geopolitical tensions, expectations of the Fed finally moving to cut interest rates, and continued gold purchases by central banks. “Many of the structural bullish drivers of a real asset like gold – including U.S. fiscal deficit concerns, central bank reserve diversification into gold, inflationary hedging, and a fraying geopolitical landscape – have lifted prices to new all-time highs this year despite a stronger U.S. dollar and higher U.S. yields, will likely remain in place regardless of the U.S. election outcome this autumn,” J.P. Morgan head of global commodities strategy Natasha Kaneva explained in the analysis.
THE FED SAID:
Dovish remarks last week by Federal Reserve Chairman Jerome Powell – followed by similar messaging by his Fed colleagues – helped light the fuse that saw gold notch a new all-time high and emboldened the market to project as many as three interest rate cuts by the end of the year instead of a single reduction in September. Powell, speaking on July 15 to the Economic Club in Washington, said the U.S. central bank won’t wait until inflation hits the Fed’s 2% target to cut interest rates. “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” he said.
BEAT THE STREET:
This week’s calendar of economic developments looks a lot lighter, with Fed officials entering the blackout period on Saturday, barring them from commenting on monetary policy before the next Federal Open Market Committee meeting on July 30-31. However, traders will still be closely watching several key reports to gauge whether inflation continues its cooldown. Data on existing home sales is due Tuesday, followed by a tally of new home sales on Wednesday. Thursday brings reports on second-quarter GDP, durable goods orders, advanced retail and wholesale inventories, and initial unemployment claims. On Friday, we’ll get a look at the Fed’s preferred method of measuring inflation with June’s core personal consumption expenditures index – data likely to take center stage at the upcoming FOMC meeting.
GOLD RUSH:
For decades, determined archaeologists pursued the whereabouts of a Portuguese ship laden with $13 million worth of gold coins and other extremely valuable treasures when it got caught in a devastating storm in 1533 and disappeared. The mystery of the Bom Jesus (The Good Jesus) – well, part of it, anyway – was finally uncovered in 2008 in the unlikeliest of places: sub-Saharan Africa. Now, more than 15 years later, excavation at the site of the shipwreck along the coast of Namibia continues, as discoveries of its storied contents continue to be unearthed. So far, the haul recovered from the site has been impressive. The Independent reports that more than 2,000 gold coins, Portuguese silver coins, bronze cannons, tons of copper ingots, more than 50 elephant tusks, navigational instruments, and weapons have been found, among a trove of other items. “Academic arguments are all very well, but once you have literally filled your hat with a 25.5-pound mixture of Spanish and Portuguese gold coins – there were indeed swords as well – the value of the site is no longer in doubt,” said Dr. Dieter Noli, chief archeologist of the Southern Africa Institute of Maritime Archaeological Research.