Last week’s surge in both gold and silver was bookended by cautious optimism from bullion traders, hoping to collect enough evidence to prove that an interest rate cut in September was all but a formality. They cherry-picked some encouraging remarks from the two-day Capitol Hill testimony of Federal Reserve Chairman Jerome Powell, who told federal lawmakers the U.S. economy was no longer “overheated.” But they found the major ammo they were looking for in last Thursday’s Consumer Price Index, which showed that U.S. inflation had cooled to 3%. The better-than-expected report sent prices for both commodities soaring. A Department of Labor report revealing that 17,000 fewer workers applied for unemployment benefits than the previous week also aided gold and silver’s climb. The “cautious” part of the week came with Friday’s contradictory Producer Price Index, which pointed to higher-than-anticipated inflationary pressures. As we’ve seen many times this year, an unpredictable market that repeatedly goes against the norm has been baked into the cake.
GOLD & SILVER:
Gold was headed for its third straight week of gains Friday afternoon, down slightly by $3.63 at $2,411 per ounce. A day earlier, an upbeat CPI report catapulted the yellow metal over the $2,400 per ounce threshold and closer to the record highs it notched in mid-May. Seeing how the precious metal started the week off – hobbled by data that China halted gold purchases for a second straight month in June – makes its dramatic late-week turnaround that much more impressive. By Friday afternoon, investor confidence in a September interest rate cut by the Fed reached more than 94%.
Like its yellow cousin, silver prices also took a dip in late Friday afternoon trading. After coming off a six-week high, the commodity was down $0.60 at $30.79 per ounce. In addition to Friday’s sluggish PPI data, silver traders were already looking ahead to China’s Third Plenum meeting next week, when the government is expected to unveil several measures aimed at easing monetary policy. Analysts believe an anticipated spike in industrial demand for the versatile metal’s critical role in electric vehicles and green energy initiatives could send silver even higher in the short term.
THE FED SAID:
Testifying for two days last week on Capitol Hill, Federal Reserve Chairman Jerome Powell warned federal lawmakers against moving too quickly to cut interest rates for fear of jeopardizing progress being made to bring down inflation.
“If we loosen policy too late or too little, we could hurt economic activity,” Powell testified. “If we loosen policy too much or too soon, then we can undermine the progress on inflation, so we’re very much balancing those two risks.”
Investors hoping for interest rate cuts also took some encouraging signs from his testimony, as Powell acknowledged “considerable progress” in bringing inflation down to the Fed’s 2% target and told lawmakers that “the risks to achieving our employment and inflation goals are coming into better balance.”
BEAT THE STREET:
Reports last week indicated that inflation was cooling, and the labor market was coming back into better balance. We’ll hopefully get a handle on which specific industries are still struggling with market pressures and which are showing signs of life. We open the week with Monday’s Empire State manufacturing survey and a scheduled speech by Fed chief Jerome Powell. On Tuesday, data on U.S. retail sales, business inventories, and homebuilder confidence is expected, as well as a speech by Federal Reserve Governor Adriana Kugler. Key reports on housing starts and building permits are due Wednesday, along with the release of the Fed’s Beige Book, a summary of economic conditions across the 12 Federal Reserve districts. Initial unemployment claims come Thursday, and we cap the trading week off with scheduled speeches on Friday by New York Fed President John Williams and Atlanta Fed President Raphael Bostic.
GOLD RUSH:
Some folks have all the luck. A local prospector in Australia recently discovered a heart-shaped chunk of gold sitting on the ground in plain sight. The nugget weighs in at 5.15 ounces – roughly as heavy as a baseball – and is estimated to be worth around $20,000. The hobby bullion hunter – whose identity is being kept secret – made the find while walking through the outback gold-mining town of Kalgoorlie, located about 370 miles northeast of Perth. The prospector’s partner, Tyler Mahoney, said she couldn’t believe her friend’s great luck, given how rare it is to find treasure by complete accident. “Every day is different, and it depends on what we are finding,” Mahoney said. “Some days it’s baked beans, and some days it’s lobster.”
