Metals Market Update: June 1-10, 2024

Posted on June 17, 2024 by IBV GOLD Editorial Team

Gold and silver traders searched for stability last week on a stronger dollar, and the unanimous decision by the Federal Reserve to leave 23-year-high interest rates unchanged in favor of more data showing the economy was truly making a sustained effort to reach policymakers’ desired 2% inflation target. The Fed also indicated during last Wednesday’s meeting that traders could expect just one interest rate cut by the end of 2024 instead of the three officials projected at the start of the year. Additionally, three data sets released last week by the U.S. Bureau of Labor Statistics pointed to signs that inflation may finally be loosening its grip on the economy.

GOLD & SILVER

Gold started the week on weaker footing, trading at one point last Monday around $2,290 per ounce before making a steady climb back north. By midday Friday, it was up 1.35% for the day, trading about $31 higher at $2,333 an ounce.

It was a similar narrative for silver, which has struggled lately to break through the $30 per ounce ceiling. It dipped to $28.73 on Thursday before rallying to $29.49 per ounce on Friday and notching a nearly 2% gain for the day.

Several factors figured into both commodities’ stops and starts.

Investors got a shot of confidence on Wednesday after the Federal Reserve signaled a potential interest rate cut this year, which could come by September. Even though federal policymakers junked plans they made earlier in 2024 for three rate cuts, the possibility of just a single reduction provided traders with enough optimism to go on. Adding to that, the government also released data last week suggesting inflation may be tapering. Reports by the U.S. Bureau of Labor Statistics showed a dramatic fall in U.S. import prices, a decline in May’s Consumer Price Index, and an unexpected drop in wholesale prices last month.

Geopolitics also played a role. Saber-rattling by Russian President Vladimir Putin once again underscored the appeal of owning precious metals like gold and silver during uncertain times. In an address Friday at the Russian Foreign Ministry meeting, Putin warned the West that its “selfishness and hypocrisy” is pushing the world “close to a point of no return.” Putin delivered the threatening remarks a day after G7 leaders agreed to provide $50 billion of loans for Ukraine using interest from Russian sovereign assets.

ASSET SPOTLIGHT: THE CHINA FACTOR

A few weeks ago, markets were rattled after the People’s Bank of China – the world’s largest buyer of gold – revealed that it paused buying the yellow metal in May after 18 consecutive months of snapping up the stuff in mass volumes. In February, for example, the PBoC purchased 390,000 ounces, or more than 12 metric tons, of gold. The quantities it bought in March and April – 160,000 ounces and 60,000 ounces, respectively – telegraphed China’s decision to pump the brakes in May.

Analysts believe China got sticker shock as gold hit an all-time high on May 20, trading at $2,450 per ounce, and couldn’t justify the cost in its short-term outlook.

The break doesn’t mean China is planning to do more sideline sitting – hardly, experts say. Instead, bankers are waiting for gold to reach a more palatable price point.

“China’s data did show a pause,” World Gold Council CEO David Tait told Reuters at last week’s Asia Pacific Precious Metals Conference in Singapore. “(But) they are just waiting and watching. If prices correct to the $2,200 per ounce level, they will resume again.”

Globally, the global appetite for owning gold is still extremely healthy, according to data compiled by the Official Monetary and Financial Institutions Forum, a think tank that studies central banking and economic policy.

The OMFIF survey of 73 central banks found that executives planned to increase their exposure to gold over the next one to two years.

THE FED SAID

In public remarks, after the Federal Open Market Committee unanimously voted to leave interest rates unchanged, Fed Chairman Jerome Powell acknowledged how the restrictive monetary policy was affecting Main Street:

“My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation,” Powell said. “Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people.”

And even though an encouraging U.S. Bureau of Labor Statistics report released hours before the FOMC meeting indicated inflation appeared to be cooling, Powell doubled down on the Fed’s desire to bring inflation even lower before rate cuts could be considered.

“We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell said. “So far this year, the data have not given us that greater confidence.”

In other words, Powell told Americans that market conditions were good – just not good enough.

BEAT THE STREET

Wednesday’s Juneteenth holiday will shorten the trading week, but there still figures to be some newsworthy activity. Additionally, five Fed officials are expected to speak at various events, beginning later this afternoon when Philadelphia Fed President Patrick Harker delivers remarks on the U.S. economy at the Global Interdependence Center’s 42nd Annual Monetary and Trade Conference.

On Tuesday, we’ll get data on retail sales, industrial production and business inventories. Public remarks by four Fed members – Richmond Fed President Tom Barkin; Dallas Fed President Laurie Logan; St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee – are also slated for Tuesday.

The week’s initial jobless claims, housing starts, and building permits will highlight Thursday’s trading day, and we’ll close out the week with a glimpse at how the manufacturing and service sectors are holding up when the Purchasing Managers’ Index (PMI) is issued Friday morning.

GOLD RUSH

This week, we’ve got a pair of tales from our “Blind Luck” folder featuring folks who’ve accidentally made museum-worthy finds.

STROLL AND A JACKPOT

A European woman out for a walk in a Czech Republic town stumbled upon a buried treasure of more than 2,150 silver coins dating to the Middle Ages. The coins, which archaeologists believe were minted between 1085 and 1107, were discovered at the bottom of a battered ceramic jar. Experts believe the coins were either acquired in battle or used to pay wages. “Unfortunately, for the turn of the 11th to 12th century, we lack data on the purchasing power of contemporary coins,” said archaeologist Filip Velímský. “But it was a huge, unimaginable – and at the same time, unavailable – amount for an ordinary person. It can be compared to winning a million in the jackpot.”

HOBBY PAYS FOR ITSELF

Colin Henderson, a 59-year-old British man, was exploring a remote field with his amateur metal detecting club when he uncovered a medieval-era ring that could fetch upward of $13,000 at auction. Dating between 1450 and 1550, his lucky find is made of solid gold and covered with religious engravings. Experts at the British Museum are currently evaluating the piece to determine its provenance. “It’s the find of a lifetime – it’s unbelievable,” Henderson remarked. “I’ve found a lot of coins, but this is really special.”