Written Commentary
GOLD
December gold futures quickly advanced when the mostly weaker than expected U.S. employment numbers were released.
Non-farm payrolls in August increased 142,000 when a gain of 160,000 was expected, and manufacturing payrolls fell 24,000 when down 2,000 was anticipated. Private payrolls were up 118,000, which compares to the estimate of a 136,000 gain. The unemployment rate was 4.2% as anticipated. Gold futures advanced in conjunction with the weakness in the U.S. dollar index. However, when the greenback recovered to the unchanged level on the day some selling pressure came into precious metals. Prospects of a 50 basis point reduction in the fed funds rate at the upcoming Federal Open Market Committee meeting have substantially increased from where they were earlier in the week. Currently there is a 51% probability that the Federal Open Market Committee will lower its funds rate by 50 basis points at its September 18 meeting, and there is a 49% probability that the FOMC will reduce its key interest rate by 25 basis points in September.
SILVER
December silver futures quickly advanced when the weaker than anticipated U.S. employment report was released, since this report suggests the Federal Reserve will be forced to more aggressively pivot to accommodation.
Financial futures markets are now factoring in approximately a 125 basis points reduction in its fed funds rate this year. A recovery in the U.S. dollar caused some traders to liquidate long positions in silver. Prospects of a U.S. recession are likely to limit price advances for silver as the demand outlook for industrial commodities becomes more in question. Silver has been a major beneficiary of the global trend towards renewable energy, especially from the solar industry, although economic uncertainties have been weighing on the outlook for the renewable energy sector.
COPPER
December copper futures are lower on Friday, and there has been only limited support from increasing prospects of a Federal Reserve that is likely to pivot more aggressively to accommodation this year.
Demand for copper is anticipated to decline in light of recent weak U.S. manufacturing and labor market data, which have reignited recession fears. The bearish influence of prospects of weakening global demand for industrial commodities will probably outweigh the bullish influence of a Federal Reserve pivot to accommodation.
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