Written Commentary
SILVER
September silver futures declined to their lowest level since May 15. Traders remain apprehensive ahead of U.S. PCE inflation data on Friday that could influence the outlook for Federal Reserve monetary policy. Precious metals have recently come under pressure due to the growing uncertainty on the outlook for interest rate cuts in the U.S.
Comments from Federal Reserve officials recently have been hawkish on balance. However, these comments are being partially offset by dovish developments for other major central banks, which are limiting price declines. Recently the European Central Bank and the Bank of Canada began their rate-cutting cycles, while the Swiss National Bank also lowered interest rates. The Bank of England is expected to lower borrowing rates possibly in August.
Despite hawkish rhetoric from Federal Reserve officials, financial futures markets are now predicting there is a 64% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting, and a second rate cut is anticipated before the end of this year.
GOLD
August gold futures fell to the 2308 area, extending its decline from the previous session, as investors digest more hawkish remarks from Federal Reserve officials about the outlook for interest rate cuts. Federal Reserve Governor Lisa Cook said on Tuesday that a rate cut will be appropriate at some point, but the timing remains uncertain, while Federal Reserve Governor Michelle Bowman said she does not anticipate any rate cuts this year.
Traders are looking ahead to Friday’s core PCE index data, which is the Fed’s preferred inflation measure, especially after the recent cooling consumer price index and producer price index reports.
Also, some of the recent pressure on gold is due to a stronger U.S. dollar.
Analysts anticipate several major central banks will become more accommodative this year, and some already have, which remains a bullish long term fundamental for gold prices.
COPPER
September copper futures declined to under $4.35 per pound today and are at the lowest levels since April 17 in light of an uncertain global demand outlook and rising inventories. The latest PMI reports have pointed to a weak outlook for manufacturing in major economies.
in addition, a strong U.S. dollar, which has been driven by hawkish signals from the U.S. Federal Reserve, continued to pressure copper and other metals. A stronger U.S. dollar makes greenback-priced commodities more expensive for buyers that are holding other currencies.
Last Thursday futures broke out above a one-month downtrend line on the daily chart. However, that breakout proved to be a false breakout now that prices have rolled under that trendline.
Underpinning the market for the long term are prospects of central bank accommodation.
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