By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
Silver has shot up by about 9% over the week, while gold is stabilizing in a range. A dovish view from the Federal Reserve and lacklustre US economic data continued to fuel demand for safe-haven assets, pushing silver prices to their highest levels since February 2012. Moreover, technical buying above $35 supported the rally.
The demand for precious metals was boosted last week by rising US-China trade tensions and a declining US dollar, which helped silver prices. On Thursday, though, the market attitude changed when US President Trump and Chinese President Xi Jinping had a fruitful phone conversation that resulted in the two countries’ trade negotiations being resumed. Although silver’s attraction as a safe-haven diminished due to the change in mood, its demand as an industrial metal rose.
According to the U.S. Bureau of Labor Statistics, the nation created 139,000 new jobs in May, which was less than the average projection of a 125,000 increase but still higher than the 147,000 jobs added in April. At 4.2%, the unemployment rate remained stable. At first, the conflicting job figures did not affect gold prices. But the precious metal is currently suffering from mounting expectations that the Fed would stay on hold because of persistent inflation and sustained wage growth. Following a string of unsatisfactory indications, expectations for a September rate drop by the Fed have increased. The ongoing conflict between Tesla CEO Elon Musk and US President Donald Trump was sparked by the House of Representatives’ acceptance of the US debt ceiling increase.
Amid the current global unpredictability, central banks worldwide are buying gold at a never-before-seen rate, amassing almost 80 metric tons per month, which is worth about $8.5 billion at current prices. Only 6% of China’s reserves are currently made up of gold, compared to 75% for the US, Germany, France, and Italy. Analysts believe that the global average of 20% is a reasonable medium-term goal for central banks in emerging markets. As they move their reserves away from US dollar assets, central banks throughout the world plan to purchase 1000 metric tons of gold in 2025, the fourth consecutive year of such large purchases.
In the meantime, platinum saw an 11% increase last week as prices firmly surpassed $1150. The price of the precious metal has increased for the first time in three years. Due to their continued substantial discount to gold, silver and platinum have both been receiving a lot of attention. Given that both metals are anticipated to experience severe supply shortages this year, investment demand is rising.
Fed speakers will not be on the US economic docket this week as they begin the blackout period leading up to the June 17–18 meeting. After the Producer Price Index (PPI) and the University of Michigan Consumer Sentiment, traders would be watching the CPI data. In contrast to a lower CPI that would drive gold prices higher, a hotter-than-expected CPI figure might strengthen the USD and further reduce Fed cut expectations, hitting gold.
Gold Jun Futures Daily Chart
Gold prices gave a breakout above the $3370 level last week and traded above $3400, but prices did not sustain above that level and are back in the consolidation range. This week, prices are expected to trade in the same range of $3220 (~Rs 94000) and $3375(~Rs 97500) in the near term.
Silver July Futures Weekly Chart
Silver has finally given a breakout from its range – above $35 (~Rs 102,000) to trade at an all-time high of $36.5 (~Rs 106,000) at exchanges. The next target is $38 (~Rs 111,000) if this positive momentum continues.
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