Written Commentary
GOLD
August gold futures declined to the lowest level in two weeks as investors shifted to a risk-off trade. Gross domestic product in the second quarter at an annualized rate was up 2.8% when a 2.0% increase was expected, and personal consumption expenditures on an annualized rate were up 2.3% when a gain of 1.9% was anticipated. Durable goods orders in June declined 6.6% when a gain of 0.3% was estimated.
The gold market appears to be oversold in this area and will ultimately be rescued by likely accelerated accommodation from the Federal Open Market Committee. There is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 5.25% to 5.50% at its July 31 policy meeting. However, financial futures markets are now pricing in three 25 basis point cuts in the fed funds rate later this year.
There is almost a 100% probability that the FOMC will lower its fed funds rate by 25 basis points at its September 18 meeting. In addition, the probability of an additional rate reduction from the FOMC at the November 7 meeting is 73%, and there is a 69% chance of another 25 basis point rate cut at the December 18 meeting.
Despite recent weakness in prices, the long term fundamentals for gold are bullish on balance.
SILVER
September silver futures declined over 3.0% to 27.555, hitting an eleven-week low due to a weakening industrial demand outlook and increased global economic uncertainties. There was some recovery when the stronger than expected second quarter U.S. gross domestic product report was released. However some of this bullish influence was mitigated by the decline in durable goods orders in June.
There are renewed concerns about the global demand situation in light of prospects of increased U.S. trade restrictions in the high tech area. In addition, there appears to be faltering demand from a top copper consuming country in Asia.
COPPER
September copper futures declined to the 4.0360 level in light of indications of weakening demand, especially from a major copper consuming country in Asia.
The bulls on this market remain optimistic on the belief that copper prices may find support from improving sentiment in India after the government recently said it will continue spending on infrastructure projects. In addition, there is some support on the belief that the Federal Reserve will begin cutting interest rates in September, which could boost economic growth and overall demand for copper and industrial commodities in general.
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