Written Commentary
GOLD
August gold futures are higher and are testing a steep downtrend line that started on July 17. Some of the strength in gold can be attributed to flight to quality buying in light of ramped-up geopolitical tensions in the Middle East.
In addition, there is support from increasing prospects of a Federal Reserve that will pivot to accommodation at its September policy meeting.
There is a 96% 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 64%, and there is a 64% chance of another 25 basis point rate cut at the December 18 meeting.
SILVER
In light of increasing geopolitical tensions in the Middle East, the flight to quality aspect of silver came to the forefront taking prices higher, advancing from last week’s 11-week low. Prospects of an accommodative Federal Reserve have only partially offset the bearish influence of renewed concerns about the global demand situation in light 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.
Expectations that silver demand from the renewable energy sector would lead to a shortfall in the coming years have also mostly been priced in by markets, leading traders to unwind long silver positions.
COPPER
September copper futures declined to 4.0610, extending a recent sharp downturn to the lowest level in almost four months, due to increasing demand concerns from a top 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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