Written Commentary
GOLD
December gold futures advanced to a new record high today with much of the strength due to increasing prospects of a Federal Reserve that is likely to become more accommodative. The Federal Reserve is widely anticipated to reduce interest rates this week for the first time since March 2020. In fact, it now appears that the Federal Open Market Committee will lower its fed funds rates by 50 basis points at the September 18 policy meeting.
Currently there is a 65% probability that the FOMC will lower its funds rate by 50 basis points at its September 18 meeting, and there is a 35% probability that the FOMC will reduce its key interest rate by 25 basis points in September. In addition, central banks continue to be aggressive buyers of gold bullion.
There is a rule of thumb that there often will be follow-through gains when a market advances to new record highs.
SILVER
December silver futures are higher for a third day and are close to the $31.50 per ounce level. Futures are trading at the highest level since July 17. Much of this strength is linked to increasing expectations that the Federal Reserve will opt for a more aggressive interest rate cut at this week’s policy meeting.
In addition, it is likely that there will be more interest rate cuts from the FOMC this year, and a policy of easier credit conditions will probably continue well into 2025.
COPPER
Last Thursday December copper futures broke out above a six-day congestion pattern. There is follow through to the upside today with prices reaching the highest level in three weeks as traders focus on this week’s Federal Open Market Committee meeting. An interest rate reduction would bolster economic growth, and in turn, demand for metals. In addition, some of recent gains for copper can be attributed to a softer U.S. dollar, which makes metals cheaper for holders of other currencies.
Also, some of the gains can be linked to declining copper inventories in Shanghai Futures Exchange warehouses in recent weeks, reversing the increases that were seen in July.
Price gains may be limited due to increasing demand concerns from a large copper consuming country in Asia.
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