Written Commentary
GOLD
December gold futures advanced when the bullish July producer price index was reported. The July producer price index increased 0.1% when up 0.2% was expected, and on an annualized basis the producer price index was up 2.2%, which compares to the anticipated 2.6% advance. The producer price index excluding food and energy was unchanged when a gain of 0.2% was forecast, and on an annualized basis the producer price index excluding food and energy increased 2.4% when up 3.0% was estimated.
The July consumer price index report will be released tomorrow and is predicted to show an increase of 0.2%. Retail sales for July to be released on Thursday and are forecast to show a 0.3% gain. Friday’s August consumer sentiment index is estimated to be 67.0.
There is underlying support for futures on the belief that the Federal Open Market Committee will pivot to accommodation at its September 18 policy meeting. There is now a 46% probability that the Federal Open Market Committee will lower its funds rate by 25 basis points at its September meeting, and there is a 54% probability that the FOMC will reduce its key rate by 50 basis points in September.
In addition, the yellow metal’s safe-haven appeal has been enhanced by escalating geopolitical tensions in the Middle East.
SILVER
September silver futures declined after the July producer price index was reported on the belief that the U.S. economy is slowing, resulting in weaker demand for industrial commodities. In fact, there is a perception that it’s not just the U.S. economy that is weakening but the global economy seems to be turning softer as well. The flight to quality influence for silver remains but is being overpowered by a weak industrial demand outlook.
COPPER
September copper futures are lower and are adversely reacting to today’s producer price index report, which some analysts believe foretells a weakening economy and therefore reduced demand for industrial commodities including copper. It was just last week that copper prices fell below $4.00, which was the lowest in five months. Also, demand for base metals, including copper, is likely to be limited by a major copper consuming country in Asia.
The bearish influence of a weakening global economy will probably more than offset the bullish influence of coming easier credit policies from the Federal Reserve, resulting in lower prices for copper.
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