09/06/2023 – This Week in Gold w/Weekly Update
Price Action:
Gold opened the week trading at $1,946 and experienced a weekly low on Monday afternoon, falling to $1,940. Price quickly rebounded on Tuesday and climbed 1.2% from gold’s weekly low to close Tuesday at $1,963. Price climbed to a weekly high of $1,970 on Wednesday before reversing trend and finding support at the $1,940 level once more. Price continued to consolidate within a narrow range for the remainder of the week, as the market awaits news regarding U.S. CPI data and the FED’s interest rate decision next week. At the time of writing, gold is trading at $1,961.
Silver opened at $23.56 on Monday morning. Similarly to gold, the precious metal experienced a weekly low on Monday, falling to $23.38. Silver showed a lack of trend until Thursday, where price began to rally, reaching a weekly high of $24.42 on Friday. This was following the news of the closure of the 5th largest silver mine in the world. The closure of the Newmont mining facility in Mexico takes 7 million ounces of silver a year off the market. This expected drop in supply may have led to a rally in the metal, as a drop in supply while demand remains the same, leads to an increase in price. At the time of writing, silver is trading at $24.41.
Financial Update:
There are many variables next week that can influence the price of gold and silver. U.S. CPI data, which is an inflation indicator, is released on Tuesday. The forecast for month-on-month inflation is 0.19%, while core inflation (excluding food and energy) is set to come in at 0.4%. This means that year-on-year inflation is expected to come in at 4.1%, and 5% respectively. While this would show that headline inflation is falling, it remains well above the FED’s 2% target. These elevated CPI levels are seen as positive for gold and silver prices, as both act as an excellent inflation hedge.
Following the CPI data release, the FED is meeting to determine a course on interest rates. It is expected that the FED will pause rate hikes for now, but FED chair Powell has not ruled out further increases down the line. Also, unfavourable CPI data on Tuesday may influence the FED’s decision, and Powell may be forced to hike rates this month as opposed to the expected pause. A pause is favourable for gold, as interest rates are inversely related to gold prices.
As mentioned, the shutdown of the 5th largest silver mining facility in Mexico led to a rally in the price of silver during the week. This disruption has the potential to take 7 million ounces a year off of the market. Over 50% of the silver produced in the world is used in industrial applications. With demand ever-increasing, it would be expected that a drop in supply would push the price of silver higher.
In other news, the Turkish Lira experienced a large selloff during the week. This was in response to re-elected Turkish President, Erdogan, insisting on keeping borrowing costs low amid high inflation in Turkey. This extreme devaluation of the Turkish Lira highlights the benefits of holding gold. Gold throughout history has held value, making it an incredible addition to an investors portfolio.
