14/07/2023: This Week in Gold with Market Update
Price Action:
Gold opened the week trading at $1,924. Price broke through the $1,930 level on Tuesday afternoon, which has proven to be a recent level of resistence. Once price broke through this level, it did not fall below again for the week. Upon the release of favourable CPI data in the U.S. gold moved to the upside once more. Price gained 1.12% from the open on Wednesday to close the day at $1,958. From there, gold consolidated within a very narrow range for the remainder of the week, reaching a weekly high of $1,963 on Friday morning. At the time of writing, gold is trading at $1,958. Below is a graph, highlighting gold’s 7 day performance:
As usual, silver followed the same upside trajectory as gold throughout the week. Both precious metals have a strong correlation with one another, moving in tandem. Silver opened the week at $23.05, with price trading within a 2.5% range until Wednesday. Silver moved to the upside in response to a favourable U.S. CPI data release. Price rallied on Wednesday and finished the day 3.98% higher than the open. From there, silver experienced a steady rise, reaching a weekly high of $25 on Friday. At the time of writing, silver is trading at $24.90. Below is a graph, highlighting silver’s 7 day performance:
Market Update:
U.S. CPI:
The biggest news release of the week was U.S. CPI data which was released on Wednesday. CPI is a key inflation measure for the FED, and is important in guiding future decisions on monetary policy. Inflation cooled to 3% year-on-year for June, indicating that the FED’s rate hike policy may finally be working in the battle against rising prices. This news was a welcome sign in gold and silver markets, while also benefiting equity investors.
With signs of cooling inflation, investors may believe that the FED’s current rate hike cycle is nearing completion. This would mean that rates are near peak levels, fuelling investors’ hopes that rates may begin to come down eventually. Gold and silver markets thrive in low interest rate environments. The reasoning behind this being that investors favour fixed income assets when rates are rising due to the yield that they can obtain from them. When rates come down, it becomes less favourable to investors to hold fixed income assets, hence the move into commodity and equity markets.
U.S. PPI:
U.S. PPI data was released on Thursday. PPI, which is the producer price index, tracks changes in the amount that producers receive for their output. It is used alongside the CPI to help the FED make informed decisions on interest rates. The data reiterated the message that was received on Wednesday from the CPI release, in that there are signs of cooling inflation. Prices moved very little in June, with the annual increase being the smallest in three years. This is good news for the FED, who are seeing their interest rate policy finally battle inflation effectively.
The FED is still expected to raise rates 2 more times this year, with the next rate hike being scheduled for June. However, promising inflation data has been good news for investors in gold, silver, and equities.
