LAWRIE WILLIAMS: Gold and silver end the week on an uptrend
With a Consumer Price Index (CPI) release on Thursday suggesting that the U.S. inflation rate might at last just be beginning to turn down with a below expectation 7.7% annual increase in October, gold, equities and bitcoin all surged. The gains in equities and bitcoin – particularly the latter – were tempered somewhat on Friday, but gold continued to advance and ended the week above $1,770, its highest level since mid-August. The silver price climbed too and ended the week at close to $21.70, last achieved in mid-June. While equities and bitcoin look vulnerable to falls, to this observer at least, as global economies appear to be sinking into recession, and cryptocurrencies are mired in the FTX collapse, gold and silver may well be at the start of a continuing uptrend, or at least the bulls will be hoping so, although prices were dipping again this morning in Europe.
Certainly there has been a bit of momentum in their favour, though, after a time where they had been largely ignored by most investors. The U.S. dollar has been looking weaker on the forex markets, in part because the big Republican party gains in the U.S. midterm elections have not materialised and there’s even the news over the weekend that the Democrats may have retained control of the Senate, although will still probably lose their majority in the House of Representatives. A weaker dollar tends to benefit gold and silver prices. However we may have to wait until Tuesday’s Producer Price Index (PPI) data release for confirmation of the inflation downtrend, although the PPI usually follows the lead of the CPI.
The markets, as demonstrated by the Chicago Mercantile Exchange’s Fedwatch Tool, are now expecting the Fed to start easing its interest rate raising programme as soon as the next FOMC meeting, which is due December 13-14, with only a 50 basis point increase anticipated after an unprecedented four successive 75 basis point rises. The next CPI data release comes out right at the start of the December FOMC meeting, though, and this could have a late influence on the final deliberations on interest rates if this shows an unexpectedly high or low inflation level in November, as could the next Personal Consumption Expenditure Index release (the Fed’s preferred inflation measure) due out on December 1st.
Assuming there are no huge surprises on the inflation front we would anticipate gold and silver prices moving in a positive vein, while equities and cryptocurrency prices look vulnerable to us as evidence mounts that the U.S. and global economies are destined for recession. For cryptocurrencies, confidence has been shaken by the FTX crypto exchange tribulations, and fears that this could spread, and this could continue for some time. Some see BTC falling to $13,000 or even much lower before there is any serious recovery.
In Europe, the Ukrainian success in re-occupying Kherson has raised hopes of some kind of ceasefire ahead. Alternatively, there is still considerable trepidation regarding Russia’s likely military response. It now seems to be heavily consolidating its positions on the east side of the Dnieper river from which it could well launch a counter-offensive against in-range Ukrainian targets and vice versa. The Ukraine military may be taking heavy losses in the east of the country though amidst seemingly increasing Russian resistance in Donetsk. There does seem to be something of an impasse developing as winter draws in.
Elsewhere tensions seem to be increasing in the Far East with North Korea testing missiles overflying them over Japan and China continuing with its belligerent claims of overthrowing the Taiwanese government by force if necessary. This latter could precipitate a U.S./China military conflict should it develop with the former committed to coming to Taiwan’s aid. Thus with tensions high in both Asian and Europe, the world remains a dangerous place geopolitically, which could benefit precious metals in the days and months ahead.