Lawrie Williams: Gold and silver nervous ahead of FOMC and CPI but they shouldn't be
Last week both gold and silver prices looked as though they might have been going to climb upwards through previously hard-to-cross barriers, but in gold’s case this was not to be, although silver has so far been able to hang on to its plus $23 level although it has fallen slightly more than gold in percentage terms . For whatever reason, after breaching the $1,800 level to the upside by a few dollars, gold was not allowed to stay there at the week’s close and was bought down to $1,797.90. We had half suspected that it might regain $1,800 at the start of the current week in Asian or European trade but this was not to be, presumably the markets having been spooked by Friday’s PPI rather poor inflation figures suggesting that despite other readings to the contrary, the inflation menace may not yet have peaked after all, possibly putting any relaxation of the U.S. Federal Reserve’s interest rate relaxation policy at risk.
However, the CME’s Fedwatch Tool is still predicting that the Fed will reduce its interest rate rise at this week’s FOMC meeting to 50 basis points, rather than the 75 basis points it has imposed at the previous four such meetings by 72.3: 27.7 – a very strong margin – but this could change with a decidedly adverse showing from tomorrow’s Consumer Price Index (CPI) data report which is due out concurrent with the first day of the FOMC deliberations.
U.S. equities and cryptocurrencies are also, if anything, a little lower than they were at the end of last week, but not as much so as Asian and European equities, some of them having made small recoveries in today’s trade. Warnings abound though of likely falls ahead as economies everywhere do seem to be headed into recessionary periods – a point we have been making in the past and will, no doubt, continue to do so as long as the current inflationary tendency continues to persist with a potentially adverse impact on global economies.
Again, as we have noted in previous articles, counters to the equities downturns may be seen in the better gold and silver producer stocks which should be capable of mining their product at a comfortable profit at current bullion price levels. Most Tier 1 gold miners, for example, can probably mine their gold at an all-in cost of around $1,200 an ounce as against a current metal price of nearer $1,800 an ounce, which is likely to move higher if we are correct in our precious metals price projections. Gold and silver stocks have been significantly underperforming the respective metal prices, which should give the better ones significant leverage too as they come back into favour.
Our view on Tuesday and Wednesday’s FOMC meeting is not to expect any surprises. It would need a truly disastrous Consumer Price Index (CPI) data release tomorrow to deter the Fed from the slight relaxation in its interest rate raising agenda to the 50 basis points it has been pointing to. That would probably be the positive that gold requires to get it back on the plus $1,800 track – although on past performance it may take it a few days to get there. When it does don’t be too surprised to see silver, with its strong fundamentals, break through $24 as well. This week’s FOMC meeting could provide the fillip precious metals need to drive them to the next phase. But then Fed chair Powell’s post meeting summary and forecast could provide something of a dampener. Only time will tell.