Market Update | 04/07/2023

Gold ended slightly higher, anticipating the United States Independence Day Holiday with a focus on the Federal Reserve.

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Today’s observations

On Monday, gold experienced mild selling pressure in Asia, dropping to the day’s low of $1911. However, it found stability in Europe and then rallied sharply by 1% in New York, reaching a high of $1930. The increase happened amid modest trading volume in thin markets, with many participants taking an extended weekend break before the United States Independence Day holiday today.

The yellow metal concluded with a marginal gain of 0.1% at $1922, hovering close to this level the following morning. A low-key session is expected due to the absence of the United States markets, with a projected trading range of $1915 to $1930 in anticipation of the Federal Open Market Committee (FOMC) minutes tomorrow. Meanwhile, the industrial precious metals had a robust start to the week, with silver gaining 0.57% to $22.90, platinum rising 0.88% to $913, and palladium adding 1.31% to $1938.

Market Commentary

Tuesday saw flat gold prices due to thin trading attributed to a United States holiday. Meanwhile, traders are waiting for the United States Federal Reserve’s minutes from the June meeting, due on Wednesday, for more insights into its future interest rate trajectory. Spot gold saw little change at $1,921.39 per ounce by 0241 Greenwich Mean Time (GMT), while United States gold futures remained steady at $1,929.10.

The current obstacles for gold include expectations of a further 50 basis points tightening, increased liquidity withdrawal, and rates maintaining a relative high after the Terminal value is achieved, said Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery. Investors see an almost 90% chance of a 25-basis-point hike in July, according to the Chicago Mercantile Exchange’s (CME) Fedwatch tool, which would put rates in the 5.25% – 5.50% range before reductions are expected post-March 2024. High-interest rates deter investment in non-yielding gold. The dollar index remained steady.

United States manufacturing fell further in June to its lowest reading since May 2020, according to Monday’s data. Despite this, price pressures continue to decrease as bottlenecks in the supply chain have significantly eased, and higher borrowing costs are tempering demand. The market is also keeping an eye on the minutes from the June 13-14 FOMC meeting, set to be released on Wednesday. Frappell added that while gold prices could recover to $1,940 before a potential drop lower, “the rates background remains a significant drag.”

Japan’s top financial diplomat, Masato Kanda, mentioned that authorities are in close contact with the United States and other overseas authorities due to the yen dropping to a near eight-month low against the dollar last week. The Reserve Bank of Australia’s (RBA) policy decision will also be closely watched during Asian market hours. Spot silver rose 0.1% to $22.91 per ounce, platinum increased by 0.6% to $912.15, while palladium jumped 2% to $1,253.95.

Economic analysis

The S&P Global United States Manufacturing Purchasing Managers Index (PMI) was confirmed at a six-month low of 46.3 in June 2023, indicating a second consecutive monthly decrease in the health of the manufacturing sector. This downturn was due to a fresh decline in output and a sharp downturn in new orders, pulled down by suppressed demand resulting from inflationary pressure and higher interest rates.

Despite a steep drop in backlogs of work, manufacturers continued to replace voluntary leavers and fill long-standing vacancies, indicating further employment growth. A lack of new orders led firms to persist in their efforts to reduce stocks with input buying also contracting markedly. On the price front, cost burdens fell at the fastest pace for over three years. Weak demand conditions led to broadly unchanged output charges on the month as firms sought to attract new sales. Lastly, business expectations were the lowest so far this year according to Markit Economics.

Construction spending in the United States rose by 0.9% month-over-month to a seasonally adjusted annual rate of $1,925.6 billion in May 2023, after a downwardly revised 0.4% rise in April and slightly above market forecasts of a 0.6% rise. This was the strongest increase in construction spending in four months. Private spending rose by 1.1%, boosted by the residential segment (2.2%), with spending on single-family projects increasing by 1.7% while outlays on multi-family housing projects fell by 0.1%. The non-residential sector shrunk by 0.3%, especially for religious (-6.7%), health care (-2.1%) and commercial (-1.8%). Meanwhile, public spending ticked up by 0.1%, hampered by weak growth in the non-residential segment (0.1%). Yearly, construction spending grew by 2.4% in May.  Source: the United States Census Bureau.

Gold Chart ($/oz)

Silver Chart ($/oz)

Platinum Chart ($/oz)

Palladium Chart ($/oz)

This document is issued by Value Trading BV. While all reasonable care has been taken in preparing this document; no responsibility or liability is accepted for errors of fact or for any opinion expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only and for private circulation. It does not constitute any offer, recommendation or solicitation to any person to enter into transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration.