Gold and Silver both sold off sharply last week following the Federal Reserve Open Market Committee’s (FOMC) optimistic statement which suggested a strong US economy.
While the Fed continues to expect interest rates to remain low for at least the next two years, all indications are that by the second half of 2023 it could see possibly higher interest rates.
The statement prompted a sell-off across markets and a six-basis point increase in the 10-year Treasury interest rate. Gold and silver prices both followed suit with gold falling from an intraday high of $1,862 to as low as $1,775.50 on Thursday morning in New York. On June 16-17, silver broke below the $27.20 support level that had held for more than a month, dropping to $26.02. All too familiar territory
Proactive talked to Jeff Christian, the CEO of CPM Group – www.cpmgroup.com – a precious metal research and consulting house from New York to get his opinion on the moves.
CPM had been suggesting that the prices of all four major precious metals might weaken in the June-August period, before rising again in the final quarter of 2021. Its projection of weaker gold prices during this period was predicated in part on seasonal weakness in investor and fabricator demand during this time. CPM also anticipated investors to move away from gold and silver as hedges as the US and Europe coming out of the lockdown and a more controlled pandemic at least in the developed nations leading to a renewed optimism on economic growth.
So, where are precious metal prices headed next, both on a short-term and a longer-term basis?
Jeff Christian expects gold prices to remain vulnerable to another sharp leg down in the next few weeks. Following a short-lived consolidation or even a bounce, he reckons possibly another $125 per ounce decline taking gold down to around $1,680 – the low touched twice in March.
CPM’s forecasts, amongst other things, are also influenced by the Comex Gold and Silver futures. Open interest in the August Comex gold futures contract as of June 16 remained high, at 38.3 million ounces. The roll-over of these into October or December contracts over the course of July could push gold prices higher again as it has in the past two years before prices subside again in August.
Options-oriented investors could buy physical gold now along with puts, or buy straddles involving purchasing both puts and calls, according to Christian.
With silver, however, CPM has a slightly different take. July is the active futures contract for silver on the Comex, and open interest remains high with only 10 trading days remaining before first delivery day. This could take silver prices back up in the near term, with an initial target around $27.25 – the support level that had held since the middle of May until 16 June.
Prices could remain somewhat stronger for silver during the remainder of June, and then accompany gold in July as they have over the past two years, according to Christian.
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