StoneX Bullion Report

Gold tracks the dollar and US economic data

The first half of August has again seen gold mirror movements in the dollar, which by implication means tracking US economic numbers, and influential comments from members of the Federal Open Market Committee.  Last week saw a mixed bag of US inflation numbers, and these kept gold under some pressure as the dollar rallied and US Treasury yields rose. Recent precious metals price action suggests to us that we are now due for a period of consolidation, with gold and silver trading at the lower end of their recent trading range, with support at $1,900 and $22, respectively.

Gold and the ten-year Treasury yield (inverted)

Source: Bloomberg, StoneX

Gold and the US dollar

Source: Bloomberg, StoneX

Key economic data

US inflation came in broadly in line with market expectations; Consumer Price Index (CPI) headline inflation was 3.2% per annum, above June’s 3.0%; core inflation was 4.7% per annum, fractionally below the June reading of 4.8%.

Factory gate prices spooked markets, with worse than expected Producer Price Index (PPI) data; the PPI final demand inflation number was up 0.3% month-on-month, a notable jump from a revised flat number in June, and the largest gain since January, driven by rising service sector prices.The University of Michigan’s monthly survey of consumer sentiment showed a substantial drop from 76.6 to 69.0 with the expectations index falling from 68.3 to 61.5.  These numbers were still positive, 50 is neutral) which perhaps explains the markets’ indifference. The survey also reported that consumers’ one- and five-year inflation expectations, at 3.3% at 2.9% respectively, are still well above the Fed’s 2.0% target.

This week’s economic releases include US retail sales, expected to soften, business inventories, expected to increase fractionally, and housing data. China’s industrial production and retail sales data are also due and are expected to be marginally better than last month.

Silver tracks gold

Silver has been closely following gold, with the ratio between them remained unchanged at 84 – 85 last week.  We estimate that the market will have a silver surplus this year equivalent to roughly ten weeks’ global industrial demand, or roughly 4,300 tonnes. Physical investment in silver last year was more than enough to wipe out that year’s surplus. However, with investment activity presently sluggish, it isn’t certain that there will be enough investment interest to absorb the surplus this year.  This makes the relationship with gold more important.  Gold’s retreat last week took silver with it, from an opening level just above $23.60 to just over $22.60 currently, a drop of 4.3% against gold’s losses of 1.8%.

Gold/silver price ratio

Source: Bloomberg, StoneX

ETPs

There has been some tentative interest in the precious metal ETPs after recent price falls, notably as gold approached the $1,900 per ounce level. Gold ETPs saw creations of a combined 0.9 tonnes, a 0.4% increase, over two days at the end of last week. Silver ETP (?) interest, one day earlier, saw creations of a combined 94.0 tonnes, also a 0.4% increase, over three days at the end of last week.

Physical investment

Money Managers on COMEX continued to reduce gold and silver long positions. The position on Tuesday 8^th August was as follows:

Gold

• Net long gold positions fell by 67 tonnes, a 24% reduction, from 278 tonnes to 211 tonnes
• This compares with a twelve-month average of 151 tonnes
• Longs were reduced by 29 tonnes, or 7%, to 385 tonnes, and shorts were increased by 38 tonnes, or 29%, to 174 tonnes

Silver

• Net long silver positions fell from 2,035 tonnes to minus 608 tonnes, an 11% reduction.
• This compares with a twelve-month average of 1,326 tonnes
• Longs were reduced by 2,024 tonnes tonnes and shorts were increased by 618 tonnes.

Net silver positions, longs and shorts (COMEX, tonnes)

Source: Bloomberg, StoneX

Taken from analysis by Rhona O’Connell, Head of Commodity Market Analysis for EMEA & Asia, StoneX Financial Ltd.

Contact: Rhona.Oconnell@stonex.com.