The following is a market update as it related to precious metals prepared by SchiffGold intern commodities analyst Jason Mezhibovsky and SchiffGold News managing editor Mike Maharrey.
The price of gold surged this week, moving well above the $1,300 level and pushing close to the highs of the year.
There are several factors at play helping drive the metal above the critical $1,300 level, including the ongoing trade war with China, fears over Mexican tariffs and growing speculation that the Federal Reserve will cut rates.
Last week, equities were in “sell-off” mode, with significant declines among all indices, but stocks have rebounded this week, booking their second-largest two-day gain of the year Tuesday and Wednesday. Hopes of a near-term rate cut move by the Federal Reserve have overpowered pessimism on trade.
On Friday, Pres. Trump threatened Mexico with 5% tariffs beginning on June 10 of this year, and those levies are set to escalate to as much as 25%. Many investors fear that this will be a hefty blow for the growth of the economy, as Mexico is a significant trading partner.
Following this announcement, the Fed indicated it would closely follow the impact that these tariffs have, how they might affect the economic climate, and strongly suggested that a rate cut might be coming soon.
During a speech Tuesday, Jerome Powell made comments widely interpreted to signal the rising likelihood of a rate cut. The Fed chair dropped the word “patient” from his vocabulary, saying the central bank would respond as “as appropriate” to the perceived economic impacts of tariffs and other economic data.
Fed Governor Lael Brainard also took a dovish tone in an interview with Yahoo Finance, saying, “We’ll be prepared to adjust policy to sustain the expansion.”
Many mainstream analysts are now projecting rate cuts.
The Fed isn’t alone in contemplating looser monetary policy. The European Central Bank announced its easy-money exit strategy just one year ago, but analysts now think it will likely reverse course. Traders are betting on a rate cut this year.
Meanwhile, the 10-year yield to drop below the 3-month, presenting a yield curve environment that has both preceded rate cuts, as well as recessions. Some investor sentiments point to a looming recession that might come as soon as three quarters from now. Peter Schiff offered some analysis on the bond market in his podcast last week, saying bond buyers are right about a recession, but they are making the wrong bet.
The price of gold got another boost Wednesday on gloomy employment news. Payroll processor ADP said private employers hired 27,000 people in May, the lowest growth since March of 2010.
Central banks also are continuing their net purchases of gold, increasing their reserves especially relative to other assets, including currencies. This provides some support to the price increase, and any short-term declines could be caused by this inherent demand for the physical supply.
As discussed previously, silver is currently lagging behind gold in this rally. It is important to watch its price action closely in the coming weeks especially since gold appears to be on an upward trajectory. Silver might present a more attractive investment opportunity due to its cheaper valuation relative to its yellow counterpart.
The silver-gold ratio remains historically high — still above 89-1 at the time of this report. In other words, silver is significantly undervalued compared to gold. This means silver is on sale. And right now, SchiffGold has a great opportunity for you to take advantage of this bargain.
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