THE POOL PROBLEM
In recent days, when uncertainty has reached its peak, the market has been moving back and forth between “Will the Fed ease?” and “Will Hormuz become tense again?” Precious metals are also being priced right in the middle of these two issues. Weak employment data from the US last week started the expected move in precious metals. The decline in nonfarm payrolls, downward revisions to previous months, and the slowdown in wage growth weakened expectations that the Fed could raise interest rates in September. As a result, while the dollar weakened, gold and silver rose strongly.
Gold is trading around $4,352 today. This week, attention will be on US inflation data. CPI will be announced on Wednesday and PPI on Thursday. If inflation comes in below expectations, it could further reduce the pressure on the Fed to raise interest rates and support gold. Stronger inflation data, on the other hand, could push the dollar higher again and cause part of last week’s rally to be given back. On the silver side, the move is much more aggressive than in gold.
Silver is currently at $67.62, down 1.09%. Developments in India are noteworthy. As high gold prices have pushed some consumers toward silver, the number of hallmarked silver products in the country has increased from 3.2 million to 5.9 million in one year. India is preparing to expand its silver testing and analysis infrastructure in response to increasing demand. Therefore, in silver, both investor demand and physical-industrial demand are beginning to come together in the same story.
Platinum is trading at $1,748 today, up 0.71%. Palladium, meanwhile, is negatively diverging today. The price is around $1,368, down 0.76%.
And Hormuz...The Strait of Hormuz is still hanging over the pricing of precious metals. Although Iran and Oman say they are close to finalizing new maritime transit routes, there is still no definite agreement on reopening the Strait. The market now wants to see concrete tanker movements and an official agreement rather than just statements. For precious metals, the equation works in two directions: the reopening of Hormuz and a decline in oil prices could reduce inflationary pressure and ease the pressure on the Fed to raise interest rates; this could support gold and silver. On the other hand, if renewed tensions push oil sharply higher again, safe-haven demand may support gold in the short term, but higher inflation and the possibility of a more hawkish Fed could put pressure on precious metals over the medium term. Therefore, this week’s question is not only “Will Hormuz reopen?” but also which direction oil will push Fed expectations.