Gold and silver reach multi-week highs as payrolls miss trims rate hike expectations
Outside Market Developments: U.S. nonfarm payrolls fell 23k in July, well below expectations of +80k. It was the first negative print since February. Combined with back-month revisions totalling -103k, and the trend since March, concerns about a weakening labor market are escalating.
The jobless rate actually ticked lower to 4.1% from 4.2% as workers continue to abandon efforts to find jobs, shrinking the denominator. Labor-force participation has plunged to 61.4%, its lowest level since the pandemic years.
The FT reported on Thursday that "[Fed chair] Warsh would be prepared to raise interest rates at September’s meeting if inflation readings released in coming weeks are hot, and markets ratchet up their expectations for increases in borrowing costs, the people familiar with his thinking said.”
Labor weakness and the implications for growth arguably reduce those inflation risks, which have sparked a more dovish monetary policy tilt in the market. Prospects for a rate hike at the September FOMC meeting have fallen to 44.1%, versus 55% yesterday and 67% a week ago.
Yields and the dollar are in retreat. The 2-year is down about 8 bp, while the 10-year is off roughly 6 bp. The dollar index tested more significantly below the 100-day moving average and pressured eight-week lows at 99.38 before rebounding into the range.
Stocks are higher, with the Nasdaq outperforming as tech/growth names are benefiting most from the dovish shift. The S&P 500 is up modestly, within striking distance of record levels reached earlier this week.
In short, markets are pricing a lower chance that the Fed will raise rates next month, which is supporting risk assets and gold while pressuring the dollar and yields. Secondary factors (Middle East/oil developments, ongoing AI sentiment) are present but secondary to the jobs data.
Markets will primarily focus on U.S. inflation data next week, with the July Consumer Price Index report on Wednesday as the key event. A cooler reading could reinforce expectations that the Fed will hold rates steady in September following today’s soft jobs data, while a hotter print might revive rate-hike bets. Other releases to watch include the Producer Price Index on Thursday, retail sales on Friday, and the Reserve Bank of Australia’s rate decision.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$76.28 (+1.80%)
5-Day Change: +$305.00 (+7.54%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,311.66 - $5,595.02
Weighted Alpha: +18.62
Gold has extended this week's gains, reaching nine-week highs. The yellow metal is being buoyed by the NFP miss, which trimmed rate hike expectations and sparked a retreat in yields and the dollar.
With gold moving into what is historically a strong cyclical period, the market pulling away from the 20- and 50-day moving averages is bolstering confidence that a corrective low is in place at $3,945.52 (30-Jun). A short-term push above the 100-day MA at $4,392.11 would offer further encouragement to the bull camp.
Such a move would suggest potential to the midpoint of this year's range at $4,777.59, a level bolstered by the May high at $4,773.13. Key intervening barriers are marked by the 200-day MA at $4,500.72 and $4,584.68/$4,594.43 (38.2% retracement and 29-May high).
Whether this rally is sustainable in the short term will likely turn on next week's inflation data and the market's recalibration of rate hike probability. Initial support is defined by today's early US-session low at $4,306.90. Below that, the lows from Friday and Thursday at $4,230.25 and $4,223.75 come into play.
SILVER
OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$2.783 (+4.52%)
5-Day Change: +$6.142 (+10.66%)
YTD Range: $54.778 - $121.630
52-Week Range: $36.976 - $121.630
Weighted Alpha: +40.20
Silver surged to approach $65 in the wake of today's labor market disappointment, boosted by dimmed expectations for a September rate hike and a weaker dollar. The white metal moved convincingly above the 50-day moving average, reaching six-week highs before moderating somewhat.
Like gold, silver also has a historically bullish seasonal tendency that often kicks in during late summer. The late-June to early-September window has shown positive returns in roughly 60% of years, with average gains in the 5-9% range over that period in some studies. Keep in mind that September has frequently been one of silver’s stronger months on average.
Robust ongoing industrial demand adds a structural backdrop. Silver is in its sixth consecutive year of a supply deficit, with demand from solar, electronics, and AI hardware sectors outstripping available mine supply.
A convincing push above $65 would set sights on the declining 100-day MA at 69.021 and the still-rising 200-day MA at $71.446. The latter corresponds closely with the mid-June high at $71.539. Penetrations of these levels would shift focus to the $80 zone.
Focus will be on next week's inflation data. Both CPI and PPI cooled notably in June thanks to lower energy prices during a temporary de-escalation in the Middle East. However, underlying (core) inflation is still well above the Fed’s 2% target, and energy prices have risen again more recently, so the July reports will be closely watched for whether the cooling continues or reverses.
If silver is unable to sustain this week's rebound above $60, further defensive price action would have to be considered. If gold holds up, it seems the low for the year is probably in place at $54.778.
PGMs
Platinum and palladium posted solid gains this week, rising in tandem with gold and silver as the weaker U.S. jobs report drove yields lower and reduced Fed rate-hike expectations. Platinum climbed to a seven-week high of $1,781.87, while palladium advanced to a 10-week high near $1,800, though both metals saw somewhat muted physical demand in the spot market despite the broader precious-metals rally.
Platinum’s outlook remains encouraging longer term, due to tight supply from South Africa amid operational challenges and low historical investment. Steady demand from cars, jewellery and industry should keep it in deficit for years, even with EVs eating into some auto use.
Palladium demand is more heavily reliant on gasoline autocatalysts. Ongoing EV adoption poses a structural demand headwind that could limit the upside despite near-term supply tightness stemming from constraints in Russia and South Africa. Palladium may still transition to surplus by 2027 as primary supply stabilizes and secondary recycling recovers.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete, and/or up-to-date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Metals LLC unless otherwise expressly noted.