Commodities Watch: Gold at record high, silver outperformed gold last week

Round-up

A quieter start on the economic front saw the risk rally taking a pause, after Wall Street carved out a strong recovery with an eight-day winning streak. The market retracement at the start of the month may have offered a reset for both bullish sentiments and technical conditions, which currently still stand at more neutral levels despite the sharp rebound.

While this seemingly leaves room for the rally to continue higher, markets will now await the upcoming speech from Federal Reserve (Fed) Chair Jerome Powell at Jackson Hole for a make-or-break moment this week. This comes as the S&P 500 trades just spitting distance (1.2%) away from its all-time high.

Ahead, laying the groundwork for a September rate cut is the bare minimum expected of the Fed Chair, with market rate expectations fully pricing in a 25 basis point (bp) cut next month. However, the Fed Chair will have to strike a more balanced tone in any upcoming guidance. Any delay in rate cuts will likely drive concerns of the Fed falling behind the curve, while committing to a more aggressive 50 bp may have to be accompanied with assurances that it is to normalise tight policy as opposed to a reaction for higher economic risks.

Spot Gold: Prices at record high amid lower Treasury yields, US dollar weakness

After trading in a consolidation phase over the past months, gold prices have found room for a break to new record high this week, with prices defending the US$2,500 level. Broad expectations priced for a series of back-to-back Fed’s rate cuts ahead continue to offer fuel for gold prices, with subdued US Treasury yields and a weaker US dollar in reaction to dovish rate bets helping to raise the appeal of the non-yielding yellow metal.

Central banks’ demand has been healthy in 2Q as well, with 2Q purchases at 3% above the five-year quarterly average of 179 tonne. Gold may also gain favour as an attractive hedge against geopolitical and economic risks, while SPDR Gold Trust ETF holdings suggest room for catch-up retail inflows to further support prices.

Technically, the daily relative strength index (RSI) has held up above its mid-line, with a break above the consolidation range likely to leave an eventual price target projection at the US$2,685 level. On the downside, the US$2,480 will be immediate support to hold, as the previous upper consolidation range will now serve as a level for buyers to defend.

Silver prices: Outperformed gold last week, but much awaits

Silver prices generally have a higher beta than gold, given that gold are deemed to be more stable as a safe-haven asset, while silver are susceptible to its industrial applications, which ties in with global economic activities. Over the past week, silver prices have surged by 6.5% compared to gold’s 1.6%, but despite so, a push to multi-year high for silver still seems out of sight. Prices currently still stand 9.6% below its May 2024 high.

The reason could revolve around some reservations over slowing global growth, partly reflected in the bond markets, which kept gold as the preferred choice compared to silver in any safe-haven flows. Additionally, silver’s returns (+25%) have been higher than gold (+22%) year-to-date, which dispel the need for any “catch-up gains”.

Near-term, the US$30.00 level will be a key overhang to overcome, where a resistance confluence stands. We have seen prices rejecting off that level upon a retest yesterday. Failure to overcome the resistance could see prices retrace to the US$28.41, but for now, buyers still seem to be broadly in control with rising bullish momentum as shown in its daily RSI and moving average convergence/divergence (MACD).