As the US started to wind down for the Independence Day holiday, precious metals perked up, although admittedly by pretty small amounts. Even so the moves could be significant given how frequently major U.S. holidays tend to precede changes in the directions of the precious metals markets.
Typically the July 4th holiday marks the start of the American summer holiday season and precedes a period of lighter trading statistics in the equities and commodities markets. Many traders and financiers take off to the Hamptons, or further afield, although the latter may be difficult this year due to travel restrictions in place to try and control the spread of the COVID-19 virus pandemic.
However the Hamptons and the eastern seaboard resorts will likely have a boom year this year due to international travel restrictions preventing most travel to Europe or beyond. The effect on precious metals prices may be hard to predict, but July and August have seen some of the highest gold and silver prices yet in recent years.
If the weather remains good in the beach resorts, which it usually is at this time of year, the feel-good factor comes into play and often prices have tended to advance accordingly.
But beware, this could all come crashing down at the end of August with those keen to see prices lower trying to read as much negative interpretation as possible into the discussions at the Big Fed Economic Symposium at Jackson Hole – which takes place this year from August 26-28.
This is followed almost immediately by the Labor Day holiday - on September 6th this year - which marks the end of the U.S. and Canadian holiday seasons, and the combination, and change of mood as fall and winter approach, can bring any positive price developments crashing down again.
I’m not saying that this will definitely happen, but the precious metals buyer should be aware of the potential ramifications of these dates and the seasonal influences that tend to move precious metals prices.
Any intimation at the Jackson Hole meeting that inflation may be rising out of control, as some fear, and that this could cause the Fed to start tapering (either by raising the Federal Funds interest rate, or cutting back on its current quantitative easing program), sooner than it has been indicating – the so-called ‘hawkish’ interpretation – could bring things crashing down.
It only requires a very short memory to recall the price aftermath of the June Federal Open Market Committee (FOMC) meeting which knocked a cool $100 and more off the gold price, although it has recovered some, but not all, of its lost ground since.
The big question is likely to be whether late August will give enough time for the markets to make the call on whether rising inflation is only likely to be ‘transitory’ as the Fed claims, or deep seated enough to cause problems down the line. If the latter interpretation prevails gold, silver and the pgms could be in for a torrid time price-wise.
There may be a crumb of comfort for the precious metals buyer, though, in the latest statistical chart on the gold price and the 10-year USA Treasury Inflation Protected Securities (TIPS) yield published by Murenbeeld & Co in Canada in the consultancy’s latest Gold Newsletter. Over the years the consultancy has demonstrated the extremely close relationship between movements in the gold price and the inverse of the 10-year TIPS yield.
For the past couple of weeks, coinciding with the latest perhaps engineered weakness in the gold price, these figures have widened significantly. This suggests either irrational gold price weakness, or an undue fall in the TIPS yield. We suggest the former is most likely and the gold price may catch up accordingly.Where gold goes the other precious metals, particularly silver, tend to follow.
The above could well account for the apparently stronger gold price ahead of the Independence Day holiday. It still has a bit of a ways to go before the apparent imbalance is restored so keep an eye on the figures. They could well suggest a gold undervaluation with yellow metal due for further price recovery.
by Lawrence Williams
Lawrence (Lawrie) Williams is a highly regarded London-based writer and commentator on financial and political subjects, specializing in precious metals news and commentary. He graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London. He has contributed articles on precious metals to the Financial Times, Sharps Pixley, US Gold Bureau and Seeking Alpha among others.