Log in Open account
Hong Kong S.A.R
Sluggish US economic indicators boost demand for gold and silver Sluggish US economic indicators boost demand for gold and silver Sluggish US economic indicators boost demand for gold and silver

Sluggish US economic indicators boost demand for gold and silver

Commodities
Ole Hansen

Head of Commodity Strategy

Key points

  • Gold and especially silver are showing signs of breaking their recent trading ranges
  • Supported by further signs that the US economy is slowing, thereby raising the prospect of the Federal Reserve pivoting towards more than just one rate cut this year
  • Further progress will depend on interest rates and the timing of the first US cut, economic conditions and geopolitical factors.

Gold and especially silver are showing signs of breaking their recent trading ranges, supported by further signs that the US economy is slowing, thereby raising the prospect of the Federal Reserve pivoting towards more than just one rate cut this year. Both metals traded higher ahead of the US Independence Day holiday after figures showed the US service sector contracted in June at the fastest pace in four years, due to a sharp pullback in business activity and declining orders. Earlier in the week the ISM manufacturing PMI for June fell to 48.5, for a third consecutive month, indicating a contraction across the manufacturing sector.

This data which extended a recent run of softer-than-expected data prints saw US Treausry yields soften, the Dollar pairing back some of its recent gains while adding further fuel to expectations for a US 25 basis point rate cut as early as September followed by another in December. 

For a closer look at the technical outlook for gold, silver, copper as well as the platinum-group metals, please check the latest update from Kim Cramer, our technical analyst expert. 

Source: Saxo

The Citi Economic Surprise Index (CESI) is a measure that gauges the extent to which economic data releases either exceed or fall short of consensus forecasts. A positive reading means that data releases have been stronger than expected while a negative reading points to the opposite. Looking at economic data releases for the US we find the CESI has traded in negative territory for the past two months with recent weak economic data triggering an accelerated decline.

On Friday, the US jobs report for June may indicate a further cooling of the labor market with analysts’ expectations pointing to a slower growth in nonfarm payrolls, and if the data is accompanied by a higher unemployment rate and slowing wage pressure, the market may add further fuel to a gold and silver supportive rate cut. In our Q3-2024 outlook published earlier this week, and which was followed up by this across-market focused podcast, we highlighted the strong gains seen already in gold (14.2% YTD) and silver (28%) as the reason for a potential pause this quarter, as investors and central banks adapt to higher prices. The duration of this pause will however depend on interest rates and the timing of the first US cut, economic conditions and whether they continue to deteriorate together with geopolitical factors.

The increased likelihood of a Trump presidency may increase the risk of unfunded tax cuts, like those implemented during Trump's first term, which may boost consumer spending and business investment, potentially leading to higher demand and upward pressure on prices, potentially strengthened by the risk of increased tariffs on imports and trade wars.

Historically, the beginning of a rate cut cycle has been supportive for gold as it normally is associated with a period of economic weakness while driving down the cost of holding a non-coupon paying gold or silver position. Surging funding costs since the Federal Reserve embarked on its aggressive rate hike cycle in 2022 has seen total holdings in bullion-backed exchange-traded funds slump by almost a quarter to 2526 tons, the lowest level since 2019.

We maintain our positive outlook for investment metals with the below drivers still the focus. 

 

  • Geopolitical risks related to Russia/Ukraine, the Middle East and not least uncertainty regarding the November US president election.

  • Strong retail demand in China amid the desire to park money in a sector seen as relatively immune to a struggling economy and property woes and the outside risk of the Yuan devaluing.

  • Continued central bank demand amid geopolitical uncertainty and de-dollarisation, and not least gold’s ability to offer a level of security and stability that other assets may not provide. We view the PBoC’s buying pause as temporary. 

  • Rising debt-to-GDP ratios among major economies, not least in the US, raising some concerns about the quality of debt. In other words, rising Treasury yields are not necessarily negative for gold as they raise the focus on overall debt levels and the sustainability of those.

  • In addition, we may see the focus change from the negative impact of lower rate cut expectations towards support from a reaccelerating inflation outlook.

 

Where gold goes, silver goes, but faster, and with that correlation maintained we stick to our end of year gold forecast at USD 2500 and silver at USD 35.

 

 

Recent commodity articles:

4 July 2024: Podcast Special: Quarterly Outlook - Sandcastle Economics
2 July 2024: Quarterly Outlook - Energy and grains in focus as metals pause
1 July 2024: COT: Crude long builds ahead of Q3 while grains selling accelerates
28 June 2024: Metals and natural gas propel commodity sector to quarterly gain
26 June 2024: Crude seeks support from seasonal demand strength
24 June 2024: Copper's resilience despite China weakness
18 June 2024: Precious metals go through prolonger period of consolidation
17 June 2024: COT: Dollar long jumps; Funds start rebuilding crude long
14 June 2024: Commodity weekly: Energy sector gains counterbalance metal consolidation
13 June 2024: Oil prices steady amid divergent OPEC and IEA demand projections
10 June 2024: COT: Brent long cut to ten-year low; metals left exposed to end of week slump
3 June 2024: COT: Crude length added before OPEC+ meeting; gold and copper see profit-taking
31 May 2024: Commodity weekly: Strong month despite late decline in crude and fuel
27 May 2024: COT: Gold and crude see increased demand as dollar longs plummet
24 May 2024: Commodity weekly: agriculture surges, metals fall on fading rate cut hopes
23 May 2024: Podcast: 2024 is heavy metals
22 May 2024: Crude oil struggles near two-month low
17 May 2024: Commodity weekly: Metals lead broad gains 
16 May 2024: Gold and silver rally as soft US data fuels market optimism
15 May 2024: Copper soars to record high, platinum breaks out
14 May 2024: COT: Crude long slump; grain purchases surge
8 May 2024: Fund selling exacerbates softening crude outlook
8 May 2024: Grains see bumpy start to 2024 crop year
6 May 2024: COT: Commodities correction spurs muted selling response
3 May 2024: Commodity weekly: Grains boost, correction in softs and energy
2 May 2024: Copper's momentum-fueled rally halts amid weakening fundamentals


Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 07

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article

  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article

  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article

  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article

  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article

  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R
Products & pricing
Asset Management
Platforms
Accounts & service
General
Other
Legal

Losses can exceed deposits on margin products. Please ensure you understand the risks.

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.