Written Commentary
GOLD
December gold futures advanced to new record highs yesterday and also again today. Much of yesterday’s gains and follow-through strength today can be linked to the U.S. Treasury yesterday releasing its monthly budget statement, which showed a substantially larger than anticipated deficit in August.
In addition, gold is being supported by prospects of a Federal Reserve pivot to accommodation. Currently there is a 57% probability that the Federal Open Market Committee will lower its funds rate by 25 basis points at its September 18 meeting, and there is a 43% probability that the FOMC will reduce its key interest rate by 50 basis points in September. Yesterday the probability of a 25 basis point reduction was 87% with a 13% probability of a 50 basis point reduction.
There is a rule of thumb that there often will be follow-through gains when a market advances to new record highs.
SILVER
December silver futures advanced above a steep downtrend line yesterday, and there is followed-through strength today. Recent gains can be partially attributed to increasing prospects of a more aggressive pivot to accommodation from the Federal Open Market Committee. There was some support for metals after the European Central Bank at its policy meeting yesterday lowered its key interest rates by 25 basis points.
In addition, some of the gains can be linked to hopes of increased industrial demand.
COPPER
Yesterday December copper futures broke out above a six-day congestion pattern, although prices are steady today. The $4.240 resistance level is holding for a second day.
Some of the gains can be linked to declining copper inventories in Shanghai Futures Exchange warehouses in recent weeks, reversing the increases that were seen in July. Coming easier credit conditions from the Federal Reserve remain a supportive influence.
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