Weekly Market Report 76

Issue 76 – The week of July 31st, 2023

Key Resistance and Supports: Upcoming Week

Reports of Note due out this week:

We’ll get some key economic indicators this week with the latest updates on the labour market, ADP’S National Employment Report and July’s non farm payroll report.

• Monday will see the release the Chicago Purchasing Managers Report as well as Flash Estimates for Euro Area Inflation Rate(July) and Euro Area GDP Growth Rate (Q2 2023).
• Tuesday we will get S&P final U.S. Manufacturing PMI, ISM Manufacturing and the all important JOLTS (Job Openings). 
• Wednesday at 8:15 AM we see the release of ADP’s National Employment Report for July.
• Thursday we will get The Bank OF England Policy Meeting and Interest Rate Decision along with the Weekly Initial Jobless Claims in the U.S. The UK’s central bank will likely raise interest rares by a quarter of a percentage point to 5.25%. Also Factory Orders, S&P Global Composite PMI- Final Reading (Jul) and ISM Services PMI.(Jul).
• Friday brings The July Non Farm Payrolls report. Economists project U.S. employers added 184,000 jobs this month, slightly below a gain of 209,000 in June.

Geopolitics

The prospects for a gold-backed BRICS currency are uncertain as there are no plans for its announcement at the upcoming summit. India’s resistance to the idea presents a major obstacle, but Russia’s push for an alternative to the US dollar is fueled by geopolitical factors and propaganda. While a gold-backed currency is not on the agenda for the meeting, some experts conceptually agree with the prospect. The US government’s actions, such as locking Russia out of the SWIFT system and preventing dollar trade, have incentivized new countries to apply for BRICS membership. The addition of countries like Turkey and Saudi Arabia would have significant implications for global trade, potentially challenging the petrodollar’s foundations. 

After experiencing strong demand for physical silver in 2020-2022, North America and Europe have taken different paths in 2023. While North American demand remains robust, European investment in silver collapsed in the first half of the year, largely due to changes in Germany’s tax regime that affected silver coin sales. In the US, silver coin sales surged by 23% year-on-year in H1 2023, despite supply constraints and high premiums. The region experienced increased interest in safe-haven assets during the regional banking crisis. However, in Europe, silver bullion coin sales dropped by 57% year-on-year in H1 2023, with premiums returning to pre-COVID levels. 

Federal Reserve Chairman Jerome Powell stated in a press conference that the central bank might raise interest rates again at the policy meeting scheduled for September, depending on the data. However, Powell also mentioned that the Fed could choose to hold steady if the data supports that decision. The Federal Reserve will be making decisions on monetary policy on a meeting-by-meeting basis, considering a wide range of data during their deliberations. This statement comes after the recent rate hike, indicating the central bank’s cautious approach to managing the economy amid ongoing economic uncertainties.

The U.S. House Financial Services Committee has approved two crypto-related bills that aim to provide regulatory clarity for the country’s blockchain industry. The Financial Innovation and Technology for the 21st Century Act aims to establish rules for determining whether a digital asset is a commodity or security and clarifies which regulator has jurisdiction. It also allows crypto assets labeled as securities to be re-labeled as commodities under certain conditions. The Blockchain Regulatory Certainty Act promotes blockchain innovation and removes barriers to development by providing guidelines for non-custodial blockchain developers and service providers. The bills will now advance to a full vote in the House of Representatives before moving to the Senate for further consideration. However, a third bill, the Digital Assets Market Structure bill, was rejected due to concerns about increased power for the Commodity Futures Trading Commission and potential weakening of investor protections.

Elon Musk has fulfilled his promise to rebrand Twitter as “X” as part of his vision to create an “everything app.” The new CEO of “X,” Linda Yaccarino, envisions it as a future state of unlimited interactivity, centered around audio, video, messaging, payments, and banking, creating a global marketplace for ideas and services. Musk has integrated the letter “X” across multiple companies, aiming to create an all-in-one platform similar to China’s WeChat, allowing users to conduct various financial transactions within the app. The rebrand includes changing the Twitter logo to an “X,” altering the color scheme to black, and changing the URL to x.com, linked to Musk’s financial services startup. The move comes as Musk seeks to transform “X” into a major player in finance, banking, and payments.

The Call

The big news last week was that the Federal Reserve and the European Central Bank raised interest rates to continue the fight on inflation. The Bank of England is likely to do the same on Thursday this week. The talk is that inflation is coming down but not as fast as the central banks would like. The 2% target is still a long way off. Gold and Silver are going to go down in this type of environment. Money is not almost free anymore with a lot of people struggling month to month to survive. The retail investor will not be participating in the market as interest rates remain elevated. Gold is consolidating and is at a crossroad. A breakout and close above 2024.00 on the December contract and we resume the rally. A close below 1975.00 and the downside will continue. Only time will tell. My call is for a short term break to the downside to test the muddy waters.

Last Week in Review

As expected, The Federal Reserve raised interest rates a quarter of a percentage point to 5.25% at its FOMC meeting.

Gold opened the week at 1963 on Sunday evening and with choppy trading worked its way to a high of 1983 on early Thursday morning only to get knocked  off sharply to a low of 1942.00 later in the morning. From here, a small rally to close Friday at 1959.00. All in all an uneventfull week with gold closing down about 4.00 on the week.

Silver followed a similar pattern to golds with a narrow trading range between 24.07 and 25.21 settling with a lower close at 24.35.

• The U.S. Dollar Index rallied to a 2 ½ week high and then retreated after weaker than expected U.S. inflation news knocked it lower to 101.62.
• The Gold/Silver Ratio closed out the week a little weaker at 80.6 ounces of silver for 1 ounce of gold.