Precious Metals Pump: Gold Prices and Silver Prices Jump in July

Market Update: Gold prices up 2.74% month-to-date

• With Fed rate hike odds pulling back, U.S. Treasury yields have dropped, paving the way higher for precious metals.
• Gold prices are up by 2.74% in July, while silver prices have gained 10.17% this month.
• Technical indicators now indicate near-term momentum has improved, suggesting further gains in the immediate future.

It’s been an interesting few weeks for precious metals.

In late-June, we discussed the potential for gold prices to continue to struggle and for a brief period, they did, bottoming out at 1900.60 in the first week of July. Something changed, however, after the release of the June U.S. nonfarm payrolls report, a feeling that was reassured by the June U.S. inflation reports—both the consumer price index and the producer price index.

What changed? The odds of a Fed rate hike took a meaningful step backward, and with U.S. Treasuries having a considerable net-short positioning bias in the futures market, a powder keg was lit for yields to come down across the board. Recently, we haven’t been shy on our optimism towards the bond market, at least from the technical perspective, which inherently means that the outlook for gold and silver–damned in June, darlings in July–must change as well.

For recent viewers and listeners of Futures Power Hour (Monday-Friday, 1 p.m. ET/12 p.m. CT) or Overtime (Monday-Thursday 4:30 p.m. ET/3:30. p.m. CT), these views will sound familiar, if not a verbatim repetition of what has been said over the past week–particularly since I abandoned my short gold position at 1950.

/GC Gold price technical analysis: daily chart (July 2022 to July 2023)

In the late-June update, it was noted that “the uptrend from the November 2022 and March 2023 lows has been broken, while the 1950-2000 range in /GCQ3 has broken to the downside. A return to the March lows below 1900 can’t be ruled out in the near-term.” Having hit a low of 1900.60, the measured move was completed, allowing for a period of consolidation or reversal.

The latter path was taken. gold prices have since traded through 1950, which constitutes a return into a former well-defined range. As a heuristic, I treat this kind of price action–false breakouts—as an indication that prices may soon revert to the other side of the range. It makes sense, then, that gold prices may be striving for another attempt at the level of 2000 soon.

Reinforcing the near-term bullish interpretation has been a shift in the momentum profile as well. The moving average convergence/divergence (MACD) is trending higher and nearing a cross above its signal line, while slow stochastics have returned to overbought territory for the first time since April. While I have fundamental reasons for why gold prices will not do well in either a higher for longer or soft-landing world, there’s no sense in trying to be short gold (in my opinion) when the technicals indicate that more upside may be in store; at 2000, bears may regain interest.

/SI Silver price technical analysis: daily chart (July 2022 to July 2023)

Silver prices have been outperforming their golden counterpart in recent weeks, outpacing gold by nearly four to one in July. The multi-month uptrend from the October 2022 and March 2023 swing lows remains valid, and it has been buttressed by the bullish falling wedge that formed between April and July.

In achieving a bullish breakout from this pattern, silver prices, as seen in /SIU3, may now be on track to return to the base of the wedge, the yearly high at 26.630. Technical indicators suggest momentum is firmly bullish, with silver prices above their daily 5-, 8-, and 13-EMAs, MACD trending higher through its signal line, and Slow Stochastics staying nestled in overbought territory.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multi-national firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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