You may have heard about the looming U.S. recession and are wondering whether or not to invest in silver products or gold. But before you make that decision, it is crucial to understand the current state of the U.S. bullion market.
The bullion market in the United States includes either an active futures exchange trading market or a significant physical commodity market. COMEX is best known for gold, silver, copper, and aluminum commodity futures traded on the Intercontinental Exchange (ICE) in New York. However, there are very few physical exchanges of commodities in the United States.
An Overview of the Bullion Market
The gold price eroded the last day’s positive post-US CPI bounce and came under severe market pressure on Wednesday, July 11, 2022, falling over 2% to a nearly one-year low.
The U.S. dollar maintained its continuous ascent, reaching a new two-decade high amid plunging expectations for the Federal Reserve to tighten policy more quickly. It, in turn, was viewed as a critical factor in putting pressure on dollar-denominated commodities.
Rising Consumer Price Inflation
After statistics released on Wednesday revealed that U.S. consumer price inflation in June had advanced to the highest level since November 1981, markets began pricing in a massive Fed rate rise.
Furthermore, when questioned about the possibility of a 100 basis point rise, Atlanta Fed Governor Raphael Bostic stated that everything is on the table to contain stubbornly rising inflation.
Furthermore, the U.S. Producer Price Index (PPI) released on Thursday outperformed forecasts by a wide margin, further reinforcing the Fed’s hawkish outlook. Rising expectations for a record 100 basis point rate hike boosted the greenback, driving capital away from non-yielding gold.
Investors Shorting Gold Futures
According to the CFTC’s disaggregated Commitments of Trades bulletin for July 12, money managers reduced their speculative gross long Comex gold futures holdings by 11,803 contracts to 91,669. Simultaneously, short holdings increased by 11,364 contractual agreements to 97,802.
Gold’s speculative stance has gone net short on 6,133 futures for perhaps the first time since May 2019. Gold prices challenged support at around $1,700 per ounce throughout the survey period.
According to July 2022 reports, gold continues to suffer as the Federal Reserve continues its strong monetary policy stance. Markets began to price in the potential for a total 1% increase in the Federal Funds rate last week when U.S. inflation surged to a 40-year peak of over 9%. However, expectations have lowered, and markets are now OK with a 75-basis-point hike.
According to some, the Fed’s aggressive posture may force the United States into a recession, causing enough demand disruption in commodities markets to moderate red-hot inflation pressures.
SocGen analysts stated that the current climate is bumping up real rates and the U.S. currency, two significant headwinds for gold.
Interest Rates Affecting the Price of Silver
According to the disaggregated data, money-managed speculation gross long holdings in Comex silver contracts declined by 227 futures to 37,095. Simultaneously, short holdings increased by 1,476 options to 47,543.
As the July 2022 reports say, silver’s net short position is 10,448 contracts, unchanged over the past week. Silver prices fell below $19.00 per ounce throughout the survey, and testing support at $18.00 per ounce.
Silver, according to analysts, is far more vulnerable to mounting economic worries. The lower business output would result in lower industrial demand for gold, and industrial applications account for over 60% of silver demand.
Although silver sentiment remains negative, some analysts believe it will be the first to rise if the mood begins to improve. Industrial metals such as copper are showing indications of bottoming.
Prices of Gold and Silver
In June, the demand for gold dropped by 76%, while the silver market went down by 69%. Let’s look at their current prices.
Recent Gold Prices in the United States
According to the most recent Commodity Futures Trading Association statistics, hedge funds have gone net pessimistic on gold for the first time in 3 years.
Even though the gold market appears fundamentally oversold, many experts believe that the market’s negative trend might send prices below $1,700 per ounce.
According to Monex, gold prices per ounce stand at $1,714, and gold prices per gram are around $55.11 as of July 20, 2022.
Recent Silver Prices in the United States
The silver market struggled through most of June. The looming recession has sparked fear among investors and individuals, discouraging them from investing in silver bullion. It is because silver demand comes from industrial usage, and experts believe that most industries will be affected by the forecasted recession.
According to Monex, silver prices per ounce stand at $18.8, and silver prices per gram are around $0.6 as of July 20, 2022.