Safe-haven demand was not enough to push gold any higher this week, despite the explosive exchange between Israel and Iran. It is fair to say that the conflict escalated further than most were predicting, but fortunately talks of a ceasefire are beginning to surface. Gold fell back below $3,400 on Monday and has since made no effort to claw back the losses. On Tuesday, while gold prices were busy floundering in irrelevance, silver took the opportunity to pump over 2% to close above $37 an ounce. Silver has enjoyed an impressive rally so far this month, and interestingly one that has been completely independent of gold. The divergence between the two metals is of historical significance. By and large, silver and gold tend to move in the same direction on any given trading day, but this rule of thumb is currently being tested and silver seems to be acting on its own whims. The same can also be said of platinum, which is up 5% this week already.
Difficult to say what markets are predicting for the next chapter in the Middle East, but as far as oil markets are concerned, we are not out of the woods just yet. Brent Crude futures are closing in on $77 a barrel while WTI has climbed above $75. Prices have surged because market participants are afraid of potential supply disruptions, but so far, such disruptions have not materialised. No supply cuts have occurred as of yet, and the Strait of Hormuz remains clear. Should calmer heads indeed prevail, it will suddenly become much harder to justify current oil prices.
The Fed is up in a few hours. Markets will be shocked if the board delivers anything but a rate hold, but the devil is in the details. Will Powell finally soften his tone and hint at a rate cut in the future? Anything is possible but “no” is the likely answer. Interest rate traders are not predicting a cut until September at the earliest. Long summer ahead.
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