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Silver price up as jobs data went down

06 August 2021

Investors need to be nimble

Friday 6 August 2021

In this week's market report:

  • Silver’s up as jobs data went down

  • Kitco says gold traders need to be ‘nimble’

  • Raising the bar on responsible sourcing

  • Inside our office this week:

  • Before you go…

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

Welcome to our new look Precious Metals Market Wrap.

Each week, we’re going to bring you insight to the events that moved the precious metals markets and what that means for Australian investors.

Silver’s up as jobs data went down

(Click to enlarge)

Source: ADP Research Institute; Cision PR Newswire

 

What happened: Overnight the US ADP pay roll data (non-government statistics) was weaker than anticipated. The market was expecting 692,000. Instead, 330,000 new positions were added to the US economy in July, a halving of the 680,000 for June. CNBC noted that this the lowest private payroll number since February this year.

What is means: One data set isn’t a trend. Though the US post-recession economic recovery is being called into question.

  • Wall Street will now be looking for clues from the Federal Reserve Bank on their reaction to these data sets. Fed Vice Chair Richard Clarida commented during the week that inflation risks are moving to the upside with US unemployment now at 3.8% (more below).
  • The participation rate of the labour force in the US may become less relevant in the months ahead. This data may be the trigger point for the Federal Reserve to signal they will be withdrawing stimulus measures. Any firm direction isn’t expected until at least Jackson Hole in September, though October is more likely.

What do precious metals say: Put simply, precious metals didn’t know which way to go on the news.

  • Breaking both gold and silver prices into minute price charts, gold had a stronger dip than silver. Gold saw US$9 per ounce price slide on the back of the data. Silver on the other hand seesawed but finished the Thursday trading session in a more stable position than gold.

Are the bears out for silver?: Perhaps not. As Jeff Christian the founder of CPM Group said during the week, silver markets are ‘vulnerable to a wave of selling in August and into September’.

  • The main buyers of silver – the jewellery market and electronic manufacturers — slow their purchases of the metal during this time as many firms run skeleton crews while staff take leave. Production is down so buying is down. Jewellery and electronic manufacturers are important sectors to watch in the silver space as they account for half of all silver purchases, tipped to reach half a billion ounces this year.

There are reasons to be bullish: The long-term case for silver holds. CPM group recently noted ‘that precious-metals prices are presently in the foothills of a much larger increase in the prices of these metals over the next several years’ pointing to the energy transition underway. Silver is a critical metal required for this.

  • In the short term however, Christian hinted at two price target silver investors should watch saying, ‘If you see US$24 an ounce prices, then buy it because the probability is that we’ll see US$28 soon’.

Key silver levels to watch in our currency: Taking Jeff Christian’s silver targets into consideration, a direct currency conversion would imply that a buying range of silver at AU$32, and then a move to AU$37.

  • Looking at an XAGAUD chart however, AU$33 is more likely to be the low for this price cycle.
  • Silver in Australian dollars has struggled to remain above AU$37 in recent months. If you’re looking to increase your silver position, we should see the white metal find support between $32.50-$33.50.
  • Taking Christians’ analysis into account, look to silver moving upwards into October. 

Australian dollar silver price [XAGAUD]
Daily Chart

(Click to enlarge)

Source: Trading View

Kitco says gold traders need to be ‘nimble’

Volatility ahead: Kitco says gold traders will need to remain nimble in the coming weeks as gold reacts to market data. Pointing out the US dollar gold price is struggling to stay above the 200-day moving average (below).

  • The comments from Fed Vice Chair Richard Clarida earlier in the week will be weighing on investors mind, with him telling the market ‘Necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022’. Once again confirming for many participants tightening measures are being considered.
  • Worth bearing in mind, is that the ‘stagflation’ word is making its way into our lexicon once more. The Fed has insisted inflation is transitory. It may well be. Nonetheless rising inflation data amongst mixed economic output does sow the seeds for a stagflation environment.

Don’t let the volatility make you reactive: Gold may be struggling to maintain it’s recent gains. Yes, the 200-day MA will provide some resistance for the yellow metal (below), but we note that there is strong support for gold at US$1,790. It’s unlikely gold will be pushed too far below this point without a significant shock from markets.

For Australians: At the time of writing, the gold price in our currency was sitting at AU$2,438. There is soft technical support for the Aussie dollar gold price around here. With the Aussie dollar currently stable between 73.50-74.00 US cents, we should have limited volatility with gold denoted in our own currency.

US Dollar gold price
Daily Chart

(Click to enlarge)

Source: Trading View

Raising the bar on responsible sourcing

Where do you precious metals come from? For decades this was a sticky question for investors.

Nonetheless, this is no longer a taboo subject. Investors and consumers alike are starting to ask hard questions about where their precious metals come from. More to the point, this same group are insisting on the traceability of their precious metals.

ABC Bullion has been a market leader in this space. For the past couple of years, we’ve set an Australian standard, as knowing where your precious metals come should be the minimum.

We pride ourselves on being able to trace the entire life cycle of all our gold and silver.

Beginning with the responsible sourcing of refinery inputs coming from conflict free areas and right through to the processing of investment grade bullion and coins. We refine over 30% of all Australian gold, and more than 70% of Australian silver.

This means when you hold an ABC Bullion bar or coin, you know these metals have been ethically sourced.

The Financial Times reported that other companies are understanding consumers value this too, saying ‘two Britons aim to provide a mass-market service that address the traceability of gold’.  

Here at ABC Bullion, we’re thrilled to see our peers are having this discussion in the Northern Hemisphere, as we all need work together in providing ethically sourced precious metals to the market.

Inside our office this week

An interesting outcome of having millions of Australian’s in lockdowns…we’ve seen a rise in the number Gold Saver accounts being opened.

For those of us in Sydney, Melbourne and Brisbane being forced to slow down our lives many of our clients have been taking this opportunity to reassess their financial goals and where precious metals sit in their portfolio.

Gold Saver accounts are a fantastic tool to build a position in precious metals over time. Click here or call us on 1300 361 261 to learn how to create a ‘set & forget’ fortnightly deposit and slowly build your position in precious metals.

Before you go…

Now, to ease you into your weekend click below to listen my latest interview with Nick Frappell.

Nick covers the recent moves in the gold price and what the inflationary data coming from the US means for you.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion

PS – Don’t forget, if you’re in Sydney, Melbourne or Brisbane we are open for click and collect only. Please call us on 1300 361 261 to discuss how we can help you with your bullion investments during this time.

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