Why Gold And Silver Prices Spiked: What Comes Next?

Key Concepts

Economic Downturn and Interest Rate Cuts: Weak jobs report signaling economic problems, leading to expectations of Federal Reserve interest rate cuts.
Precious Metals Market Dynamics: Investor buying driven by economic and political concerns, leading to price increases in gold and silver.
Silver Market Specifics: Active contract month dynamics, registered vs. eligible inventories, futures contract deliveries, and Comex open interest.
Platinum and Palladium Outlook: Platinum's speculative interest and import data, palladium's industrial demand sensitivity.
Investor Caution: Advice on allocated metal storage and sourcing investment advice.
CPM Group's Track Record: Defense of their long-term price projections for silver.

Summary

Economic Indicators and Federal Reserve Policy

The recent jobs report released on Friday morning indicated a significant slowdown, with only 22,000 jobs created compared to a previous figure of around 73,000. Unemployment remains around 4.3%. This pessimistic economic data strongly suggests that the Federal Reserve will implement an interest rate cut at their upcoming meeting. The "Fed watch" contract indicates a 98% probability of a 25 basis point cut, with some speculation about a potential 50 basis point cut, though CPM Group's expectation is for the former. This situation is described as the Fed cutting rates due to significant economic problems pointing towards a severe recession.

Gold Market Analysis

Gold prices experienced a significant drop before the jobs report, but subsequently spiked by approximately $33, trading around $3,640 shortly before the presentation. CPM Group's prior expectation was for gold prices to rise, projecting $3,500 by the end of August and $3,600 in September/October. The $3,500 mark was reached on August 29th, and prices have since exceeded $3,600, though they have pulled back slightly. The longer-term expectation for gold is a potential rise to $4,000. The primary driver for gold and silver price increases has been investor buying, fueled by perceived economic, financial, and political problems globally, particularly in the United States. These concerns are seen as worsening and unlikely to be resolved soon, supporting continued investment demand. CPM Group believes this is a secular bull market for gold, expected to persist through 2026 and potentially beyond. While acknowledging periods of profit-taking by short-term investors, the underlying long-term factors are expected to continue driving prices higher. A potential pullback to $3,400 is considered possible, but investors are expected to view this as a buying opportunity.

Silver Market Analysis

Following the jobs report, silver prices surged to $41.86, up from around $41.30 prior to the announcement. While there is considerable bullish sentiment and speculation about much higher prices (e.g., $70), CPM Group suggests caution. They note that silver prices have moved from $39 to $41-42 in the last five trading days, and a return to $39 is quite possible within a similar timeframe. This recent spike is attributed to expectations of interest rate cuts, political and financial crises, geopolitical tensions (specifically mentioning China), and ongoing economic and political dysfunction in the US, Europe, Russia, and China.

Silver Inventory and Futures Data:

September Contract Dynamics: September is an active contract month for silver.
Registered Inventories: On August 29th, registered silver inventories were 200 million ounces, with total inventories at 518 million ounces. By September 3rd, registered stocks decreased to 195 million ounces, while total stocks remained at 517 million ounces. This reduction in registered stocks is largely attributed to a shift into "eligible" categories.
Historical Inventory Comparison: On June 30th, registered stocks were 190 million ounces and total stocks were 499 million ounces.
Futures Deliveries: In the first delivery day of the September contract, 7,000 contracts (38.5 million ounces) were delivered. Through September 3rd, 10,000 contracts (50 million ounces) had been delivered.
Comex Open Interest: September contract open interest has fallen to 8.9 million ounces. The roll from September to December is largely complete, with December open interest at 668.8 million ounces. There are 195 million ounces available to cover the remaining 8.9 million ounces for the September contract.
Delivery Trends: CPM Group highlights historical delivery figures during active months (e.g., 29-82 million ounces in previous contract months) and notes that despite large deliveries, inventories on Comex depositories and registered open interest remain at record levels. This is presented as evidence that the market is not experiencing a crisis but rather increased investor demand.

London Bullion Market Association (LBMA) Data: The liquidity situation in London, which was a concern in February-May, is reportedly passing. Silver registered in LBMA depositories has increased from approximately 711 million ounces five months prior to around 778 million ounces by the end of July.

Platinum and Palladium Market Outlook

Platinum: Platinum prices have risen recently, spiking to $1,400 after being below $1,340 before the jobs report. There is significant speculative interest in platinum, driven by the potential for short-term profits in futures and options trading. While platinum may not reach historical highs seen in 2007-2011, short-term trading opportunities exist.

Chinese Platinum Imports:

April-June Surge: A notable increase in platinum imports into China occurred in April, May, and June, returning to levels seen in the same period of the previous year. This surge was amplified by some promoters.
July Data: In July, imports were 40% lower than the May high and down 22% compared to July of the previous year. CPM Group concludes that this is not a crisis and Chinese fabricators are not aggressively entering the platinum market.

Palladium: Palladium prices rose in June and July but have since pulled back. Unlike gold, silver, and platinum, palladium prices remained largely unchanged on the morning of the jobs report. CPM Group expects palladium prices to drift lower because it is an industrial metal heavily reliant on the automotive sector, which is negatively impacted by job losses and recessions.

Cautionary Notes for Investors

Allocated Metal Storage: Investors are advised to carefully examine their account reports to ensure their metal is allocated and segregated. They should verify who the metal is allocated to. There have been instances where investors were charged for allocated metal, but the allocation was to the broker, not the investor. It is crucial to insist that allocated metal is personally allocated to the investor, not the broker, to ensure protection in case of the broker's financial difficulties.
Investment Advice Sources: Investors are urged to consider the source of their investment advice. They should be wary of advice from marketing groups paid to sell precious metals, brokerage house analysts who rely on free research from marketing groups, and market gurus who may have a history of being incorrect. CPM Group positions itself as a research company paid to provide accurate information with a strong track record.

CPM Group's Track Record and Projections

CPM Group addresses a comment from an individual named "MW" who claimed that if they had listened to CPM Group, they would have sold all their silver three years ago. CPM Group refutes this, stating that in September 2022, the average silver price was $18.84. A 2022 report from CPM Group projected the silver price to rise from $18.84 to an average of $36.85 in the current year. The average price through August has been $34.34, indicating their projection was largely accurate. They interpret MW's comment as a misunderstanding or misrepresentation of their advice.

CPM Group offers their "Precious Metals Advisory" service, which includes monthly updates with projections for gold, silver, platinum, and palladium over the next three months and eight quarters. The September issue, released the previous night, contains detailed analysis and projections.

Conclusion

The global economic and political landscape is described as exceptionally difficult and not improving, which is a significant factor for investors interested in gold and silver. CPM Group reiterates the importance of taking care of oneself and others and encourages positive actions. They will provide their next update on Tuesday.