August gold (GCQ21) on Wednesday closed up +5.00 (+0.27%), and July silver (SIN21) closed up +0.119 (+0.43%).
Gold and silver prices on Wednesday settled modestly higher on dovish ECB comments and a faster-than-expected increase in U.S. May import prices. Silver prices were undercut by Wednesday's weaker-than-expected U.S. housing starts and Chinese industrial production reports. Metals prices tumbled after their Wednesday afternoon closes when the FOMC signaled two interest rate hikes by the end of 2023.
The Fed's new dot-plot was bearish for precious metals since it showed that 7 FOMC members see one Fed rate hike by the end of 2022, up from 4 in March, and 13 of 18 members see a rate hike by the end of 2023, up from 7 in March.
Wednesday's global economic data was a positive factor for gold but bearish for industrial metals demand and silver prices. U.S. May housing starts rose +3.6% m/m to 1.572 million, weaker than expectations of 1.630 million. Also, U.S. May building permits fell -3.0% m/m to a 7-month low of 1.681 million, weaker than expectations of 1.730 million. In addition, China's May industrial production rose +8.8% y/y, weaker than expectations of +9.2% y/y.
Comments on Wednesday from ECB Vice President de Guindos supported gold demand as a store of value when he said the winding down of ECB pandemic stimulus "will have to be done gradually and with prudence because we can't cut short the economic recovery that is underway."
A strong U.S. import price report was positive for gold demand as an inflation hedge. The U.S. May import price index rose +11.3% y/y, stronger than expectations of +10.9% y/y and the fastest pace of increase in 9-1/2 years.
Gold has underlying support from the Covid pandemic, which is dovish for central bank policies. However, the pandemic has eased after Germany's Koch Institute health agency said daily Covid deaths in Germany dropped to 18 on Sunday, the fewest in 8 months. Also, the 7-day average of new U.S. Covid infections on Tuesday fell to a 14-1/2 month low of 13,501. Globally, Covid infections have risen above 177.483 million, while deaths have exceeded 3.840 million.
Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. The recent rally in gold prices to a 4-3/4 month high was supported by new long positions as long gold positions in ETFs rose to a 2-3/4 month high of 3,147.96 metric tons on June 1, moderately below October's record high of 3,459.8 metric tons (data since 2002). Long silver positions in ETFs soared to a record high Feb 2 of 1.017 billion troy ounces (data from 1990), although long silver positions fell to a 4-1/2 month low on May 12.
Precious Metals Close Higher But Sink Post-FOMC On The Outlook For Fed Rate Hikes (barchart.com)= more sending growth to china???
