A recession-free soft landing for the U.S. economy will send commodity prices skyrocketing as global demand picks up, according to Kitco Senior Market Analyst Jim Wyckoff.
“There is a sense now that the Federal Reserve may be nearer the end of its monetary policy tightening cycle because inflation appears to be under control and in a downward trajectory,” he said. “It appears right now that we are going to come in for a soft landing for the U.S. economy in the coming months”
Wyckoff joined reporter Ernest Hoffman to look at the potential impact of a strengthening U.S. economy on gold, silver, oil, and other key commodities. He said that it appears increasingly likely that the U.S. economy will emerge from two years of high inflation and high interest rates without sustaining any serious damage.
“This has been the most broadly-forecast economic recession that’s never happened,” he said. “Even if there is a mild recession, all it’s going to be is mild.”
Wyckoff pointed to the recent strength in precious metals prices following last week’s better-than-expected CPI and PPI reports as signs of shifting market sentiment.
“We’ve seen a solid rebound in the gold market, and a strong rebound in the silver market,” he said. “There’s a growing notion in the marketplace that there may be only one or two more small Fed rate hikes before this tightening cycle is over. That’s good for the U.S. economy, that’s good for the world economy. It suggests better demand for raw commodities.”
He said the positive economic data and the shift in Fed expectations has also put pressure on the U.S. Dollar Index. “As those who follow the gold and silver markets closely know, the Dollar Index and the metals tend to trade in opposite directions on any given day, so the fact that the U.S Dollar Index has just hit a two-month low, that’s good news for the commodity market bulls.”
Wyckoff said gold’s safe-haven bid already left the market some time ago, so the lower inflation numbers and receding recession fears won’t sap the precious metal’s momentum.
“The marketplace now is focused more keenly on better economic growth worldwide in the major economies, producing better demand for gold and silver,” he said.
He added that silver’s big move following the CPI and PPI releases, which saw it rise from $23.36 on Wednesday morning to $25.24 on Friday, could be the beginning of its long-awaited breakout.
“Silver is a poor man’s gold, so to speak, and I think what we’re seeing also is the silver market is playing a little catch-up,” he said. “We hit a two-month high in silver, and the technicals have turned bullish for silver, suggesting more price upside in the near term.”
Wycoff also suggested commodity traders looking to confirm the Fed-pivot hypothesis should keep a close eye on oil prices.
“Crude oil has started to rebound this week, hitting a two-month high,” he said. “If crude oil resumes its downward path that’s going to be an ominous portent for the rest of the raw commodity sector, including the metals, but right now it looks like this better demand scenario for markets worldwide, including the metals and crude oil, is going to be able to propel crude at least sideways if not sideways to higher in the near term.”
Addressing rumors that a gold-backed BRICS currency announcement may be in the works for the upcoming summit in August, Wyckoff said he doesn’t believe this will have a meaningful impact on gold or the U.S. dollar.
