Gold & Silver August Outlook - Monthly Review - 2022

Gold Outlook for August

Gold enters August on an optimistic note with the rhetoric surrounding the Federal Reserve’s latest interest rate decision pointing toward a less aggressive rate hike trajectory in the following months by the US central bank.

The Race to Curb Inflation

Gold investors will be hoping that the gold price continues the path it was plotting out at the end of July, that after a challenging month in which the precious metal dropped more than $100 an ounce, it is recovering some of those losses with it trading around $1,760 an ounce.

Markets are now entering a tipping point where the actions of central banks across the world to tame inflation, namely increasing interest rates, are showing tentative signs of cooling down the pace of consumer price increases yet this is now needing to be balanced against the looming threat of recession, with both the US and the UK potentially already in that negative situation.

Will Gold Continue its Recovery?

Gold finds itself right in the middle of this economic balancing act. The threat of rising interest rates and indeed the implementation of these hikes have been the principal drag on the price of gold in the last few months. On the face of it, the market reaction to the Fed’s latest large hike, a second consecutive increase of 75 basis points, looks to be overdone. 

Although the hike was in line with market expectations, the move still represents one of the largest in US history and higher interest rates are a clear negative for gold due to its lack of yield making other, interest-paying asset classes, such as bonds, more attractive.

The fact gold has been able to stage such a recovery at the tail end of July is entirely due to revised market expectations on how great future Fed interest rate hikes will be and for how long the US central bank will maintain its current hawkish stance.

Eyes on the Upcoming FOMC Minutes

How much leeway the Fed has in its upcoming rate decisions will largely be determined by the health of the US economy. The release of the latest US job opening data on Tuesday will therefore be keenly anticipated while investors and central bankers alike will be hoping that the US inflation figures due out on August 10^th show that inflation has peaked.

While solid data is a key factor in determining price moves, words and rhetoric have often proven as significant a catalyst. As such, the release of the minutes of the Federal Open Market Committee on August 17^th will be pored over by analysts and traders, desperate to gain an insight into how high and for how long the Fed intends to raise rates for.

Gold Caught in a Balancing Act

Gold finds itself hostage to the Fed actions with the two main drivers for the precious metal’s underperformance in July, an aggressive Fed and a strong dollar, set to remain the key determinants of gold’s price action in August. 

The recent rally underlines the strength of the underlying support that remains among gold investors and should provide a strong floor on its price but how much more ground gold can claw back on the upside will be capped by what August’s interest rate decision has in store and the consensus in the market leading up to it.

Silver Outlook for August

Silver investors finally have some good news to cheer with the price climbing back above $20 an ounce to recover back to the level it was at the end of June. The key question: is this the start of a silver surge?

A Positive Outlook Ahead?

Certainly, the fundamental outlook remains very supportive for silver with the metal a key component in the energy transition, used both in photovoltaics for solar energy and in batteries for electric vehicles such as Tesla and BYD. Indeed, silver is set for a record year of demand, according to the Silver Institute.

However, both those statements have been true throughout the year and this didn’t stop silver’s price plunging from above $26 an ounce to below $19 an ounce in a matter of weeks. 

So why would things be any different now?

A lot of the factors that were in place back in April when silver was trading at much-elevated levels from its current price remain true today. The war in Ukraine is sadly showing no sign of ending so silver’s haven appeal is still attractive. Inflation is still raging with silver considered a potential hedge against fast-rising consumer prices. And the fundamental outlook remains positive, as already stated.

Has Silver Reached a Potential Bottom?

The big change, and the cause of silver’s price plunge from April onwards, has been the implementation of a series of interest rate hikes by the Federal Reserve allied to the knock-on impact that has had in sending the dollar, which silver is priced in, to record levels.

With the Fed still in the middle of its hike cycle, with another increase expected in August, silver’s potential path upward has plenty of obstacles in front of it. Yet with silver having shown where the potential bottom in its price is, now could be a timely opportunity for the brave investor to buy into silver’s recovery story.

Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.