Gold & Silver Review & Outlook - June 2023

Gold Outlook in June

June looks set to be a defining month for how well 2023 proves for gold. 

Markets feel as though they are at a crossover point with some of the gloom from the first half of the year starting to lift, and the worst ravages of inflation seemingly now having passed.

The US Debt Ceiling 

That said, at the time of writing the biggest potential shock to markets hadn’t yet been resolved, the prospect of the US defaulting on its debt. However, talks look to be heading in a positive direction with the market expecting an agreement to be found that would avoid this catastrophic scenario.

Assuming June does indeed start with the US Congress and then the Senate approving the bill concocted by President Joe Biden and House Speaker Kevin McCarthy then the biggest question mark having over markets will be removed and attention can instead switch to the persistent theme of inflation and how central banks around the world are tackling it.

On Inflation 

After challenging its record high in the early part of May, the market conditions started to turn against gold in the latter part of the month and left the safe haven asset on course for a monthly loss for the first time in three months. 

How positive June will be for gold will depend heavily on what the data released in the early part of the month shows ahead of the Federal Reserve’s latest interest rate decision on June 14^th.

First up there are the US non-farm payrolls and unemployment figures published on June 2^nd and then the country’s crucial inflation meeting starting on June 13^th, the day before the Fed committee meets. The expectation at the start of May was that the US central bank would pause on further hikes in June, with gold given a boost as a result. However, as May draws to a close, the rhetoric from Fed officials about further hikes has remained hawkish, raising the prospect of a surprising additional hike.

Rate hikes

Gold would likely be a casualty of any further hikes with the physical metal’s lack of yield making it less attractive to investors at times of high and/or rising interest rates. Kinesis gold KAU removes that detrimental factor by combining the timeless appeal of an asset that is backed on a 1:1 basis by the equivalent amount of physical gold, offering a monthly yield to holders and spenders of the currency.

While the chance of another hike in June has increased slightly in recent weeks, the likeliest outcome remains the Fed keeping its rates where they are now. With gold already trading at historically high levels on the back of this expected Fed pause, confirmation of that fact come mid-June is more likely to see gold hold onto its existing level rather than prompt a fresh climb.

Zooming out

The concern for holders of gold will be that equity markets are starting to look more buoyant after a challenging few months. Gold had been the primary beneficiary of this risk-off approach so a switch to a more risk-on attitude among traders and investors could see its price fall further. 

It is worth remembering that even though gold has fallen back in recent weeks, $1,950 an ounce is a level that the precious metal, with its trading history dating back centuries, has touched only a handful of times with the gold price still comfortably above where it was at the start of this year.

As such, June has the makings of a challenging month for gold as investors return, albeit tentatively, to riskier assets and away from the safe haven appeal of gold. If gold is still trading above $1,900 an ounce come the end of June, then a fresh negative shock is likely to have hit markets as the current conditions point to more bearish factors for gold than bullish ones.

Silver Outlook in June

Silver has endured a disappointing May in which the surge at the start of the month proved fleeting and instead saw the silver price lose $3 to about $23 an ounce. The question for investors as we enter June is will silver’s strong fundamental case once again gain attention or will the metal’s fall from grace continue?

Broad, cautious optimism 

From an economic perspective, plenty of strands of optimism for silver and indeed markets more broadly remain. The peak of inflation looks to be decidedly behind most countries, with some encouraging figures being reported in May. 

Further, while the US debt ceiling talks hadn’t yet been resolved before June started, the noises coming out of key decision-makers sounded encouraging and thereby reducing the risk of the world’s largest economy actually defaulting on its debt obligations.

Favourable conditions for risk assets 

Add in the possibility that the Federal Reserve has already finished its cycle of rate hikes and it points to favourable conditions for risk assets. Yet this leads to the heart of the conundrum silver faces… is it a haven asset that prefers risk-off environments or an industrial metal that thrives in a buoyant global economy?

In reality, while there is haven appeal to silver, this is far less than its precious metal peer gold. However, what silver may lack in haven draw versus gold outweighs its far greater industrial application. 

Silver demand in Q2 2023

Notably, silver is much in demand in the solar and electric vehicle industries, both of which will feature as part of the US debt ceiling talks as President Biden’s Inflation Reduction Act is a bargaining chip in the debate.

Interestingly, recent figures out of China point to the cost of producing solar falling in the country with the supply constraints on wafers now easing. This good news for the sector could help provide silver with the supporting hand it needs to stabilize its recent price falls and mark June out as a month when attention returns to the continued supply deficit of this key component.

Will June prove to be the ray of sunshine to energise silver’s pushback to levels more reflective of the metal’s physical demand? Only time will tell. 

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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.