Gold & Silver July Outlook – Monthly Review – 2022

Gold Outlook – July 2022

After enduring a difficult month in June with the price of gold slipping from around $1,850 an ounce down to $1,820, the prospects for the precious metal are a little brighter in July.

The main drag for gold has been the adoption of increasingly hawkish policies by central banks, in particular the Federal Reserve and the Bank of England, as they seek to try and bring runaway inflation back under control. In this environment where interest rates are going up, physical gold’s lack of a yield makes it less attractive than interest-paying assets such as bonds or indeed Kinesis’ digital gold offering.

Fears Inflation Could Lead to Recession

This reduction of monetary stimulus and raising of interest rates, allied to fears over high inflation converting into a recession, resulted in equity markets suffering sharp declines with global indices recording sizeable monthly losses. Typically this “risk-off” sentiment in the market would be beneficial to gold with traders and investors seeking out the ultimate safe-haven asset.

Yet due to the driver for the decline on equities also impacting on gold’s appeal, the precious metal hasn’t proven immune to these drops. It is worth noting however that gold has still performed its role of holding value at times of crisis with the monthly drop for gold coming in at just over 1%, which looks favourable in the context of monthly losses of 5-10% on the major equity benchmarks in the US and Europe.

Rate Hikes Continue

July is likely to bring further interest rate increases, including the European Central Bank implementing its first hike in 11 years on July 21^st. However with this decision heavily trailed, the key driver will be the Federal Reserve’s decision on July 27^th. Having increased its benchmark rate by 75 basis points in June, another similar size move is anticipated in July.

These large hikes have been the principal reason for gold’s failure to gain any upward momentum in recent months. The glimmer of hope for gold holders is that these historically large moves are now expected by the markets so the negative hit to gold may be more muted as a result.

It is worth remembering that the reason central banks are being forced into these rate hikes is escalating inflation, a scenario in which gold has tended to perform well as a proven store of value over time. So while ever-increasing interest rates are problematic for gold, the underlying cause is supportive for the precious metal and providing a floor for its price.

Russia-Ukraine Conflict

The other enduring factor is the continued war between Russia and Ukraine. While this conflict isn’t dominating headlines in the same way it was back in March, the very fact there is a war going on has made for jittery market conditions and makes the case for holding gold stronger.

Putting all these drivers together provides an outlook for gold where both its upside gains and its downside drops are capped. As such gold is likely to trade in a range between its current level of about $1,820 up to $1,850 an ounce until there is a significant fresh driver to shift the dial.

Silver Outlook – July 2022

Can July be the month when silver reverses its slide and tracks back upwards? Unfortunately for holders of the metal, the initial signs aren’t that promising with another large interest rate hike expected by the Federal Reserve while the European Central Bank is set to finally come to the hike party and implement its first upward move in more than a decade.

Hawkish Monetary Policy

Given that it was the Fed’s switch to hawkish monetary policies that triggered silver’s slump back in April, the prospect of more hikes doesn’t paint a pretty picture for silver.

Indeed analysts from Refinitiv Metals team believe that silver has already hit its high price for the year and expect its price to drop to $19 an ounce this year, principally due to the US central bank having to implement a series of further interest rate increases over the coming months.

This switch in policy has been a result of high inflation proving far from transitory with high energy and grain prices following Russia’s invasion of Ukraine fanning the flames of a global supply chain that was already struggling to cope with increased demand as economies pick up again after the coronavirus slowdown.

Balancing act – Rising Prices and Economic Growth

The real fear is that central banks will fail to find the right balance between bringing in sufficiently tough measures to bring rising prices under control, without curbing economic growth in the process. As a result, the likelihood of a recession is increasing, reducing silver’s industrial appeal in the process.

In this context, silver’s more industrial exposure compared with gold has seen it doubly punished with its price decline much more marked than gold’s relatively small price slip.

Yet despite the current gloom, the fact remains that silver is a key component in two of the key sectors of current times, used in photovoltaics for solar energy and in batteries for electric vehicles such as Tesla. As such the medium-term outlook for silver is far more promising and it may yet be that investors will look back on silver’s struggle to climb back above $21 an ounce with amazement in a year’s time once the current dark clouds over interest rate hikes and recession fears lift.

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.