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This week will be focused on geopolitics and is likely to see some improvement in metals prices but sentiment remains cautious. Gold’s fall from the highs of May 4 was of 7%, while that of silver, always the more volatile metal, was 15% (from May 5 to June 23) to $22.11. This is a combination of a weakening gold price and an uneasy economic outlook in both the eastern and western hemispheres. In common with gold, silver has started a tentative recovery from the lows and is once again above the 200-day moving average.

Banks, which comprise a large part of the Official Sector, are building higher gold reserves: “Our 2023 survey revealed that 24% of central banks intend to increase their holding reserves in the next 12 months, according to survey by the World Gold Council (WGC) in May this year. Central banks’ US dollar holdings were forecast to decline, in the same survey: “Half of central banks surveyed believe the percentage of reserves in USD in five years will be between 40-50%, while just over a quarter believe it will remain unchanged.” According to the IMF, the percentage was 60% at the start of the year that, down from 71% at the start of the century.

The macro, micro and technical outlook for base metals has been pretty bearish, and it is not surprising that the base metals price index has fallen to six months lows. Market sentiment towards the outlook for a rebound in economic growth within China weakened this year with the release of disappointing economic data.

My colleague Fawad Razaqzada recently noted that the Brent oil price has been testing upwards resistance for several days, but concerns over demand have prevented the bulls from committing to the upside. In recent days the bulls have been given supply side reasons to support an upward move, with news that suggests a tighter oil market in the second half of the year. Could oil move back above $80?

The S&P 500 and Nasdaq 100 were off in morning trade, as debt ceiling talks have yet to produce much progress, despite all the positive rhetoric coming from both sides. The Ukraine war looks to be hotting up, with the risk that commodity prices (and so inflation) will spike. Interestingly, the VIX, Wall Street’s fear index, is creeping up and Gold prices, another risk indicator, were unchanged after recent selling.

Debt ceiling talks were the key motivation for gold and silver price slipping this week. After an intraday high of $2,048 per ounce on 10 May, gold fell below the $1,980-$2,000 support level to stand at [$1,960] at the time of writing. The technical position is weakening for gold and silver. Professional and physical market players are not currently prepared to take directional views. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Today's focus on the debt ceiling talks combined with poor earnings to weigh on stocks this morning, with Regional Banks struggling to recover from an early sell-off. Inflation and deficit talks weigh heavy on market sentiment, with both being risks to a major sell-off (if a low probability.)

Wall Street was flat calm today after last weeks’ Fed and Payroll news. US Consumer Price Indices (CPI) and Producer Price Indices (PPI), due on Wednesday and Thursday respectively, will give read outs on inflation in April. This is perhaps the major source of market risk this week, and in that light US Consumer’s inflation expectations published today are more interesting than usual.

Wall Street rallied on this morning’s strong jobs data, as traders digest this week’s comments from the Federal Reserve, and the continuing saga of worrisome news from the regional banking sector. Today is a risk-on day for indices even as the promise of interest rate cuts is diminished.

The Fed delivered a much anticipated quarter point rate rise yesterday but not the hoped for and reassuring words on a “pause” in further rate hikes, or better still rate cuts in the second half of the year. Major indices fell into the red and the VIX, Wall Street’s fear index, pushed back into the 20's (21.3 intraday) for the first time since late March. The gold price hit an all-tine high of $2,070. Inflation remains the major risk factor. Tomorrow’s US Payroll numbers will be scrutinized for signs of weakness in what continues to be an otherwise strong labor market.

Indices were choppy at mid-day, with Tech and Small caps ahead and Regional Banks off again. New highs for the gold price, the VIX, Wall Street’s fear index, trekking back up from recent lows, and lower bond yields, all point to a gradual repricing or risk in financial markets. Economic data was surprisingly strong, notably inflation components.