Bullish Signals for Gold & Silver Prices Emerge from US Retail Sales and China's Growing Demand

Four bullish signals for gold and silver prices have emerged from the US and China. The first came from July's weak retail sales, which missed expectations at -0.6% overall, -0.3% excluding automobiles, and -0.4% in the control group.

This weaker consumer spending supports a lower Federal Reserve interest rate, which would be beneficial for gold and silver prices since they don't pay interest.

The second signal is from consumer sentiment and inflation expectations. Consumer sentiment was below 54.5, at 51.0, while one-year inflation expectations rose to 4.3% and five-year expectations remained unchanged at 3.3%. This combination of low confidence and high inflation makes gold and silver attractive for investors seeking protection against currency weakness and persistent inflation.

The third signal is from the Commodity Futures Trading Commission data, which shows managed money gold longs increased by 8,825 contracts to 148,634 while short positions rose by 1,929 contracts to 10,972. Silver futures presented a different picture with managed money longs declining by 509 contracts to 19,956 and shorts increasing by 307 contracts to 8,798.

The fourth and possibly largest bullish signal comes from China. Chinese gold exchange-traded funds now hold a record 258 metric tonnes of physical gold, an increase of more than 10% within one month. Eric Yeung believes that this growth is part of China's plan for wider international use of the renminbi, with physical gold serving as neutral collateral or a reserve asset during this process.

Yeung calls this combination the 'Chinese RMB Physical Gold Milkshake' and expects silver to follow gold higher, targeting $80-$100 within the next 12 months. However, he also warns against leverage and advises investors not to put all their eggs in one basket due to potential liquidity risks.