August 20th Market Update


Silver Dips & Gold Gains on Virus Woes, Chaos Abroad

The week started with major U.S. stocks opening slightly lower, as the dollar hovered near lows not seen since the beginning of the month. Data out of China showed a slowing in retail sales and industrial production. Investors were concerned about a slowing of economies around the globe as the Delta variant continues to spread, dampening risk appetite.  

Stocks were also pressured by rumors that the Federal Reserve may begin to taper the purchases of bonds sooner than what has been expected. The benchmark 10-year Treasury note also fell on Monday. Silver opened the week closer to $23.75 and would try to gain ground on declining Treasury yields. Gold also looked to gain on the wavering risk aversion. The yellow metal would jump by 0.9% from its opening level, reaching $1,786 before Monday’s close. 

The mood on Wall Street would shift ahead of earnings data from major retailers. The S&P 500 and Dow Jones Industrial Average would reach new record closes on Monday as the dollar also gained momentum. Investors would await Wednesday’s FOMC minutes from the July meeting to provide direction in terms of tapering or potential interest rate hikes. 

On Tuesday more bad news came via U.S. retail sales data, which revealed a decrease of 1.1% versus the 0.3% that was predicted. In a virtual address given on the same day, Fed Chair Jerome Powell stated that he was unsure if the Delta variant of COVID-19 would affect the U.S. economy in a significant way. 

Investors continued to weigh the prospect of rising virus cases as risk-off sentiment drove stocks lower. Stronger than expected earnings from major retailers such as Home Depot and Walmart would not be enough to lift the mood.
 The Dow ended the day down 281 points while the Nasdaq dipped by 0.93%. Gold and silver, on the other hand, would see their weekly highs on Tuesday of $1,794 and $23.92 respectively, as investors favored safe haven assets. 

Wednesday’s release of FOMC minutes confirmed that tapering could happen before the end of this year. Multiple Fed officials made it clear that tapering was not necessarily a precursor to interest rate hikes. Furthermore, it was stated that employment numbers have not progressed enough to justify increasing interest rates. 

Confirmation of taper rumors would boost the dollar and slow momentum for bullion. In fact, the U.S. Dollar Index (DXY) reached highs not seen since November of 2020. These developments would pressure metals as gold touched $1,776 and silver dipped to $23.07. 

However, virus woes, inflation worries and chaos in Afghanistan have bolstered the appeal of safe haven assets such as gold. Despite a stronger dollar, gold may see a modest gain this week. Currently, gold is at $1,782.50 an ounce. Silver is at $23.17 an ounce, down by 1.6% for the week.  

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