Dollar Gains Weigh on Gold and Silver as Volatility Plagues Stocks, Cryptos

As this week started, precious metals saw continued downward pressure from a surging dollar index and higher Treasury yields. At the same time, volatility characterized equity markets in the U.S. Investors weighed Fed policy and anticipated inflation data, jobless claims, and other economic news, for a gauge on U.S. economic health.

 Stocks struggled to recover from the prior week’s volatility and fell again on Monday. Most notably, the S&P 500 shed over 4% hitting fresh one-year lows, while the Nasdaq Composite lost 4.3%. On the same day, the 10-year Treasury yield was trading at four-year highs over 3%. This, and a surging dollar index weighed on gold prices. Gold would lose 1.4% on Monday, dropping to $1,853, while silver dipped by 2.3% on its way to 21.74. 

The surging 10-year Treasury yield eased from its highs on Tuesday, while the dollar also eased from 20-year highs. Still, gold and silver were modestly lower on Tuesday, closing at $1,833 and $21.29, respectively. Meanwhile, investors eyed Wednesday’s release of CPI data. 

Hotter-than-expected inflation news weighed heavily on U.S equities following Wednesday’s release. April’s CPI jumped 8.3% against the forecast of 8.1%. Given this number was slightly lower than March’s CPI, investors were led to believe that the Fed may not pursue even more aggressive monetary policy. This news brought the dollar index slightly lower on Wednesday, while gold gained 1.2%. 

Persistent inflation weighed on investor sentiment on Thursday, causing the S&P 500 to hit another 2022 low, while the Nasdaq fell for the fifth straight day. Thursday also saw the release wholesale inflation data via the producer price index, which saw a 0.5% monthly gain and 11% yearly rise for producer prices.

 Dollar strength weighed heavily on bullion towards the week’s end. Gold touched three-month lows on Thursday, near $1,821 while silver neared two-year lows just above $20. This meant gold had given up all gains following Russia’s invasion of Ukraine in late February. Even though the yellow metal had neared all-time highs just two-months ago, gold is now only slightly higher than January 2022 levels. 

While gold bugs didn’t have a great week, few asset classes have been spared from recent volatility. The Dow Jones Industrial and S&P 500 are down 12% and 16% year to date, respectively. The tech-heavy Nasdaq is down by 25% year to date. Cryptocurrencies have also taken a hit, with Bitcoin 36% lower year to date. Crypto headlines this week were dominated by news that Luna, the sister cryptocurrency of the stablecoin TerraUSD, had fallen from near $90 to about 4 cents this week. 

In the wake of such massive volatility some analysts will maintain that despite consecutive weekly losses, gold has largely done its job of maintaining value, while many other assets have fallen victim to massive selling and significant volatility. As of now, gold is hovering near $1,809, which is 3.7% lower for the week. Silver is currently at $20.94 an ounce, and on track for a 5.9% weekly decline. The dollar remains buoyed by hawkish Fed policy. Safe-haven favor has supported the greenback, as the dollar index remains near 20-year highs, or 9.1% higher this year.