Gold and Silver Fall Despite Credit Downgrade


Last week, gold and silver dipped following positive U.S. employment news and better-than-expected U.S. GDP data. Despite last week’s losses, gold managed to end July 2.5% higher while silver saw a 7.9% monthly gain. This week, investors were largely focused on U.S. economic data, earnings releases, and employment news.

Gold started the week at $1,954 and rose slightly on Monday to solidify a monthly gain, while the dollar notched its second straight monthly decline. Gold ended Monday modestly higher at $1,961 while silver saw a 1.6% daily uptick amid hopes that the Fed’s rate hiking cycle had ended.

 On Tuesday, gold and silver prices softened as the dollar and Treasury yields recovered, despite data from The Institute for Supply Management’s manufacturing survey showing a continued contraction in U.S. manufacturing activity. July marked nine consecutive months of contraction for the index, which is its longest since the 2008 financial crisis.

 Stocks in the U.S. tumbled on Wednesday after rating agency Fitch downgraded the U.S. government credit rating. Fitch cited continued debt ceiling conflict by lawmakers and an increased risk of U.S. government default as reasons for the downgrade. Gold initially saw safe haven inflows and gains following the news, as Treasury yields dipped lower.

 However, news soon broke that U.S. private payrolls increased more than forecasted for July. Following the stronger-than-expected employment news, bond yields and the dollar rose while precious metals fell. By Wednesday’s close, gold was at $1,936 and gold was at its weekly low of $23.69.

 Stocks slid lower again on Thursday, as the credit downgrade fueled a sell-off on Wall Street. Meanwhile, gold languished at a 3-week low near $1,934. Following the credit downgrade, the yellow metal was seeing pressure from the dollar, which was at a 4-week high.

 This morning, the Labor Department released Nonfarm payroll data, which revealed that the U.S. added 187,000 jobs last month, when 200,000 was forecasted. This news allowed gold and silver to pare losses from the previous two sessions.

 Despite safe-haven inflows driven by the credit downgrade, the pair was unable to overcome dollar gains and Treasury yield strength.  As this is written, gold is at $1,941 an ounce, which is 0.6% lower for the week. Silver is currently eying a 2.6% weekly decline, at $23.60 an ounce.

 Stocks in the U.S. have also suffered following this week’s news of a U.S. credit downgrade. Currently the Nasdaq Composite is looking at a 3% weekly downturn, while the S&P 500 is 2.3% lower for the week, marking the pair’s worst week since March. The Dow Jones Industrial Average is 1.2% lower for the week. Next week, investors will monitor the continued fallout stemming from a U.S. credit downgrade and inflation data due out Thursday.

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