Gold and Silver Fluctuate Amid a Hawkish Fed and Dollar Strength
Last week, gold and silver carried a near-inverse relationship with the dollar index. Bullion price movements were also influenced by rate hike bets, as investors looked to this week’s Fed meeting for answers on the next round of rate increases. The two-day Fed meeting was set to begin this Tuesday and would culminate on Wednesday with an address from Fed Chair Jerome Powell, in which he was expected to provide guidance on the latest round of interest-rate hikes.
Stocks in the U.S. rallied on Monday, with the Dow Jones Industrial Average and S&P 500 both gaining nearly 1.4%. This, just after the worst week on Wall Street in over three months. Meanwhile, gold fell by 0.6% to $1,781 while silver saw little change near $28.30, as investors braced for Tuesday’s inflation news.
While inflation in the U.S. is still on the rise, data released on Tuesday revealed that the consumer price index (CPI) rose 0.1% from the month before. Some have compared this number to the forecasted rise of 0.3% and have surmised that inflation in the U.S. may have reached its peak. This positive sentiment carried over to Wall Street on Tuesday, as major averages saw modest gains.
Meanwhile, gold touched a five-month high of $1,824 on Tuesday, following the better-than-expected inflation news. Silver saw a more modest uptick of 1.7% on Tuesday, ending the day near $23.71 an ounce.
During an exchange with media members on Wednesday, Fed Chair Jerome Powell mentioned that the inflation data from October and November was encouraging. However, Powell also indicated that this would not be enough to significantly affect the current pace of rate hikes when he said that “it will take substantially more evidence to have confidence that inflation is on a sustained downward path.”
The widely expected 50-basis point rate increase was announced following the two-day meeting. While the move wasn’t a surprise, it was a slight deviation for the previous four rate increases of 75 basis-points. U.S. equities tumbled following the announcement, while gold and silver saw little change at closing levels of $1,806 and $23.86, respectively.
Stocks fell again on Thursday, following disappointing retail sales news. Most notably, the Dow Jones fell by 2.3%. Lower risk appetite boosted the dollar, which pressured gold to the downside. Gold slid by 1.6% to $1,776 on Thursday, while silver dipped to $23.08 an ounce.
The Wall Street sell-off continued into Friday, as concerns over U.S. economic health and further rate hikes drove more caution among investors. As this is written, the Dow Jones and S&P 500 are both down by over 2% for the week, while the Nasdaq may end the week nearly 3% lower.
While gold and silver had seemingly priced in the 50 basis-point rate hike, dollar strength would plague the pair as the week drew to a close. Currently, gold is at $1,793, which is flat for the week, while silver is near $23.20, which is slightly lower. Next week will be a busy one for investors with housing data, jobless news, GDP data, and inflation news, all scheduled for release throughout the week.