Gold and Silver Lose Ground to Dollar Gains
It was a shortened trading week as Americans observed Labor Day on Monday, the 7th. It was also a lighter week in terms of scheduled economic events. Analysts were anticipating Fed data on Wednesday, along with employment data throughout the week. Investors in America and Europe also looked to Thursday as officials from the European Central Bank (ECB) were scheduled to provide an update on their own tapering timeline.
Tuesday marked the beginning of the trading week and a start to a subdued day on Wall Street. U.S. stocks fell from last week’s record highs, with concerns over economic slowdowns and rising Covid cases contributing to risk off sentiment.
Gold and silver were both at their weekly highs on Tuesday of $1,827 and $24.81 respectively. Gold lost some shine on Tuesday, while the dollar gained favor as the preferred safe haven asset. Silver also fell on Tuesday, with both metals shedding nearly 2%.
Stock market woes continued through Wednesday as more indicators surfaced that pointed towards a slowing economy. In the Fed’s periodic “Beige Book” report the central bank noted several key concerns. It was said that U.S. companies are experiencing persistent difficulty stemming from higher inflation and labor shortages. The report also stated the U.S. economic growth had “downshifted slightly.” The Fed release attributed some of this to a decrease in leisure spending and more travel restrictions.
The Beige Book release seemed to only confirm fears that investors had about the U.S. economy heading into this week. The gloomier outlook drove the Dow Jones Industrial Average and S&P 500 down for the third consecutive trading day. Despite record job openings of 10.9 million, the Nasdaq also fell for the first time since last week.
Yields also dropped on Wednesday, with unease over the slowing economy overriding the positive news regarding job openings. While stocks and yields both dropped, the dollar continued upward. The greenback maintained favor from cautious investors and would touch its weekly high of 92.8 on Wednesday.
Like many times before, a weekly high for the dollar meant a weekly low for gold, which would be $1,783. Silver also fell victim to dollar gains and slid by 1.7% to around $23.95, to end Wednesday.
Overseas, the ECB announced that it would begin a modest reduction in bond buying from emergency levels. The European Central Bank also stated that while tapering is necessary, there is a willingness to increase bond buying if it becomes necessary. Experts seemed to think that the initial reduction will be around $70 billion monthly.
Aggressive bond buying on behalf of central banks has become the pandemic era norm. In fact, Bank of America recently published data confirming inflows into global stocks exceeded $1 trillion in 2021. For perspective, that is more than the prior 20 years combined. Many fear that a reduction in bond buying commonly known as tapering, may lead to increased volatility, citing 2013’s taper tantrum as an example.
The dollar rally stalled on Thursday following the ECB announcement, while gold and silver gained some ground. As of Friday, U.S. stocks were still down for the week, but slightly up on the day. While gold temporarily surpassed the $1,800 level this morning, it is closer to $1,794 as this is written. This would mean a weekly decline of 1.7% for the yellow metal. Silver is currently hovering near $24.10 an ounce, down by more than 2.7% for the week.
It is often assumed that a slowing economy and stock market woes will support the price of gold and silver. While those conditions were present for this week, the dollar’s favor as a safe haven asset, curtailed momentum for bullion.