Gold and Silver Pare Weekly Losses as the Dollar Dips
Last week, precious metals posted modest gains on hopes that the U.S. Federal Reserve would pause its rate hiking campaign. The highlights from this week’s economic calendar include inflation data on Tuesday, a Fed rate hike announcement on Wednesday and employment data, which was due out on Thursday.
Gold started the week at $1,958, and silver at $24.19. The pair dipped on Monday, as the dollar index saw a 0.3% uptick and bond yields firmed. Gold’s losses were limited by news that the U.S. budget deficit had crossed the $1.16 trillion mark, while government spending for the month had increased by 20% when compared to May of 2022.
Tuesday’s headlines were dominated by CPI data, which revealed that U.S. consumer prices rose 0.1% in May, which was in line with expectations. However, the “core” rate of inflation which strips away food and energy jumped by 0.4% for the third consecutive month.
While this data suggested the fight against inflation is far from over, the mere fact that price increases were in line with expectations increased the odds of a Fed rate hike pause. Following Tuesday’s inflation news, markets had priced in a near 0% chance of a June rate hike. Gold saw immediate gains following the inflation news but would ultimately fall to $1,940 as the benchmark 10-year Treasury yield firmed, which dented the appeal of non-yielding gold.
On Wednesday, Fed Chair Jerome Powell held a press conference following the Fed’s 2-day policy meeting. Powell would confirm a rate hike pause for June but predicted 0.50% in rate hikes throughout the rest of 2023. Throughout his address, the Fed Chair cited employment and inflation data as key metrics for determining the pace of rate hikes.
The Fed’s prediction of additional rate hikes surprised some, and pressured gold to a 1-week low of $1,937 by the end of trading on Wednesday. Post-Fed optimism drove U.S. equities higher on Thursday, as major indices in the Nasdaq Composite and S&P 500 touched fresh 13-month highs.
Gold slid to a 3-month low of $1,927 on Thursday as the prospect of additional rate hikes boosted the dollar and bond yields. Stocks in the U.S. saw little change this morning, capping off a week of gains fueled by rate hike optimism and inflation news.
As this is written, the S&P 500 is up by 2.8%, for its fifth straight week of gains. The Dow Jones Industrial Average is 1.5% higher for the week, while the Nasdaq Composite is eyeing a 3.3% weekly uptick, which would mark eight straight weekly gains for the tech-heavy index.
Gold managed to pare some of its weekly losses today, as the dollar index languished near a 5-week low of 102.088. The dollar decline was preceded by discouraging employment news, which showed weekly jobless near a 2-year high of 262,000.
Currently gold is flat for the week at $1,958, while silver is slightly lower at $24.13 an ounce. Near term, gold and silver price movements may be driven by Fed rate hike cues and inflation updates. Next week will be a shortened trading week, as major markets are closed on Monday in observance of the Juneteenth holiday.