Gold and Silver Slide Lower on Dollar Strength and Rate Hike Projections


Last week, gold managed to snap its losing streak with a 5.6% weekly uptick following the latest round of inflation news and a brief dollar decline. Last week, news broke that the consumer price index for October rose by 0.4% against forecasts of 0.6%. Some interpreted this as a peak for U.S. inflation, and potentially an easing in Fed policy tightening. Naturally, investors paid close attention to Fed speak throughout this week, while gold and silver price movements were largely correlated with Treasury yield and dollar index news. 

Both gold and silver initially fell as the week began. Despite dollar gains, the pair would manage to eke out modest gains on Monday, as silver broke above the $22 level while gold surged 0.6% to $1,771, as safe-haven buyers emerged. On the same day, U.S. equites paused their rally following a choppy trading session and NY Fed 1- and 5-year inflation projections, which dented sentiment on Wall Street.

On Tuesday, producer price index data revealed that wholesale prices rose by 0.2% in October when 0.4% was the estimate. Following the news, gold and silver touched their weekly highs of $1,785 and $22.20. Stocks also managed to rally on the news.  

Investor sentiment was dampened on Wednesday, despite news that retail sales had risen by 1.3% in October. In many cases, an uptick in sales can be an indicator of economic health, but this number seems to be driven by record inflation. 

On the same day, Target and other major retailers reported declines in sales, citing inflationary obstacles for consumers. While Target shares fell by nearly 15% on Wednesday, The Dow, S&P 500, and Nasdaq all finished day with only modest losses. 

Gold was directionally conflicted on Wednesday and Thursday, as safe-haven inflows followed reports that missiles had struck a residential area in eastern Poland, killing two. Initially, there were concerns that the strike may have been initiated by the Russian military, which could possibly trigger a NATO response. However, there was consensus among NATO countries that the missiles originated from Ukrainian air defenses and was likely an accident. 

While fears of a broader conflict in Europe was supportive of bullion, dollar strength weighed on both gold and silver throughout Thursday. The move lower was supported by comments from St. Louis Fed President James Bullard, when he said that, “The change in the monetary policy stance appears to have had only limited effects on observed inflation.” For many, this ended hopes of a near term dovish tilt from the Fed. 

As a result, stocks fell again on Thursday, while Treasury yields and the dollar surged higher. Gold and silver were little changed at $1,763 and $21.09 by Thursday evening. So far, investors have shrugged off tougher Fed talk, as stocks in the U.S. have seen a higher Friday open. However, a report released by the Conference Board showed a 0.8% decline in its leading economic index, when a 0.4% decline was expected. This could weigh on investor sentiment as the day progresses. 

As this is written, gold is hovering near $1,754 an ounce, which is 0.3% lower for the week. Silver is currently 1.5% lower, at $21.04. Despite support from safe-haven buyers, Fed speak and dollar strength are likely to result in gold and silver declines for this week. 

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