Gold and Silver Surge on Banking Concerns and Rate Hike Bets
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Last week, gold and silver enjoyed safe-haven inflows and weekly gains, as concerns surrounding the global banking system persisted. As banks in the U.S. and abroad continued to struggle, many questioned whether the U.S. Federal Reserve would ease its pace of rate hikes, or continue to raise rates, as inflation in the U.S. is stubbornly high. As a result, investors focused on this week’s Fed policy meeting and press conference on Tuesday.
On Monday, gold breached the $2,000 for the first time in a year, on the heels of an announcement that Swiss-based UBS would buy Credit Suisse Bank for $3 billion. Gold quickly retreated and was 3.3% lower, at $1,944 by Tuesday’s close.
Meanwhile, stocks in the U.S. rose on Monday and Tuesday as investors witnessed efforts by governments in the U.S. and Europe to try and stabilize the banking sector. Additionally, bond yields rose at the beginning of the week, which also pressured gold and silver prices to the downside.
The Fed’s two-day policy meeting culminated in Fed Chair Jerome Powell’s press conference on Wednesday, in which he announced a 0.25% rate hike. This move was largely expected, and brought the benchmark Federal funds rate to 4.75%-5%.
Recognizing the difficult situation, Powell refused to take a solid stance on future rate hikes as he stated that the inflation fight has not ended. He simultaneously acknowledged that recent struggles in the banking sector have indeed softened the central bank’s stance on future interest rate increases. Gold jumped higher during Powell’s address, while stocks in the U.S. tumbled.
By the end of trading on Wednesday, the S&P 500 had fallen the most at nearly 1.7%, while the Dow Jones Industrial Average and Nasdaq Composite both declined by about 1.6%. Gold and silver both rose on safe-haven inflows and the prospect of a potential pause in interest rate hikes. Gold would end Wednesday trading 1.2% higher at $1,967, while silver barely missed the $23 mark, with a 2.3% daily uptick.
Gold topped the $2,000 level once again on Thursday, as the dollar notched its fourth consecutive day of losses. Optimism that the Fed may be nearing a pause in its rate hike cycle drove stocks higher on Thursday, as Bitcoin and other higher-risk assets also saw gains. Currently Bitcoin is up by nearly 24% this month, near $28,051.
Stocks in the U.S. opened lower this morning, as banking shares continued to decline. Despite this, all three major averages are currently on track for weekly gains.
The prospect of a rate hike pause and a rush to safe-haven assets, have pushed gold to what will likely be a fourth consecutive weekly gain, despite higher volatility throughout the week. Currently, gold is near $1,989 an ounce, which would be a 0.76% weekly gain. As this is written, silver is hovering near $23.20, which is 3.5% higher for week.
