Gold and Silver Tumble Amid Rate Hike Bets and Dollar Gains
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Last week, gold and silver saw modest gains as recession worries fueled safe-haven demand. While this week was less busy in terms of scheduled economic events, precious metals prices were heavily influenced by dollar index movements and rate hike speculation.
Gold started the week just above the $2,000 mark and would dip to $1,984 on Monday. Both gold and silver were pressured by a 0.7% uptick in the dollar index and rising Treasury yields. Silver fell by nearly 2% on the same day, to $24.87. Stocks in the U.S. were modestly higher on Monday, following four consecutive weekly gains for major averages. Throughout the week, Wall Street investors were greeted with quarterly earnings news, some of which painted a gloomy picture of the U.S. economy.
Gold managed to claw its way back above $2,000 on Tuesday, as the dollar index and Treasury yields eased. On the same day, Fed Bank of Atlanta President Raphael Bostic stated that he favors another interest rate hike to hold the Fed funds rate above 5%.
On Wednesday, the Fed’s Beige Book was released which described economic conditions from around the U.S. The Beige Book is a collection of anecdotes provided by Fed officials throughout the U.S., and is typically released eight times a year. The latest iteration outlined “moderate” price increases, and a slowdown in hiring. The report also mentioned economic slowdowns and underscored the likelihood of a 0.25% rate hike at the next Fed policy meeting, followed by a pause in rate hikes.
Yields climbed higher following more hawkish Fed speak and the Beige Book release, which seemed to reaffirm an upcoming rate hike. The dollar also rose on Wednesday, causing gold to dip back below $2,000, while silver fell to a two-week low of $24.65. By Thursday, markets had forecasted an 85% chance of a 0.25% rate hike in May.
Risk appetite was dented on Thursday, when jobless claims, housing data, and leading economic indicators all suggested a U.S. recession was on the horizon. Stocks also fell amid the concerning economic news and disappointing corporate earnings from companies such as AT&T, Tesla, and American Express. Gold rebounded to $2,010 on the same day.
Stocks continued to waver this morning, amid economic uncertainty and a continued barrage of earnings news. Currently the Nasdaq Composite, Dow Jones Industrial Average, and S&P 500 are all on track for a losing week.
Ultimately, hawkish Fed speak and dollar index gains would pressure gold to its worst week in seven, while silver may end its five-week winning streak. Meanwhile, the dollar is eyeing its best week in nearly two months. As this is written, gold is near $1,978 an ounce, which would be a 1.6% weekly downturn for the yellow metal. Silver is currently 1.7% lower on the week at $24.97.
