Gold Dips as Rate Cut Odds Dwindle
Last week, gold snapped its five-week winning streak as tensions in the Middle East eased, along with safe haven buying. This week, investors were keenly focused on the U.S. Federal Reserve’s interest rate decision scheduled for Wednesday, and other economic data which would likely influence the central bank’s policy.
On Monday, stocks were bolstered as another week of earnings kicked off, marked by robust data from companies like Tesla. Gold started the week near $2,332 and would dip to $2,324 on Monday on the heels of hotter-than-expected inflation data released on Friday. In a similar move, silver slid by 1.4% to a closing price of $26.88 on the same day.
On Tuesday, major stock market averages saw downward pressure as recent inflation readings weighed on investor sentiment. As a result, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all ended the day lower, marking an end to a 5-month winning streak. Most notably, the Dow plummeted by 570 points and suffered its worst monthly loss since September of 2022.
Gold encountered multiple headwinds on Tuesday as the dollar index ticked up by 0.65% while investors braced for Wednesday’s Interest rate announcement. These developments, along with a continued easing of geopolitical tensions pushed gold 1.8% lower, to $2,282 by Tuesday's close.
As inflation persists in the U.S. there was concern among investors the Fed may opt for an even more hawkish stance and entertain an interest rate hike. In his Wednesday address, Federal Reserve Chair Jerome Powell somewhat dispelled such speculation stating, “I think it’s unlikely that the next policy rate move will be a hike.”
While this was assuring to some, Powell also stated that the Fed has no plans of cutting rates until there is “greater confidence” that inflation is slowing to the Fed's stated 2% target. Stocks were mixed following Powell’s address, while the dollar and Treasury yields tumbled. The Treasury yield dip favored gold, as the yellow metal jumped 1.6% to $2,320 an ounce. Meanwhile, silver saw little change near $26.60.
Gold retreated by 0.5% Thursday as focus shifted to economic data that would likely influence the Fed’s outlook on interest rates. Some of that data came this morning via employment news which revealed that the U.S. economy created 175,000 jobs in April. This missed forecasts calling for an increase of 240,000 jobs and to some, supported odds that the Fed may indeed cut rates later in 2024.
Gold rallied following the payroll news but has since surrendered most of its intraday gains. Ultimately, gold would end the week 1.3% lower at $2,302, marking its second consecutive weekly downturn. Silver also enjoyed a post-payroll rally but would end the week at $26.55, for a 2.6% weekly decline.
Fed optimism and upbeat earnings data allowed major stock market averages to sustain momentum this morning, as all three major averages secured weekly gains. The S&P 500 was the biggest winner, with a 1.3% weekly uptick, as the Dow and Nasdaq notched 1.1% and 0.9% respective weekly gains.