Gold Drops for a Fourth Week Amid Dollar Gains
Last week, gold and silver saw 0.6% and 2.6% respective weekly declines, despite some safe-haven inflows spurred on by a downgrade of the U.S. government’s credit rating. This week, investor sentiment was driven by inflation data and another credit rating downgrade, this time for the U.S. banking sector.
Gold started the week at $1,938 and would see little change on Monday. Silver started Monday trading at $23.51 and fell by 1.5% following news that credit rating agency Moody’s downgraded the U.S. banking sector.
Gold dipped again on Tuesday, this time to a 1-month low of $1,926 as the dollar became the favored safe-haven asset amid banking concerns. Meanwhile, silver fell by 1.6% to $22.77, and would trade sideways for the remainder of the week.
On the same day, Wall Street concerns over the U.S. banking industry strength drove stocks lower. Most notably, the tech-heavy Nasdaq Composite fell by nearly 1% on Tuesday. Investor sentiment was further dampened by data from China which showed that exports tumbled, and the Chinese economy shrank by the most since the first quarter of 2020.
Caution surrounding the world’s two largest economies in the U.S. and China spurred more inflows to the safe-haven dollar on Wednesday. As a result, gold tumbled to a 2-month low of $1,914. U.S. equities also fell on Wednesday, as risk-off sentiment dominated Wall Street.
On Thursday, news broke that U.S. consumer prices rose by 0.2% in July, while the yearly rate of inflation jumped to 3.2% from 3%. While inflation rose more than expected in July, the odds of another interest rate increase only rose slightly. According to the CME FedWatch Tool, there is only about a 10% chance of a Fed rate hike at the September meeting.
In addition to inflation data, jobless numbers were also released on Thursday, which revealed that U.S. jobless claims had risen to a 2-month high of 248,000 when 231,000 was forecasted. For some, this meant that the Fed rate hiking cycle was indeed over. Fed optimism led to mild gold gains on Thursday, but a stronger dollar and elevated yields limited further momentum for the yellow metal.
U.S. stocks were mixed today, as investors digested the latest round of inflation data. Currently, the Nasdaq and S&P 500 are eyeing 2.2% and 0.5% respective weekly losses. If maintained, this would be the second consecutive weekly downturn for the pair, while the Dow Jones Industrial Average is 0.5% higher for the week.
Despite the gains later in the week, gold is set for its third straight weekly decline. As this is written, the yellow metal is 1.3% lower for the week, at $1,913 an ounce. Silver did not enjoy the same late week uptick as gold, and is currently 3.6% lower, at $22.66. Next week, investors will certainly look to U.S. economic data due out on Tuesday, and FOMC meeting minutes due out Wednesday for clues as to the Fed’s next move.