Gold Eyes Weekly Decline Following Rate Hike
The week began with investors doing their best to stay in “wait and see” mode ahead of Wednesday’s FOMC update, regarding the next interest rate hike. However, it wouldn’t take long for caution, or an overall risk-off sentiment to take hold, as analysts began to predict a higher-than-expected rate increase of 75 basis points. This seemed more likely following last Friday’s red-hot inflation data.
Trading on Monday started with gold near one-months highs around $1,875 an ounce, and silver at $21.82. It wasn’t long before both precious metals and stocks would edge lower, as the reality of a slowing economy coupled with an increasingly hawkish Fed weighed heavily on Wall Street sentiment.
The prospect of higher interest rates favored the dollar and Treasury yields. As a result, gold shed nearly 3% on its way to $1,819 an ounce. At the same time, silver fell by 3.7% while managing to stay just above the $21 mark.
These trends continued into Tuesday, as the 10-year Treasury yield touched an 11-year high of 3.48% while major Wall Street averages, such as the S&P 500, slipped further into bear market territory. Higher yields and a firmer dollar continued to weigh on bullion, as gold touched a one-month low of $1,804 on Tuesday afternoon.
In keeping with equites, cryptocurrencies continued a vicious sell-off, with Bitcoin dipping below 21,000 on Wednesday, which was its lowest point since December of 2020. The Cryptocurrency market cap has now lost more than $2 trillion from its 2021 highs.
Wednesday came and with it, a stock market sell-off just ahead of the highly anticipated FOMC address. It was announced that the central bank would raise rates by 75 basis points, which marked the largest interest rate hike in nearly thirty years.
In remarks following the official announcement, Fed Chair Jerome Jowell predicted that inflationary pressures would persist, and that he expects an additional July rate hike of 50 to 75 basis points. Stocks rallied following the announcement, as investors seemed confident in the Fed’s plan to combat record inflation.
Wednesday’s Wall Street optimism was short lived when Thursday’s jobless claims revealed a higher-than-expected 229,000 against estimates of 220,000. Additionally, housing data revealed that May housing starts dipped to a two-year low, further fueling recession fears.
Recessionary fears and uncertainty regarding the effects of rate hikes, fueled Thursday’s stock market plunge, in which the S&P 500 fell to its lowest since December of 2020 and the Dow Jones Industrial Average fell below 30,000 for the first time since January of 2021.
While stocks fell and the dollar eased from four-week highs, gold gained 2% and ended the day just shy of $1,860. Meanwhile, silver ended the day 2.5% higher, at $21.96 an ounce.
Stocks were mixed by today’s open, with major indices eyeing sharp weekly losses. As this is written, the S&P 500 and Dow Jones are both down by over 3.3% for the week. The dollar had steadied somewhat by this morning, with gold and silver holding steady near $1,842 and $21.70, respectively. At those levels, silver is little changed for the week, while gold is eyeing a weekly decline of 1.6%.