Gold is Conflicted Amid Banking Woes and Rate Hike Bets
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Last week, gold and silver ended their respective winning streaks amid hawkish Fed bets and dollar index gains. In terms of scheduled economic events, investors anticipated consumer confidence data, GDP news, and inflation data, all of which were due out this week.
Gold enjoyed slight momentum on Monday as the dollar index slid 0.6% lower. However, gold failed to break above $2,000 as investors waited for more economic data that may influence the Fed’s next policy move. Meanwhile, silver saw modest gains on Monday, ending trading near just above $25.
Despite Tuesday’s dollar gains, gold managed to breach the $2,000 level, as investor sentiment was dented amid news that consumer confidence had dropped to a 9-month low. The Conference Board released a survey that showed a drop in consumer confidence from 104 in March to 101.3 in April. Treasury yields and stocks also dipped on Tuesday, aided by news that First Republic Bank had lost $72 billion in deposits during the first quarter of 2023.
Stocks were mixed on Wednesday, following two days of losses and news that First Republic Bank stock had declined by nearly 80% over the course of three days. Gold was directionally conflicted on Wednesday, with support stemming from banking concerns and pressure from higher Treasury yields. As result, gold ended the day near $1,997.
The dollar rose on Thursday, as news broke that U.S. GDP rose by a mere 1.1% in the first quarter of 2023, when 2.0% was forecasted. Even following the disappointing GDP news, markets still priced in nearly a 90% chance of a 0.25% rate hike at the Fed’s May policy meeting, mostly due to persistent inflation.
Even after the lower-than-expected GDP print, stocks rose on Thursday as positive earnings from companies such as Meta, boosted tech stocks. Despite banking woes, dollar gains would weigh on gold, causing the yellow metal to shed 0.9% on Thursday, to a closing price of $1,977.
Inflation data was released this morning, which revealed that inflation rose again in March. One of the Fed’s favored inflation gauges in the core PCE inflation rate, came in at 4.6% on a year-over year basis, when 4.5% was expected. The core PCE inflation gauge excludes food and energy. Other inflation indices were largely in line with expectations.
Today’s inflation news seemed to up the likelihood of a 0.25% rate hike at the May 2-3 Fed policy meeting. Despite hawkish Fed bets, gold and silver both rose this morning as yields dropped and banking concerns intensified. News soon surfaced that First Republic Bank was likely headed for receivership. This would mark the fourth U.S. bank to fail since March.
Tech earnings continued to drive U.S. equities higher today. Currently, the Nasdaq Composite is leading weekly gains at 1.25%. Meanwhile, the S&P 500 is up by 0.74% on the week, while the Dow Jones Industrial Average is eyeing a 0.64% weekly uptick.
Currently, gold is near $1,988 an ounce, which would be the yellow metal’s second consecutive monthly gain, and a 0.3% weekly gain. As this is written, silver hovering at the $25 mark, which would also be a slight weekly uptick.
