Gold & Silver Gain as the Fed Turns Hawkish


Gold and silver bugs began the week in anticipation of 2021’s last Fed meeting, which promised to bring clarity on the tapering timeline and potential confirmation of an earlier rate hike. The hawkish pivot on behalf of the Fed was likely to come, but many contend the timeline has been moved up as inflation in the U.S. touches a 40-year high. 

Signs pointed towards a steady stock market as the week began, following Friday’s strong close. Despite red-hot inflation, the S&P 500 reached a record close last Friday, while the Dow and Nasdaq had their best weeks since February. Heading into this week, stock futures indicated a steady Monday open. However, major U.S. stock indices would post losses on Monday and Tuesday. 

Meanwhile, Gold started the week close to $1,782, with silver near the $22.20 mark. While the Fed meeting was the focus of many, the producer price index and retail sales data were scheduled for release on Tuesday and Wednesday, respectively. Analysts were looking to these data points as a gauge of inflation and consumer activity ahead of the holidays. 

The producer price index is a measure of prices received by domestic producers for wholesale goods. On Tuesday, the producer price index revealed a 0.8% monthly increase, for a 12 month increase of 9.6%. Some experts point to higher wholesale prices as an indicator of longer lasting inflation. On the same day, gold dipped 0.8% to $1,767. Silver dropped to $21.70, which was more than a 2% dip, as the Fed meeting loomed. Wednesday brought more disappointment via retail sales data, which showed a rise of 0.3% against forecasts of 0.8%. Wednesday also revealed a rise in import prices of 0.8%.

Heading into Wednesday afternoon’s Fed announcement, the expectation was that the central bank would take a more hawkish stance by cutting bond purchases, and potentially increasing interest rates sooner than forecasted. Fed Chair Jerome Powell confirmed some of this by announcing that the Fed will buy $60 billion a month in assets going forward. This, compared to the $120 billion of previous months. 

Powell also raised inflation projections for 2022 and forecasted three rate hikes for next year. During the announcement U.S. stocks jumped higher. Experts interpret the jump as proof that the Fed policy moves were not as aggressive as some forecasts. Immediately following the meeting, gold and silver dipped slightly, but this would not last long. 

By Thursday morning, markets had time to digest the Fed announcement, resulting in a dollar dip and bullion gains.  On Thursday, gold rose to a three-week high of $1,798, while silver surged more than 2%, to around $22.55 an ounce. Gold gained additional momentum as Treasury yields also retreated. 

On Friday, the Fed’s tightening monetary policy had steered investors away from growth stocks. This resulted in a sell off on Wall Street as the S&P and Dow extended losses into a losing week. As this is written, gold is near $1,805 an ounce, which would mean a weekly gain of 1.2%. Silver is near $22.50, up 1.3% on the week. 

For today, a softer dollar and lower yields have provided support for higher bullion prices. Now that the last 2021 Fed meeting is out of the way, investors will likely continue to gauge risk appetite from inflation and Omicron data. For some, this paints a gloomy picture given inflation remains at a 40-year high, with no indication of slowing.

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