June 18th Market Update
Gold & Silver Lose Ground while Inflation Concerns are Confirmed
Few were surprised to see major markets such as U.S. equities and commodities remain mostly flat to begin the week, as traders awaited a key mid-week Fed meeting and subsequent press conference. Extra attention was placed on the meeting due to subdued job growth in previous weeks and persistent inflationary concerns.
The cryptocurrency market would see a spark after an announcement from Elon Musk stating that Tesla may consider resuming Bitcoin transactions. Bitcoin would subsequently reach three-week highs near $41,000 on Monday.
Markets would open the week largely flat, but major indices would remain near record highs. The Nasdaq Composite reached an all-time closing high on Monday, and on the same day the S&P 500 was up only slightly but still achieving its third consecutive closing high.
Meanwhile, a stronger dollar would weigh on gold, resulting in a near 1% decline on Monday, to one-month lows around $1,848. Despite a stronger dollar, silver would gain traction and surge by about 1.5% on Monday but would never surpass the $28 mark.
After last week’s CPI release revealed that U.S. inflation was at its highest in more than twelve years, investors would wait and see how the Fed would react at the policy meeting scheduled for Wednesday. That being so, metals would not see significant price movement until Wednesday.
With Gold trading near $1,861 on Wednesday afternoon and silver around $26.94, gold and silver bugs alike remained cautious ahead of Fed Chairman Jerome Powell’s press conference on Thursday. Few were surprised when it was announced that the benchmark interest rate would remain close to zero. However, two rate hikes are expected in 2023.
The Federal Reserve also increased inflation expectation for 2021 by 1%. No indication was given as to when a taper in aggressive bond-buying may occur. Following the meeting, equities and precious metals would drop.
Both the dollar and Treasury yields would find momentum on Thursday. The U.S. Dollar Index would reach levels close to 92, levels not seen since mid-April. Rising yields and a stronger dollar decreased gold’s appeal as an inflation hedge. Gold shed nearly 5% to about $1,771, while silver would also decline by more than 6% to around $25.80 an ounce.
The dollar rally lost some steam as of today, giving gold a chance to pair some of its losses. Currently, gold is hovering around $1,773, which would be a weekly loss of more than 5% for the yellow metal and its worst week in over 9-months.
Silver is currently near $26 an ounce, which would be a weekly loss of over 6.5%. With the Fed acknowledging that inflation may be less transitory than originally thought, investors may be drawn to safe-haven assets. Some favor assets such as Treasury yields or currencies such as the dollar. For those who prefer gold or silver, the current dip may be a good buying opportunity.