Precious Metals Surge as U.S. Data Signals a Recession and the Dollar Weakens

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Last week, gold and silver snapped a three-week losing streak over recession worries and a pause in the dollar rally. As this week began, investors were looking ahead to Wednesday’s Fed announcement regarding interest rate hikes. Given last quarter’s U.S. economic contraction, there was also focus on Thursday’s GDP data, as two consecutive quarters of declining GDP meets the widely accepted definition of a recession. 

Gold started the week near $1,723 an ounce while silver was closer to $18.52. Precious metals were flat on Monday as the expectations of more restrictive policy weighed on bullion, despite recession worries. Stocks were also flat on Monday. Major averages saw little change as investors were focused on Wednesday’s Fed update and corporate earnings from major tech companies such as Microsoft and Alphabet. 

On Tuesday, the Commerce Department released data that showed new home sales dropping to their lowest level in more than two years. As higher interest rates and higher prices dampened demand, new home sales fell by just over 8% in June. 

More bad news came on Tuesday after Walmart slashed its profit estimates, citing inflationary pressure on consumer spending. Reduced spending on behalf of consumers also led to excessive inventory on some goods, which led the retail giant to cut prices. Following these announcements, Walmart shares fell by nearly 8%. 

Major Wall Street averages also saw losses on Tuesday. The S&P 500 and Nasdaq Composite shed the most, at 1.3% and 1.9% respectively. Precious metals saw movement on Tuesday, with gold hovering near $1,720, while silver ended the day 0.9% higher at $18.66 an ounce.

While some expected the Fed to announce a 1% rate increase, the general consensus was that another 0.75% rate hike would be announced on Wednesday. In Keeping with these expectations, Fed Chair Jerome Powell announced a 75 basis-point increase Wednesday afternoon.

The dollar index initially fell following the announcement, while gold reached two-week highs of $1,735 before the end of trading. At the same time, silver surged by 2.6%, ending the day at $19.14 an ounce. Stocks rallied following the Fed update, with the tech-heavy Nasdaq Composite leading gains at over 4%. 

On Thursday, the Bureau of Economic Analysis reported that U.S. GDP contracted by 0.9% in the second quarter, signaling a recession in the U.S. Following this, U.S. Treasury yields fell for the third straight day, while the dollar index dipped to three-week lows. Recession news and the dollar decline boosted metal appeal.

Inflation news dominated headlines this morning, as core PCE rose by 0.6% in June, exceeding the 0.5% forecasted rise. Despite the latest round of inflation data and recession news, stocks rallied again on Friday morning, as major averages eye weekly gains. 

As this is written, gold is at $1,765 an ounce which would be a 2.4% weekly gain. Meanwhile, silver is near $20.27 an ounce, or 9.4% higher for this week. 


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