Gold and Silver Gain on Banking Woes and Rate Hike Hopes

Last week, concerns over the banking sector drove gold and silver higher for modest weekly gains, and the pair’s second consecutive monthly uptick. In terms of scheduled economic events for this week, the emphasis was on the Fed’s two-day policy meeting and subsequent rate hike update. Investors also anticipated employment news, while fears of a banking contagion weighed heavily on risk appetite.

Gold and silver saw little change Monday. The pair ended trading near $1,981 and $24.87, respectively as the dollar gained. On the same day, stocks in the U.S. dipped as news broke that First Republic Bank’s assets had been seized by regulators and sold to JPMorgan Chase, marking the most significant U.S. bank failure since the 2008 financial crisis.

A drop in Treasury yields and fears of a banking contagion drove gold almost 2% higher on Tuesday, to 2,018 an ounce. Stocks fell again on the same day, as the Fed’s 2- day policy meeting began. Wall Street sentiment was further dented by news that job openings in the U.S. had fallen to a 2-year low of 9.6 million.

By Wednesday, market participants had given more than a 90% chance of a 0.25% rate hike, which was later confirmed by Fed Chair Jerome Powell in his news briefing. In his address, Powell acknowledged concerns of a recession in 2023. While it’s expected that the Fed will pause its rate hike campaign at the June meeting, the Fed Chair did not provide any clear direction in that regard. Stocks fell during a Q&A session in which Powell threw water on the idea that the Fed would cut rates sometime in 2023, when he stated that “Our forecast is not for rate cuts coming.”

Gold neared a fresh all-time high at its weekly peak of $2,071 on Wednesday evening, following the rate hike announcement. On Thursday, silver touched a 1-year high of $26.11, while gold ended trading near $2,057, as banking concerns drove a flight to safe-haven assets. On the same day, stocks ended their fourth consecutive day of declines.

Stronger-than-expected U.S. payroll data (+253,000 vs. +188,000 expected) from this morning, further tempered any hopes that the Fed may cut rates. This news also weighed on gold, while stocks rallied. Currently, the Dow Jones Industrial Average and S&P 500 are eying 1.5% and 0.9% respective weekly losses, while the Nasdaq Composite is almost flat for the week.

Following this morning’s jobs news, gold fell by nearly 2% but is eying a 1.6% weekly gain at $2,015 an ounce. Silver also fell this morning, but is currently near $25.60 an ounce, which would be a 1.9% weekly uptick. For this week, gold and silver are likely to survive the employment surprise for weekly gains driven by baking concerns and the prospect of a rate hike pause. Next week, investors will likely focus economic releases in inflation data and jobless news, due out on Wednesday and Thursday.