Gold & Silver Lose Ground Ahead of FOMC Meeting

APMEX

9/17/2021 11:42:29 AM

Gold & Silver Lose Ground Ahead of FOMC Meeting

Many investors are exercising more caution as U.S. stocks are eyeing their first negative month since February. Historically, September has proven to be a more volatile month on Wall Street. Investors have grown to anticipate this volatility, but many continue to cite concerns over a slowing economy plagued by inflation, supply chain disruptions, and other complications stemming from Covid-19 shutdowns. 

With U.S. economic recovery at the forefront of market sentiment, commodities, currencies, and equities markets have been reactive to Fed speak and periodic releases of economic data throughout each week. While the economic calendar was relatively light this week, there were several developments that drove markets. 

Stocks opened the week on firmer footing, as markets attempted to bounce from five consecutive days of losses. Gold started the week off slightly lower than the prior week, near the $1,790 mark. Silver looked more volatile on Monday, dipping by more that 1.5%, only to finish the day with a slight gain, around $23.75. Monday’s close would see a mixed stock market. The Nasdaq finished lower, while the S&P and Dow were able to end their five-day losing streak. 

Investors watched closely as Tuesday’s release of inflation data loomed. Tuesday’s data revealed that inflation had increased, but by less than the forecast. Still, August inflation was up 5.3% year-over-year. Data from the Census Bureau also revealed that median American household income had declined for the first time since 2011. 

Gold and silver reached their weekly highs on Tuesday of $1,808 and $23.96 respectively. The dollar would touch its weekly low on Tuesday, while stocks ended in the red once again. Stocks clawed back on Wednesday. Equities were boosted by data from the Empire State Manufacturing Index that showed an unexpected increase in manufacturing and business activity in New York. On the same day, data from overseas revealed significant retail slowdowns in the Chinese economy. 

As Thursday came, the focus was already on next week’s Fed meeting in which investors expect to hear clues on the Fed tapering timeline. U.S. retails sales data was set to be released on Thursday, for which a decline of 0.8% was expected. However, there was an increase of 0.7%. The unexpected positive reading drove Treasury yields upward, while the dollar touched a three-week high. 

This heavily weighed on gold and silver prices. Gold dropped by more than 2% while silver dove by 5% on Thursday. In fact, silver touched $22.63, which was a low not seen since July of 2020. Gold showed some resilience but is eyeing a weekly drop of 2.2%. Currently, gold is near $1,750 an ounce. Silver is looking at a weekly decline of over 5.5% and is currently near $22.46.

There are a growing number of Fed officials who support near term tapering. Historically, Fed tapering has preceded a more volatile stock market. However, analysts are mixed on the effect that it could have on gold. Tapering has also been supportive of Treasury yields in the past. This can dent gold appeal, as it bears no interest. On the other hand, a more volatile stock market may also favor gold.

 
Perhaps next week’s Fed address will provide some clarity on the tapering timeline. Until then, it seems gold will continue to battle dollar strength, as the two carried a near inverse relationship this week.