Gold & Silver Prices are Conflicted with Higher Yields, Recession Worries

APMEX

4/8/2022 11:43:10 AM

Gold started the week under some pressure amid expectations of a more hawkish Fed. While there was speculation that recession risks and the Ukrainian conflict may lead to dovish monetary policy, it now seems the Fed has little choice but to enact more aggressive policy in the face of 40-year high inflation.

This has lent support for a higher dollar index and surging yields which, in turn, have pressured bullion prices.

 While this is true, metals have enjoyed support from the ongoing conflict in Ukraine and investors who are hedging against inflation. This sort of push-pull relationship has left bullion prices conflicted and little-changed for the week. 

Recent indicators such as yield-curve inversions combined with global growth concerns have caused some investors to proceed with more caution, out of fear of a looming recession in the U.S. Recession fears were shaken off as the week started with a more upbeat mood on Wall Street, resulting in stock market gains. 

Tech stocks lead gains, as Twitter shares jumped by more than 25% following news that Elon Musk had purchased a 9.2% stake in the company, earning him a seat on Twitter’s board of directors. Gold prices started the week around $1,925, with silver near $25.65. Meanwhile, investors eyed Tuesday’s jobless claims data and Wednesday’s release of March meeting minutes.  

Gold was slightly higher on Tuesday, as the yellow metal reached a daily peak of $1,943. Recession fears fueled a higher gold price, but the prospect of higher yields challenged any material moves higher. On the same day, Fed Governor Brainard indicated that interest rate increases coupled with a swift balance sheet runoff should bring U.S. monetary policy to a “more neutral position.”

This sent stocks lower, with the Nasdaq shedding 2.2% and the S&P 500 losing 1.3%. At the same time, the U.S. dollar closed in on two-year highs while Treasury yields neared 2 1/2-year peaks. Higher yields often diminish gold appeal, as they provide an interest rate-bearing alternative to bullion. 

Despite this, gold and silver were little changed by Wednesday at $1,931 and $24.14, respectively. Comments from Fed officials previewed Wednesday’s release of the March meeting minutes, which detailed a monthly bond holding reduction of $95 billion. The minutes also revealed that members favored a 50-basis point rate hike for upcoming meetings, as opposed to the previously stated 25-basis point hike. 

In other metals related news, further sanctions imposed on Russia by Western countries have made their way to bullion refiners. Recently, the London Metals Exchange, (LME) met with shareholders about potentially limiting the future delivery of Russian metals. The London Platinum and Palladium Market has also removed Russian refiners such as Krasnoyarsk and others from their Good Delivery list. 

As this is written, gold is hovering near $1,946 an ounce. Recent momentum was brought on by a slight dip in Treasury yields, coupled with escalating tensions in Ukraine. Geopolitical developments and a more aggressive tone from the Federal Reserve have likely cemented a losing week on Wall Street. Right now, gold is looking at a modest weekly gain of 1%. Meanwhile, silver will see little weekly change at its current level of $24.69 an ounce.