Precious Metals Plummet Amid Higher Interest Rates and Recession Fears

APMEX

7/1/2022 3:50:33 PM

This week brought with it more investor caution as recession fears accelerated. Investors were confronted with gloomy economic data, depressed corporate earnings, and questions over Fed policy as record inflation persists. 

After falling for two consecutive weeks, gold and silver started this week near $1,830 and $21.14, respectively. Monday saw a more subdued stock market, following last week's Wall Street rally in which major averages snapped a three-week losing streak. After whipsawing between gains and losses, the S&P 500, Dow Jones Industrial, and Nasdaq Composite all ended the day slightly lower. 

While investors were looking ahead to economic data, gold also saw a modest loss and would end Monday’s trading near $1,819 an ounce. Worry over a slowing economy was prevalent on Wall Street upon Tuesday’s open. This was underscored by a significant dip in consumer confidence. 

On Tuesday, the Confidence Board released its latest reading which outlined a drop in the consumer confidence index from 103.2 in May, to a fifteen-month low of 98.7 in June. The report also included an expectations index, which summarized consumer outlook on employment and wage growth. This index fell to a nine-year low of 66.4.

Following this, U.S. stocks fell for the second straight session on Tuesday. Most notably, the Nasdaq Composite fell by 3.1%. Gold was mostly flat on Tuesday, staying near $1,820 an ounce. On the same day, silver dipped below the $21 mark, and would end the day at $20.80. 

U.S. stocks were mixed on Wednesday, as Federal Reserve Chair Jerome Powell spoke at a European Central Bank forum in Sintra, Portugal. In his speech, Powell outlined the need for central bank policy to do whatever it takes to combat record inflation, even if it means more economic slowdowns. Powell also said that achieving a soft economic landing is “significantly more challenging.” 

Investors took note of the Fed’s hawkish tone along with revisions that came on Wednesday, via the Bureau of Economic Analysis which showed a first quarter contraction of U.S GDP of 1.6% against the original number of 1.4%. This news fueled recessionary fears, which was supportive of gold. However, the yellow metal was directionally conflicted on Wednesday, as the prospect of even higher interest rates meant gold would end the day little changed, at $1,818.

Thursday marked the end of the second quarter, and the S&P 500’s worst half since 1970. The index is down by more than 20% year-to-date. Jobless claims data was also released on Thursday. Initial jobless claims decreased from last week, but remained higher than forecasts, at 231,000. 

Included in Thursday’s economic data was inflation news. One measure of inflation, the core personal consumption expenditures index, came in slightly lower than expected. The Core PCE inflation reading revealed a year-over-year increase of 4.7% in May, against forecasts of 4.8%. This measure does not include food and energy prices.

 Following Thursday inflation news, the 10-year and 2-year Treasury yields fell to one-month lows while the dollar index eyed weekly gains. Recession fears continued to weigh on investor sentiment as the week drew to a close. This meant that U.S. stocks would continue to decline on Friday, as would precious metals.

A stronger dollar and the likelihood of higher interest rates pressured gold to five-month lows near $1,789 this morning. Silver also fell, touching a two-year of $19.65. Currently, silver is eyeing a 7% weekly decline, while gold is 2.2% lower.