Gold and Silver Succumb to Hawkish Fed Speak

APMEX

8/26/2022 3:28:04 PM

Last week, gold and silver ended a three-week winning streak while the dollar firmed, and investors in the U.S. began to anticipate additional interest rate hikes. For this week, gold bugs and investors in the broader market were once again focused on updates from the Fed, as central bank officials convened at the annual symposium in Jackson Hole, Wyoming. 

In addition to Fed Chair Jerome Powell’s Friday speech, investors were looking to a fresh round of housing data, inflation news, and jobless claims; all of which were set for release throughout this week. On Monday, speculation that the Fed may pursue a 75-basis point September rate increase, as opposed to a 25-basis point rate hike, pushed the dollar to fresh 20+ year highs near 108.75. 

Meanwhile, fears of more hawkish Fed policy dampened the mood on Wall Street. As a result, major indices such as the S&P 500 and Dow Jones Industrial Average saw their worst trading days since mid-June. By Monday’s close, the Nasdaq Composite had dropped by 2.7%. 

On Monday, gold and silver both touched weekly lows of $1,728 and $18.72, respectively. Both would pare losses as gold ended the day only 0.4% lower, while silver shed 0.6%. 

While investors continued to digest the latest round of retail corporate earnings, the Commerce Department reported that new home sales plunged by nearly 13% in July to 511,00, against forecasts of 585,000. This marked the slowest rate of new home sales since February of 2016. 

Stocks were mostly lower on Tuesday, while the dollar index remained near multi-decade highs. Despite a stronger dollar, gold and silver were marginally higher at $1,746 and $19.09. Wednesday saw gains for riskier assets, as U.S. stocks broke their three-day losing streak. The crypto market also saw an uptick on Wednesday, with Bitcoin nearing the $22,000 mark after falling by more than 10% last week. 

The dollar rally cooled on Wednesday, as gold and silver rose ahead the Fed’s Jackson Hole Symposium, which was set to begin on Thursday. However, gold’s upside potential was limited as U.S. Treasury yields remained near weekly highs. Gold ended the day at $1,756, while silver gained just over 1% on its way to $19.29 an ounce. 

Precious metals saw little change on Thursday, as investors braced for Friday’s speech by Fed Chair Jerome Powell. Despite Thursday gains, stocks were on track for a losing week. In his speech on Friday morning, Powell stated that, “Reducing inflation is likely to require a sustained period of below-trend growth.” 

While outlining the central bank’s commitment to fighting inflation via higher interest rates, Powell warned the cost of doing so would almost certainly be a continual softening of the labor market and slower growth. Powell also stated that the decision to opt for a 75-basis point increase in September vs. 50-basis points is entirely dependent on economic data between now and then. The next Fed meeting is set to occur on September 20th. 

U.S. stocks immediately slid lower following Powell’s hawkish affirmation. Most notably, the Nasdaq Composite shed 2.6% while the S&P fell by 1.7%. Precious metals also fell following the speech, with gold losing 1.4%. Currently, gold is near $1,736, which is 0.4% lower for the week. Silver fell by 3.2%, touching $18.74 an ounce. Since then, silver bounced and is currently at $19.04 an ounce, which is barely higher for the week.