Gold and Silver See Weekly Losses on Rate Hike Bets and Dollar Strength

APMEX

10/14/2022 3:54:35 PM

Higher interest rates and speculation on future rate hikes drove investor sentiment once again throughout this week. The most anticipated scheduled events for this week would have been the Producer Price Index and FOMC minutes scheduled for Wednesday, and Thursday’s CPI release. 

Last week’s positive Nonfarm payroll news firmed bets that the Fed would remain committed to the tightening path, which pushed the dollar higher, and gold 1.4% lower, to a Monday close near $1,663. Silver also fell on Monday, ending the day at $19.39 an ounce. Meanwhile, major Wall Street averages such as the Nasdaq Composite fell to their lowest level in more than two years on Monday, as higher interest rates spurred a more cautious mood. 

 Gold and silver hovered near $1,665 and $19.25 on Tuesday, with little change ahead of Wednesday’s FOMC minutes. Stocks fell again on Tuesday, while the 2-year and 10-year Treasury yields jumped to two-week highs. The 10-year Treasury once again neared 4% while the yields for the 2-year note touched 4.313%.

On Wednesday, investors were faced with the news that inflation is still on the rise, as wholesale prices rose by twice the expected number of 0.2% to 0.4% for September. This marked the first wholesale price increase in three months. 

Minutes from the Fed’s September meeting were also released Wednesday, which did little to ease investor sentiment. The minutes underscored concern among Fed officials, that inflation had not responded as hoped to policy tightening. The minutes also revealed that “participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”

 Most interpreted this round of minutes as a commitment on behalf of the Fed to stick with policy tightening, despite further slowdowns in the U.S. economy. The latest round of inflation news coupled with the FOMC minutes release made for a gloomier day on Wall Street, with major averages such as the S&P 500, Dow Jones, and Nasdaq notching five consecutive days of losses, as each hovered near lows not seen since 2020. 

Gold was range-bound on Wednesday, near $1,669 an ounce. Meanwhile, while silver ended the day slightly lower at $18.98 as Thursday’s consumer inflation news loomed. By several metrics, consumer inflation climbed higher again in September, according to the Bureau of Labor Statistics. Perhaps the biggest shocker was the 0.6% monthly rise in core CPI, when estimates were closer to 0.4%. 

For many, the higher-than-expected inflation data solidified what would be the fourth consecutive Fed rate hike, which pressured metals to the downside on Thursday. As a result, gold dipped 1.6% lower, making it the lowest in two-weeks coming in at $1.643. Silver also swung lower, but then would pare losses and end the day with little change at $1,667 and $18.99 respectively.

 Surprisingly, stocks rallied following the inflation news, as the S&P 500 broke its five-day losing streak, and the Dow Jones Industrial gaining the most of the three major averages, at 2.85%. The dollar rally resumed this morning, which weighed on metals, while the prospect of higher interest rates continued to dampen investor sentiment on Wall Street. 

As this is written, the Nasdaq is looking at a 2.5% weekly loss, while the S&P 500 is 1.3% lower, and the Dow Jones is 1.1% higher for the week Currently, silver is at $18.12, which is 8.2% lower for the week. Having succumb to higher interest rates, gold eying a 2.6% weekly loss at $1,643 an ounce. If maintained, it will be gold’s first weekly loss in three weeks.