Investors were uneasy this week about the consequences of ongoing rate hikes on an already fragile economy. There was no shortage of anticipated economic events this week, with Fed speeches, housing statistics, and unemployment claims all taking place. The Fed speeches were crucial because investor mood appeared to depend on news on monetary policy.
In this article, we’ll discuss what policies were presented within the Fed speeches, and how they are positively impacted gold and silver’s weekly gains.
Currently, gold is heading towards the largest weekly gain it has seen since March. Gold is ahead of the key US jobs data that shapes the expectations from the Federal Reserve.
Earlier this week, gold surged past the $1,700 mark as a response to the disappointing US data on job openings which set expectations for the Fed to slow its aggressively high rate hikes. The nonfarm payrolls data is forecasted to show that unemployment rate increasing, with a softer than expected print that is likely to benefit gold.
Bullion remains on track for a weekly gain of about 3%, despite the slight dip on Tuesday since peaking. Outflows from exchange-traded funds have slowed down this week, though gold continued to remain steady.
On Thursday, five Fed officials declared that inflation is too high, even volatility in financial markets will not deter them from raising rates.
Still, Treasury yields and the dollar have declined from last month, at which point they were at a high. This is an indication that traders will see their stance softening eventually.
It is predicted that under the Fed’s hawkish policy the market will start to slow down the US economy, which will gain a reaction. This will benefit gold - due to the Fed’s policy, gold has slipped about 17% from its year high in March. Higher treasury yields are prone to hurting gold prices, which is of little interest to investors.
On Monday, the Dow Jones Industrial Average dropped into a bear market due to interest rate fears. Gold and silver were not as affected due their safe haven qualities. Though the strengthening dollar and higher yields put pressure on both of the precious metals. Due to this conflict, neither gold or silver saw much movement, with gold staying close to $1636 and silver staying near $18.56.
The industry trend continued Tuesday, with yields on ten-year Treasury notes climbing to ten-year highs near 4%. Meanwhile, several Fed officials delivered addresses on Tuesday, including Fed Chair Jerome Powell, who called for regulation of cryptocurrencies during a panel discussion.
As a result of his remarks, Bitcoin and Ethereum, two of the largest cryptocurrencies in the world, rose by 5.2% and 4.4%, respectively. It has been suggested that the rise in institutional adoption of these assets can be attributed to a belief that they could be regulated.
Similarly, the S&P 500 and Dow continued their slide into bear market territory. Silver ended the day at $18.17 on Tuesday, while gold closed near $1,623.
A six-day losing streak on Wall Street ended on Wednesday as the Dow and S&P 500 both gained nearly 2%. Gold prices bounced from 22-year lows near $1,615 on the same day, ending the day 2.4% higher at $1,655. Silver ended trading at $18.74, increasing 4.1%.
The sell-off continued despite a Thursday report on unemployment claims that was greater than anticipated. The Nasdaq Composite experienced the largest decline of the major averages—nearly 3%—while the S&P 500 hit new 2022 lows. On Thursday and Friday, the dollar's surge was halted, and safe-haven investments were purchased.
Gold was anticipated to lose 2.3% in September, marking its sixth consecutive monthly loss. With a little detachment from gold, silver is currently trading at $19.08, which, if sustained, would result in a 2.7% weekly gain and an 8.9% monthly gain.
U.S. stocks had a far worse month as worries about a rate hike dampened Wall Street optimism. The Dow is currently down 7.6% for the month, while the S&P 500 and NASDAQ are both down close to 9%.
Since Fed members have reaffirmed their commitment to fighting inflation by raising interest rates, even if the economy slips further into a recession, many continue to have a pessimistic prognosis for equities in October. In the past, October has not been good for stocks. "Black Monday" in 1987, "Black Tuesday" in 1929, and the worst stock market collapse in 2008 all happened in October.
However, if the previous five months are any indication, rate increases, a stronger dollar, and higher yields may prove to be powerful opponents to gold. A more pessimistic economic outlook is frequently helpful for gold.