- Policy Induced Tumble Impacts Gold
- Recovery Starts as Bond Yields Dip
- Jobless Claim Increase Provides Momentum
The price of gold slumped late in the week following the hawkish views that came from the 2-day Fed meeting. News of a double interest rate hike to come in 2023 but the upkeep of the tone that inflation will remain transitory, did not sit well with the gold market as it slumped more than 5% at some stages, and well of the highs set earlier in the year. Despite this, and slipping close to $1750, it has started a recovery of sorts. This has picked up pace today as US bond yields dip and the market digests the increase in jobless claims on the week. In other commodities news, the sell-off has also been felt across precious metals and beyond.
Rate Hike Slams Gold Market
One of the key reasons behind the quick slump in gold prices on hearing the news from the meeting is that the precious metal does not play well in periods of higher interest rates. The non-yielding asset tends to be less favored when other types of assets can provide an improving yield. Should the inflation worry remain, and the Fed stick with their plans for a double rate hike in 2023, then many trading gold will certainly expect prices to fall further.
The other factor, beyond the general uncertainty of the whole situation that is playing out at the moment for gold in clearer view, is the rising US Dollar. This strengthening Dollar typically reduces demand for gold and therefore can result in price drops as seen.
Bond Yields Provide Recovery Potential
Despite the fall-off in price that was evident through the middle of the week, gold prices managed to gain some ground again from lower levels in the previous trading session. This has seen them pick up around 1% to sit just below the $1800 in the early trading today.
Part of the reason behind this would seem to be US Treasury Yields. Both the 10-Year and 30-Year yields have drifted significantly lower despite the increase in inflation expectations. This stands by the thinking that any inflationary pressure that is felt can pass through quickly and be a transitory concern.
Increasing Jobless Claims Signal Further Respite
Another factor that has contributed to an upward recovery in gold prices today, along with silver which has dipped but not as strongly, is the US employment figures that were released yesterday. These weekly numbers came in at their highest point of the month with 412,000 initial claims. This is above both the number for the previous week and analyst expectations.
Given this confluence of data then, it may well be possible to see gold run up above the $1800 mark again prior to the end of this week. In the longer term though, it looks likely that prices could fall lower particularly if the Fed sticks by its plans for a 2023 increase of rates and inflationary concern continues.