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Metals Stocks: Gold ends down for the session and week as Powell remarks suggest aggressive tightening

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Gold prices fell on Friday, building on their loss for the week, as Federal Reserve Chairman Jerome Powell emphasized the need to bring down inflation in a speech at the Jackson Hole central bankers conference, supporting prospects for higher interest rates.

Price action

Gold futures
GCZ22,
-1.13%

for December delivery fell $21.60, or 1.2%, to settle at $1,749.80 per ounce. For the week, the most-active contract ended 0.7% lower, according to Dow Jones Market Data.

September silver
SIU22,
-1.86%

settled at $18.746 per ounce, down 37 cents, or 2%, for the session, losing 1.7% for the week.

Palladium futures
PAU22,
-1.77%

for September lost $17.90, or 0.8%, to $2,121.90 per ounce, with prices nearly 0.5% lower for the week, while platinum futures
PLU22,
-0.86%

for October delivery declined $18.60, or 2.1%, to $855.30 per ounce, posting a weekly loss of 3.7%.

Copper
HGU22,
-0.20%

for September delivery fell a faction of a cent to settle nearly unchanged at $3.697 per pound, but up 0.9% for the week.

What analysts are saying

It seems that everyone settled on the “’tighter for longer’ interpretation,” of Powell’s remarks, “sparking deep, across-the-board selling in all the markets,” said Brien Lundin, editor of Gold Newsletter. “Gold and silver certainly were not immune.”

In his speech Friday, Powell delivered a blunt message that the Fed will keep working to bring inflation down until it is done and that the fight will cause pain to households and businesses.

Powell is “tilting towards aggressive tightening going forward until inflation is under control,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. This will send gold “lower as it cannot compete for risk free capital with a rising yield” for U.S. Treasurys. 

A stronger U.S. dollar is a biproduct of rising rates and gold will suffer from that as well, he added. 

Powell kept the door open for a 0.75 percentage point interest rate hike in September, saying that “another unusually large increase could be appropriate” next month.

“Gold could easily pull back towards $1,700 or below,” said Wright. In the near term there’s not much of a case to step in to buy gold or support this market, he said. He said he “does not believe $1,700 is the floor,” and the $1,600 to $1,650 range is more likely in early September.

“A restrictive monetary policy is not friendly for gold,” said Wright.

““A restrictive monetary policy is not friendly for gold.””

— Jeff Wright, Wolfpack Capital

In Friday dealings, the yield on the 10-year Treasury
TMUBMUSD10Y,
3.037%

climbed by 1 basis point to 3.0418%, while the the ICE U.S. Dollar Index
DXY,
+0.26%
,
a gauge of the greenback’s strength against a basket of rivals, was up 0.3%.

“Gold initially fell hard in all currencies on Powell’s comments, because his commitment to risking recession and job losses to reduce inflation suggests that the rest of the world will also need to accelerate more aggressive rate rises short term,” Adrian Ash, director of research at BullionVault, told MarketWatch.

“But gold had been mirroring the dollar this week ahead of today’s Fed speech, holding firm near the upper-end of its 2022 range in euros, even as it retreated for U.S. investors,” he said.

Read: Gold is down 15% from its record high but here’s why it may still be key to a diversified portfolio

Longer term, Ash was more upbeat on the outlook for gold.

“The threat of recession means the bond market sees rates falling back,” he said. “Together with solid bargain hunting across Asian consumer markets going into Diwali and then Chinese New Year, that suggests a floor for gold sooner than later even in the face of higher Fed rates.”

Data released Friday showed a key gauge of U.S. inflation fell 0.1% in July thanks to tumbling gasoline prices.

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