15/09/2023: This Week in Gold w/ Market Updates:
Gold opened the week trading at $1,920 and hit a weekly high of $1,928 mid-morning. Price then embarked on a gradual decline from there. Gold fell to a two-week low on Tuesday, falling 0.5% from the open to $1,913. This was in response to a dollar rebound and in anticipation of U.S. inflation data. People would typically exit the gold market in anticipation of economic news, looking to re-enter at a more favourable price afterwards.
Gold moved lower again on Wednesday as the dollar strengthened further. Inflation data was released, showing that headline CPI accelerated in the month of August. However, core CPI was seen to cool to 4.3% year-on-year. This news added to the potential of a rate pause at the FED’s meeting next week, which limited the downside for gold on Wednesday. Gold fell further on Thursday, reaching a weekly low of $1,903. Strong U.S. data boosted the dollar and bond yields, which in turn limited the gains that gold could potentially make.
On Thursday evening, gold began to realise some gains and pushed higher again on Friday. At the time of writing, gold is trading at $1,917, up 0.7% from the low that was experienced on Thursday. Gold rose gradually throughout Friday up to the time of writing.
Silver opened the week trading at $22.97 and consolidated within a 1.2% range for Monday and Tuesday. On Wednesday, price began to push lower gradually, and a sharp selloff was experienced on Thursday, with silver falling to $22.43, a 2.4% fall from the open of trading on Monday. However, price reverted quickly and began to climb higher towards the end of trading on Thursday. On Friday, price pushed more to the upside, reaching a weekly high of $23.22. At the time of writing, silver is trading at $23.18. Silver, unlike gold, is currently on course to finish higher for the week.
U.S. CPI accelerated in August, jumping to 3.7% year-on-year compared to the 3.2% that was recorded in July. Prices rose 0.6% month-on-month which was mainly due to rising gasoline prices from July-August.
Core CPI, which strips out volatile food and energy prices, increased by 0.3% month-on-month and cooled to 4.3% year-on-year, which was better than the 4.7% recorded in August.
At the FED’s last meeting in July, rates were raised by 0.25% to reach 5.5%, the highest level in 22 years. With the acceleration of inflation, the potential for a rate hike increased which pushed gold lower. Gold has an inverse relationship with interest rates.
ECB Interest Rates:
The ECB decided on Thursday to raise interest rates a further 0.25%, bringing the deposit rate to 4% and a new all-time high.
The ECB President, Christine Lagarde, stated that the reasoning behind the Central Bank’s latest hike was to tackle inflation and bring consumer prices down to the target rate of 2%.
It is widely expected that the latest rate hike will be the ECB’s last and investors anticipate that there will be a lengthy pause before rate cuts are introduced.
Raising rates typically lead to a sell-off in gold because of the metal’s inverse relationship with interest rates. Investors turn to fixed-income markets in a high interest rate environment.