23/06/2023: This Week in Gold with Market Update
Price Action:
Gold started the week trading at $1,957, a level that it did not break for the remainder of the week. Following hawkish comments from the FED after the Central Bank’s pause in rate hikes last week, along with an increase by the ECB and BOE, the price of gold experienced a steady decline. Price fell 0.93% on Thursday to close the day at $1,914. Price fell to $1,911 on Friday morning, marking a new 3 month low in the process. However, the price of gold rebounded from this level and began to recover some losses on Friday afternoon. At the time of writing, price has climbed 1.1% from the 3 month low and is currently trading at $1,933.
Silver started the week trading at $24.08. The precious metal followed the same downward trajectory as gold during the week, with the news surrounding Central bank policies and economic data being the main driving force behind the decline. Silver hit a new 3 month low on Friday afternoon when it fell to $22.12. Similarly to gold, the price rebounded slightly and at the time of writing, silver is trading at $22.57.
Market Updates:
ECB Interest Rates:
The ECB decided to raise rates by 25 basis points (0.25%) on the 15th of June, to bring the central bank’s interest rate to a 22-year high of 3.5%. The ECB rate decision was a much more hawkish move than the FED, where the latter decided to pause rate hikes for June. ECB President, Christine Lagarde, stated that the Central Bank is committed to bringing inflation back to the 2% level.
U.K. CPI:
The U.K. released CPI data on Wednesday morning with the figure coming in unchanged from the previous month at 8.7%. The figure was higher than the 8.4% that was expected which was another surprise in the U.K CPI saga, as inflation proves to be more persistent than in other major advanced economies. Core inflation (excluding volatile food and energy prices) rose to 7.1% from 6.8% in April, reaching the highest level since 1992. MoM CPI rose by 0.7%, which is down from April figures but still higher than the expected 0.5%, while Core MoM CPI rose by 0.8% v.s the expected 0.6%. This data proves that inflation remains high and sticky in the U.K, with a long way to go before the nation reaches the 2% inflation target.
B.O.E. Interest Rates:
The BOE decided to raise interest rates by 50bps (0.5%) on Thursday, which was a surprise to markets as a 25bps (0.25%) raise was expected. After higher than expected inflation data on Wednesday, the BOE decided to take a more serious approach at correcting rising prices in the U.K. In a press release following the decision, the BOE reiterated the commitment it has to return inflation to the 2% level, while noting that the measures taken may affect households across the nation.
Conclusion:
The response from Central Banks over the last two weeks has put downward pressure on the price of both gold and silver, primarily because of the inverse relationship that gold has with interest rates. The FED, ECB, and BOE have all signalled that rate hikes will continue for now. However, rising rates may cause pressure on economies as a whole, where fears of a global recession are still valid. In such an environment, gold and silver are solid investments, due to both precious metals reputation as a safe-haven asset in times of economic uncertainty.
