Gold and Silver are taking a hit from the stronger dollar and bond yields

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Vrasidas Neofytou
Head of Investment Research

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Gold and Silver are taking a hit from the stronger dollar and bond yields
The precious metals Gold and Silver extended their losses towards multi-month lows of $1,690/oz and $17,50/oz respectively yesterday, driven by Federal Reserve’s hawkishness to curb inflation, which lifts dollar and bond yields to decades highs.

Gold lost nearly 1% on Thursday, falling to as low as $1688/oz before bouncing to $1,700/oz key level on Friday morning, recording its lowest settle since March 2021, while Silver slid 1,2% to below $18/oz mark, settling at its lowest level since June 2020.

Gold spot, Daily chart

The yellow metal and the industrial-focused silver are getting pressured by the ongoing strengthening of the greenback and bond yields following the aggressive monetary policy path by the Federal Reserve, which is hiking its Fund’s rates to curb the record-high inflation (8,5% in July).

The DXY-dollar index, which measures the greenback against six major peers, hit a fresh 20-year high of 110 mark this morning, sending Euro down to $0,991, the lowest since 2002, and Pound Sterling to as low as $1,150, its lowest level since 1985.

The two-year U.S. Treasury yield settled at 3.520% on Thursday, its highest close since 2007, while the 10-year yield advance to 3.264%, ahead of the well-awaited key U.S. jobs report (NFP -Nonfarm Payrolls) for August later today, that could reinforce the case for interest rate hikes.

It’s good to mention that the Fed funds futures are pricing about a 75% chance that the Fed hikes rates by 75 bps at the next FOMC policy meeting on September 21, lifting the bond yields and dollar to fresh highs.

As a result, the soaring dollar makes the dollar-denominated gold and silver (like many other commodities) more expensive for foreign buyers using other currencies, while the higher real interest yields increase the opportunity cost of owning the non-yielding gold and silver.

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