Gold and Silver sink to multi-week lows on higher rate expectations

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Vrasidas Neofytou
Head of Investment Research

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Gold and Silver sink to multi-week lows on higher rate expectations
Gold and Silver have been suffering declines this week as the persistently high inflation metrics, the hawkish comments by policymakers, and expectations for higher rate hikes have pushed bond yields and the greenback to yearly highs.

The dollar-denominated Gold fell as low as $1,820/oz, or nearly 1% down, on Friday morning, posting the lowest level since early 2023, while Silver extended recent losses toward a two-month low of $21,20/oz, or 1.50% down, as the DXY- dollar index rallied to a fresh monthly high of 104.50 mark.

Gold price, Daily chart

Surging dollar and interest rates make the dollar-priced bullions more expensive for buyers with other currencies. At the same time, investors prefer the dollar instead of zero-yielding gold as a haven asset, given that the greenback offers better returns-yields.

Prices of the yellow metal were set to lose between 2% this week, their third straight week in the red, while the prices of the silver metal were set to lose nearly 4%, their fifth straight week in the red.

The non-yielding bullions have turned sharply lower these days as the growing expectations for more rate hikes by the Federal Reserve helped the yield on the 10-year U.S. Treasury to climb to a top of 3.92% on Friday, its highest since December 30, 2022.

The prospect of rising U.S. interest rates bodes poorly for non-yielding assets like Gold and Silver, which drives up their opportunity cost.

Sticky inflation data weigh on bullion prices:

Bullions extended recent losses on Thursday after January’s producer price index, an inflation metric that tracks wholesale prices, rose 0.7% vs 0.4% market anticipated, while the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

Thursday's reports followed sticky inflation data from earlier this week that showed robust growth in U.S. retail sales, strong consumer confidence, and a solid labor market in January, stoking fears that the Federal Reserve would have to raise rates higher than previously expected.

Hawkish Fed hits hard gold and silver:

The selloff in gold and silver intensified on Friday morning following comments from St. Louis Federal Reserve President James Bullard that he backed a 50-basis point interest rate hike at the central bank’s previous meeting and that he would not rule out a rate increase of that magnitude at the March FOMC meeting.

Separately, Cleveland Fed President Loretta Mester also said that interest rates will likely rise above 5% as the Fed moves against inflation and that the central bank should have hiked rates by more than 25 bps at its February meeting.

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