One of the main asset classes that have recently pushed precious metals to lower their prices is the US stock market. The risky asset class continues to trade to reach new all-time highs. Today, for the first time in history, the Dow Jones Industrial Average closed above 35,000 after closing at 35,061.55. The S&P 500 also hit an all-time high of 4,411.79 after factoring in today’s gain of 1.01%. The NASDAQ composite posted a gain of 1.04%, which also helped the technology index record highs, reaching 14,836.9911. With all three major indices closing at historic highs, it is evident that capital continues to flow into the US stock markets.
Another asset class that is under downward pressure on precious metals is rising US debt yields. Today, 10-year Treasury yields edged up after trading to an intraday high of 1.3%. At market close today, the 10-year Treasury bill closed at 1.28%, a gain of 2.2 basis points from yesterday’s close of 1.264%.
There has also been pressure on the prices of gold and silver due to the US dollar. Today, the dollar index gained a fractional value, closing at 92.885, a gain of 0.055 points or 0.06%. The dollar rose from the lows of 88.50 that took place in mid-May 2021, to its current value near 93. That rise over the past two months has certainly pushed the price of gold down, as there is an intrinsic negative correlation between the dollar and gold because the prices of gold are matched against the US dollar.
The combination of rising US stocks, rising government debt yields and the strength of the US dollar pushed gold to trade in a consolidation range around $ 1,800 an ounce. While we have undoubtedly seen a huge rise in inflation, we are not seeing gold react by trading at higher prices. With the CPI currently at an annually adjusted rate of 5.4%, and the PCE (the preferred inflation index used by the Federal Reserve) currently standing at 3.4%, gold’s lukewarm reaction to this is a quagmire. The only plausible explanation is that the headwinds in the asset classes we talked about above continue to put pressure on the price of gold.
FOMC meeting next week
Key to gold prices will be next week’s FOMC meeting, when the Federal Reserve announces its current monetary policy. President Powell’s last statements came earlier this month when he addressed Congress. During this discussion, he said he believed that “the sharp rise in inflation seen so far this year will fade.” He also said it would be a “mistake” for the Fed to act “prematurely” to deal with the high inflation which, ultimately, is expected to be transitory. He also said that “although it is still a long way from meeting the standard of ‘substantial further progress’, participants expect progress to continue. “
That being said, the expectation for next week’s FOMC meeting should be for the Federal Reserve to maintain its current monetary policy, which is extremely accommodating and accommodating. If so, we should see gold prices reacting in a bullish fashion.
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