16/06/2023: This Week in Gold with Weekly Update
Price Action:
Gold opened the week at $1,959 and traded within a narrow range in anticipation of CPI data from the U.S. on Tuesday. Upon the news of lower inflation, gold closed the day 0.72% lower on Tuesday. Price recouped some losses early on Wednesday, and met resistance at the $1,958 level before closing the day slightly lower as investors waited on the FED’s interest rate decision. Following the FED’s decision to pause rate hikes for the time being, the price of gold steadily fell throughout the day on Thursday, hitting a weekly low of $1,929. However, a quick rebound saw gold regain the losses experienced on Thursday to close the day higher. At the time of writing, gold is edging higher and is trading at $1,962, putting it slightly higher for the week.
Silver opened the week trading at $24.26. This was silver’s weekly high and the precious metal was unable to reach this level again throughout the week. Silver experienced similar fluctuations to gold, which was primarily in response to the financial data that was released. Similarly to the yellow metal, silver hit a weekly low on Thursday morning, falling to $23.33 before quickly recouping losses and finishing the day at $23.88. At the time of writing, silver is nearing the $24 level which has acted as resistance throughout the week. Moving through this level may allow silver to push further north.
Financial Update:
U.S. CPI:
Consumer Price Index (CPI), which is an inflation measure, declined to 4% year-on-year in May. This is down from the 4.9% that was reported in April and it is slightly lower than the 4.1% that was forecasted. Core CPI (excluding food & energy) cooled to 5.3% from 5.5%. Month-on-month data showed CPI rising by 0.1%, while Core CPI rose by 0.4%. Both are improvements on the levels shown in the previous month. This data shows cooling inflation, which is good news for the economy but it is still double the FED’s target inflation rate. This data was an important variable in the FED’s interest rate decision on Wednesday. With CPI beating expectations, it ruled out any chance of a rate hike. Gold prices moved slightly lower due to the better than expected inflation data. This is primarily due to the yellow metal’s reputation as a hedge against inflation. Typically, gold prices will move in the opposite direction to inflation.
FED Meeting: Interest Rates:
The Federal Reserve came to a decision on interest rates on Wednesday. With the announcement of favourable CPI data on Tuesday, the possibility of another rate hike was ruled out by the market. The FED announced that it would be pausing the current rate hike cycle, highlighting the ground that it has covered since the beginning of this cycle. However, FED chair Powell’s hawkish comments after the decision prove that the hiking cycle is not over yet. Powell stated that nearly all FED officials expect more rate rises in 2023, with projections signalling rates rising by a further 0.5% by the end of the year. The FED’s hawkish stance on interest rate projections affected gold to the downside due to the yellow metals inverse relationship with rates. A retracement in the price of gold may provide a buying opportunity for investors who are looking for an efficient method of preserving wealth and diversifying portfolios.
