As we saw last week, the bull run in the precious metals has been halted by the strong US stock market rally. Bullish trends in the currency markets, rising interest rates, and a hawkish Federal Reserve have taken their toll on the metal prices.
Powell Strikes a Hawkish Tone
Today stocks are lower after Jerome Powell delivered his first major policy address since taking office last month. Investors were disappointed by the lack of any new stimulus measures from the Federal Reserve chairman, who instead reiterated the central bank’s commitment to raising interest rates gradually.
It's not clear yet whether the Fed will be taking a pause or reversing course at their next meeting. But given Powell's recent remarks and past comments, it appears highly unlikely that they will.
If the Federal Reserve continues down its current path, there may be trouble ahead for the U.S. economic recovery. Concerns about a recession have already spiked significantly in recent weeks. If the Federal Reserve slows the pace of the recovery even further, those worries are likely to increase considerably.
The Economy is Slowing
The Federal Reserve acknowledged last week that the U.S. economic expansion is likely to slow down further next year, but the central bank says there’s no sign of an imminent recession.
If the Federal Reserve continues to tighten monetary policy, the US Dollar and Treasury Bond yields could also continue to increase. This could have a negative effect on the Gold price and could push the bears back into the game. The bulls have so far been able to absorb the sell off, but if the sellers remain strong, we could see some weakness develop.
Despite Powell's speech yesterday, some people may still think the Fed will change its mind sooner rather than later. It seems likely that the Fed will continue to hike interest rates until at least December. If the Fed decides to begin unwinding its balance sheet, however, it could be a big catalyst for higher prices of oil and a weaker U.S. currency.
Other factors that may affect gold prices include economic conditions, political events, and
As well as the Federal Reserve, gold prices may also be affected by other events, including a potential Chinese military incursion into Taiwan, an attack on Russia’s Crimea region, and Nancy Pelosi visiting Taiwan.
If China decides to attack Taiwan, the United States and Western countries might intervene. This could result in World War III and a global economic crisis.
The US economy continues to grow, despite recent concerns about slowing growth. The latest jobs report showed hiring picked up in June, after a disappointing May. The unemployment rate fell to 6.1% last month, the lowest level in nearly 50 years. And consumer confidence rose to an 18-year high.
Volatile markets could mean rising interest rates, which would hurt stocks. However, falling stock prices could force some people to sell their shares. At the same time, they might need to pay back loans used to purchase shares, so selling them could help them avoid margin call fees.
Volatility in the price of physical silver has largely dried up in the last few years. However, if we look at the chart, we see that there was