Gold and silver saw gains yesterday as market jitters returned. The Federal Reserve are due to announce their latest interest rate decision later today and there could be further price movement depending on the decision and guidance on the direction they will take in the future.
Markets have been increasingly wary in the past few weeks, as signs of strain in the US economy begin to show. The mini banking crisis of March continues to send ripples throughout the banking system worldwide. Struggling bank First Republic was shut down and sold off to JP Morgan earlier this week, the third such bank collapse for the US this year.
This once again saw shares fall for a number of US regional banks, with PacWest, Metropolitan Bank and Western Alliance Bank all losing 15% or more in share value during trading yesterday. Despite continued reassurances that the US banking system is strong, the recent string of collapses is doing little to help with confidence, and further mass deposit withdrawals could tip more banks over the edge.
This comes at the same time that the US Treasury is warning over the looming debt ceiling deadline. Treasury Secretary Janet Yellen warned that the department could run out of money as early as June 1st if the House and Senate fail to lift the ceiling. Though markets expect the ceiling to be raised or suspended, the threat of a potential US default is enough to raise concerns given the already fragile state of the global economy currently. The strong opinions across the US political stage makes the one month deadline exceptionally tight for any agreement to be reached, and could have significant consequences should an unprecedented default occur.
Since hitting a bottom of $1,617 per ounce in November 2022, gold has gained more than 20% in value.
So much uncertainty saw gold gain more than $40 per ounce yesterday, pushing it back above the psychological threshold of $2,000 per ounce once more. Gold has so far held onto the gains for the most part and is trading at roughly $2,015 today. Silver gained more than 3% as well and is trading comfortably above $25 per ounce today.
Expectations are for the Federal Reserve to complete one further interest rate hike today, taking US rates to 5.25%, the highest since 2007 prior to the financial crisis. Weak industrial figures this week, and the ongoing weakness to the banking system could prompt an early pause, but markets have all but priced-in a hike today.
Instead, markets will be analysing Chairman Jerome Powell’s press releases for what to expect going forward. If the Fed strikes a more dovish tone, and suggest that rates have peaked – or could be cut should the US economy show signs of heading for recession – then the dollar will likely fall, pushing both gold and silver up higher. Any hawkish suggestions of further interest rates would help the dollar but would come as a shock to the market given the increasingly strained banking system and potential for recession.
Between the looming debt ceiling showdown in Congress, key interest rate decisions, and the ongoing banking crisis, the next 2 – 3 months seem a likely candidate for further movement in the price of gold and silver, with bulls firmly in control at the moment.
