Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinPrecious metals prices eased lower while equities markets plunged Friday following Fed Chair Jerome Powell’s surprisingly hawkish Fed outlook at the annual Jackson Hole, WY policy forum. In his eagerly anticipated speech, Jerome Powell said the Fed’s focus would continue to remain on fighting inflation, which will require continued Fed rate hikes. Powell’s sharply hawkish tone disabused the notion of a 50-basis point Fed rate hike in September, as well as a potential Fed pivot in the future, which spooked equities markets in particular.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”

Echoing the aggressive, no holds barred Fed policy under then Fed Chair Paul Volker during the last inflationary cycle 42-years ago, Powell indicated the Fed was willing to stay the course against inflation until the Fed’s goal of price stability was achieved.

"We must keep at it until the job is done. Reducing inflation is likely to require a sustained period of below-trend growth. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses."

Cleveland Fed President Loretta Mester said later Friday, "I think we're going to have to move (short-term interest rates) up above 4% and probably need to hold them there next year."

Powell’s speech spooked equities markets which turned sharply lower as the Friday trading session progressed. At the market close the DJIA tumbled 1,008 points or 3.03%, the S&P 500 shed 141 points or 3.37%, while the NASDAQ plunged 497 points or 3.94%.

The US dollar index gained 0.32% up to 108.82 today, which pressured precious metals prices modestly lower. Despite a US dollar index that is higher today than it was at its early July peak of 108.41, when gold and silver set cyclical lows of $1,700.20 and $18.23 respectively, gold and silver continue to trade above those cyclical July lows today. Traditionally, a stronger dollar makes gold more expensive in other currencies like euros, yen, and rupees, in countries where demand for gold is substantially higher than in the US.

Unusually, over the last two months, precious metals prices have tended to trade in sympathy to equities markets. Despite the shellacking equities markets took today, gold and silver held their value far better than equities did. Time will tell whether this unusual casual correlation between equities and precious metals has been broken by today’s market action.

At the Comex close: December gold slipped $21.50 to $1,749.80; September silver fell 37 cents to $18.75; October platinum dipped $18.60 to $855.30; and September palladium eased $17.90 to $2,121.90 an ounce.