MARKET COMMENTARY – Gold and silver prices risk downward pressure as U.S. interest rates rise

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By David Brough

 

Gold and silver prices risk downward pressure as long as U.S. interest rates will need to rise further to combat sticky inflation.

 

Gold prices fell back almost two percent in the week starting on June 19, and were on track for their biggest weekly drop in more than four months, as the U.S. Federal Reserve (central bank) signalled that rates might have to be raised for longer than previously expected due to the resilience of high inflation.

 

Gold closed the week on June 23 at USD $1,919.99 per ounce, sharply down from early May when it traded above $2,000. Silver prices were set for their largest weekly fall since October 2022.

 

A climate of rising interest rates is generally seen as bearish for gold and silver prices as the precious metals bear no yield, making alternative assets more appealing. Silver price trends often roughly correlate with gold but tend to be more volatile.

 

The dollar rose last week after Fed Chair Jerome Powell, in congressional testimony, indicated more rate hikes ahead but affirmed the central bank would move cautiously.

 

Expectations of a strong dollar at a time of rising interest rates, can weigh on dollar-denominated gold as the yellow metal becomes more expensive in terms of other currencies.

 

Jewellers prefer stability in gold and silver prices in order to plan their sourcing requirements efficiently.

 

A weakening gold price over the longer term can encourage jewellery manufacturers to use higher purity gold as it becomes more affordable.

 

A trend for higher gold prices in recent years had led some manufacturers to switch production into 9- or 10-carat gold instead of 18-carat.

 

(Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as recommendations for investment.)

 

MARKET COMMENTARY – Gold and silver prices risk downward pressure as U.S. interest rates rise

Gold ring by Annamaria Cammilli