Gold and silver prices posted a sharp decline in midday US trading on Thursday. Accordingly, positive US economic data dampened market expectations and wiped out slight overnight gains in both precious metals. August gold fell $27.10 to $1,943.00, while September silver fell $0.645 to $24,325.
U.S. economic data has backed monetary policy hawks, suggesting at least one more rate hike may be needed to maintain steady growth and keep inflation in check between now and the end of the year. U.S. domestic product in the second quarter grew by 2.4%, beating expectations for a 2.0% increase.
Internal GDP reports are also quite robust. Additionally, US durable goods orders rose 4.7% in June, well ahead of expectations for a 1.5% increase. This positive data boosted the US dollar index and pushed US Treasury yields higher, affecting precious metals markets.
U.S. economic data has backed monetary policy hawks, suggesting at least one more rate hike may be needed to maintain steady growth and keep inflation in check between now and the end of the year. U.S. domestic product in the second quarter grew by 2.4%, beating expectations for a 2.0% increase.
Internal GDP reports are also quite robust. Additionally, US durable goods orders rose 4.7% in June, well ahead of expectations for a 1.5% increase. This positive data boosted the US dollar index and pushed US Treasury yields higher, affecting precious metals markets.
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The market received a good 25 basis point hike from the Federal Reserve on Wednesday.
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Stock markets in Asia and Europe both recorded gains in overnight trading. The US stock index also rose at midday and is at or near its highest level of the year
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In other news, the European Central Bank made a slight increase in its annual key interest rate at its monetary policy meeting today, as expected.
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Looking to the longer term, George Milling-Stanley, director of gold strategy at State Street Global Advisors, thinks the precious metal will remain supported by fears of a looming recession. “People are still concerned about the health of the economy, and uncertainty is good for gold. I don't think that uncertainty will go away anytime soon," he said.
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The expert added that, even if a recession is avoided, the Fed's aggressive monetary policy will slow growth. “While not a perfect environment for gold, low growth and persistent inflation are still positive for the precious metal,” said Milling-Stanley.
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With the above developments, investors may worry that holding precious metals will be disadvantageous. Therefore, when the world gold price traded in the area of 1,980 USD/ounce, they sold out massively to recover capital.
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Gold is very sensitive to rising interest rates. Rising interest rates will reduce the attractiveness of gold because it increases the opportunity cost of holding non-yielding assets like gold.
