Gold update: Powell's commentary pushes down gold price

Jerome Powell, chairman of the Federal Reserve (FED), made several statements this week indicating that the FED is uncertain whether enough has been done to control inflation. The FED has raised interest rates to the highest level in 22 years in over a year and a half. Powell’s remarks had a negative impact on the gold price.

Inflation in the U.S. reached 9% last year. The FED opted for an aggressive approach by raising interest rates by 5.25%. Never before has the interest rate been increased so rapidly in a short period. Inflation decreased month by month, reaching 3% in June of this year. However, inflation in the U.S. has been rising since July.

Below is a bar chart of inflation in the U.S. since October 2022:

Source: Tradingeconomics.com

The latest inflation figure is the number for the month of September, which stood at 3.7%. Next Tuesday, the inflation figure for October will be announced in the U.S. This figure will be a crucial indicator for a potential interest rate hike by the Federal Reserve (FED) in mid-December. Analysts currently estimate the likelihood of an interest rate increase in December at 10%.

Gold price declines 2.5%

The Dollar Index rose from 105 to 106 points last week. A stronger U.S. dollar puts pressure on the gold price. The 10-year interest rate in the U.S. closed slightly higher. A higher interest rate also has a negative impact on the price of gold. Gold lost 3% this week in U.S. dollars, finishing at $1938 per troy ounce. In euros, the damage amounted to 2.5%. An investment in gold is currently showing a profit of 6.4% this year.

Silver, as usual, reacted more strongly than gold. The silver price in U.S. dollars dropped by 4% this week, closing at $22.27 per troy ounce. Silver in euros decreased by 3.8%, closing at €667 per kilogram. An investment in silver is showing a loss of 7% this year. The gold-silver ratio closed at 1:87.

Looking at economic developments, there is a clear slowdown, especially in Europe. This week, the composite index of the manufacturing and services sectors for October was released. The index dropped from 47.2 in September to 46.5 points in October, marking the lowest level in 3 years.

The Federal Reserve (FED) expressed doubts this week about inflation developments, and similar uncertainties were noted by several officials of the European Central Bank (ECB). Luis de Guindos, vice president of the ECB, also mentioned seeing risks of higher inflation in the coming months. As it stands now, the expected pivot of central banks is anticipated around July 2024.

Agenda

Next Monday, the number of bankruptcies in the Netherlands will be announced. On Tuesday, the preliminary figures for economic growth in both the Netherlands and the Eurozone will be published. Also on Tuesday, the inflation figure for October in the United States will be released. Thursday will bring the unemployment figures for October in the Netherlands, and the industrial production for October will be disclosed in the United States.