Precious metals and ETFs, which have been struggling recently despite climbing inflation, surged higher after the Federal Reserve meeting.
Investors who were anxiously awaiting a decision from the Federal Reserve as to how much to raise interest rates seemed optimistic about the 75 basis point rate hike, which the Fed believes is likely to help bolster the economy and curb rampant inflation.
While stocks first sold off on the news before bouncing strongly following the commencement of Chairman Powell’s post-announcement comments, silver and gold markets have been roaring higher.
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Fed Chairman Jerome Powell said at his post-meeting news conference. He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points. He said decisions will be made “meeting by meeting” and the Fed will “continue to communicate our intentions as clearly as we can.”
Gold climbed roughly 1.5% to reach $1840 per ounce, while silver scrambled over 4% higher to hit $21.84 per ounce during the post-meeting conference.
Precious metals ETFs followed suit, with the SPDR Gold Shares ETF (GLD) climbing over 0.75%, while the ProShares Ultra Silver ETF (AGQ) added over 4.3% and the Invesco DB Silver Fund (DBS) gained over 2.3%.
Precious metals, which have traditionally acted as a hedge against inflation, have struggled this year, while other commodities like crude oil have shown robust moves higher.
But with comments from Powell indicating that inflationary pressures are likely to endure, some investors may be looking to gold and silver as safe havens.
“Overall economic activity appears to have picked up after edging down in the first quarter,” the statement said. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
However, seasonally and technically, there is still reason to be cautious with metals, as some analysts see more downside.
“Technically, the August gold futures bears have the firm overall near-term technical advantage. Bulls’ next upside price objective is to produce a close in June futures above solid resistance at this week’s high of $1,882.50. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00,” wrote Jim Wyckoff of Kitco News.
For those savvy investors who see a further drop in gold and silver, a fund such as the ProShares UltraShort Gold (GLL), which enables investors to play the downside in gold, might make sense.
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