If you think gold had a brutal selloff this week, just look at a silver chart

Gold prices this week had such a strong decline that they traded to a low not witnessed since the first week of March, declining by approximately $39 per ounce. Gold futures basis most active August contract opened at approximately $1969 on Tuesday and as of 5:25 PM EDT is fixed at $1930.30. This week’s price decline resulted in gold losing 1.96%.

The key factors that exerted extreme bearish pressure on both gold and silver were hawkish statements by the Federal Reserve, rate hikes by multiple central banks in Europe, and dollar strength.pic

Chairman Powell testified to the House and Senate’s Banking Committee this week and underscored the need for more rate hikes this year. Jerome Powell said that the majority of Federal Reserve officials believed that it was appropriate to continue to raise rates to address inflation.

On Wednesday, speaking before Congress he said that it was a “pretty good guess” that the central bank would hike rates twice more this year. Powell underscored the rationale for more rate hikes saying, “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go”.

This week the Bank of England raised its benchmark rate to 5%, the 13th straight increase by the BOE. Officials at the BOE warned that “further hikes might be needed”. The Bank of England’s Monetary Policy Committee (MPC) in a vote of seven to two voted in favor of a rate hike to reduce their country's Inflation. The BOE was not alone in its action with central banks in Norway, Switzerland, and Turkey also enacting rate hikes to slow their respective countries' inflationary pressures.

These factors also sparked a deep decline in silver resulting in a larger percentage decline than gold. Silver futures basis the most active July contract opened at approximately $24.25 on Tuesday and as of 5:25 PM is fixed at $22.45. The weekly price decline of $1.85 resulted in a percentage decrease of 7.42%. Silver’s selloff on a percentage basis was over 3 times greater than gold’s decline.

Gary S. Wagner

Time to Buy Gold and Silver