This week has been marked by significant volatility in the gold and silver markets.

Precious metals are experiencing volatility this week, with silver in particular seeing some big price swings. At this time last week, gold was $1,979 per ounce and threatening the key $2,000 per ounce level but has pulled back this week to $1,935 at the time of writing, a drop of over 2%. For silver this has been more pronounced, dropping more than 5.5% from $25.33 to $23.50 currently. 030823 USD Chart There is plenty going on in financial markets this week, despite the summer months normally resulting in a quieter period so below we have provided a brief summary of some of the key things influencing the financial markets this week. Rating agency Fitch surprised markets this week by downgrading the US credit rating from AAA to AA+. This comes as US debt is expected to balloon in the coming years, and repeated last minute debt ceiling negotiations that threatens the government’s ability to repay its debts. Reaction has been muted so far however, with some analysts calling the decision confused given the US economy’s current strength. Others consider the decision long overdue given the US government’s growing spending since the outbreak of the pandemic. Stock markets around the world dropped on the rating downgrade, but the dollar held up well, and stronger than expected job numbers from the US yesterday continue to demonstrate that the US economy is proving resilient to the Fed’s ongoing rate hikes. The strength in the jobs market suggests the Fed has room for further hikes if they choose to do so when they meet in September. This pushed the USD index to a 3-week high yesterday and resulted in the large price drops for both gold and silver. Markets will be watching keenly now for further economic data from the US. Things like jobs, consumer spending and house prices will be key indicators of how the US economy is holding up, and some analysts now believe that America can avoid a recession despite the repeated rate hikes. Inflation will of course be the other main figure to watch for; currently sitting at 3% the Fed look to be close to completing their task, but if the final percentage point needed to hit the target of 2% proves particularly stubborn there could be one final hike to come. In the UK, the Bank of England followed market expectations with a rate hike of 0.25% points. This takes UK rates to a 15-year high of 5.25%. The BoE doesn’t expect inflation to return to its 2% target until Q2 2025, in bad news for the ongoing cost-of-living crisis. It remains unclear if this will be this peak for UK rates, inflation remains at 7.9%, and unless this starts to come down the BoE will have little choice but to continue to hike. The rate decision comes as Nationwide reported that July saw the sharpest drop in house prices in 14 years, falling 3.8% year-on-year. The average 2-year fixed mortgage rate is 6.85%, and today’s hike is expected to drive rates higher still. A prolonged period of high inflation and high interest rates means mortgage costs are unlikely to fall much in the next two years and could spell bad news for homeowners faced with fewer buyers and lower asking prices for their properties. With the hike coming in as expected however Sterling is fairly unmoved today, bringing the UK in line with the US for the next few weeks; trading on key economic figures that indicate whether inflation is falling and how the economy is holding up. The BoE will also be watching these figures closely ahead of their next meeting in seven weeks to decide whether to press ahead with further hikes or pause and signal the peak is in.ChatGPT

This week, precious metals are experiencing significant fluctuations, especially silver, which has seen considerable price swings.

Seven days ago, gold was valued at $1,979 per ounce and was close to breaching the crucial $2,000 per ounce mark. However, this week, it has pulled back to $1,935 at the time of writing, representing a decline of over 2%. On the other hand, silver’s decline has been more pronounced, dropping by more than 5.5% from $25.33 to the current price of $23.50.

Despite the summer months typically being quieter for financial markets, there are several noteworthy events influencing them this week. Here is a brief summary of some key factors:

  1. Rating agency Fitch unexpectedly downgraded the US credit rating from AAA to AA+ due to concerns about the increasing US debt and last-minute debt ceiling negotiations that may affect debt repayment. Reactions to the decision have been mixed, with some analysts finding it confusing, considering the strength of the US economy, while others believe it was overdue given the government’s growing spending since the pandemic began.
  2. Global stock markets declined following the US credit rating downgrade, but the US dollar remained strong, supported by better-than-expected job numbers, indicating resilience to the Federal Reserve’s ongoing rate hikes. The strong job market suggests the possibility of further rate hikes when the Fed meets in September, resulting in the significant price drops for gold and silver.
  3. Economic data from the US, such as jobs, consumer spending, and house prices, will be crucial indicators of the economy’s performance. Some analysts now believe that the US can avoid a recession despite the rate hikes. Inflation, which currently stands at 3%, will be another key figure to watch, as the Fed aims to reach its 2% target, potentially necessitating one final rate hike if inflation remains stubborn.

In the UK, the Bank of England raised interest rates as expected by 0.25% points, bringing them to a 15-year high of 5.25%. The bank does not anticipate inflation to return to its 2% target until Q2 2025, which is concerning amid the ongoing cost-of-living crisis. The possibility of further rate hikes remains uncertain, as inflation is at 7.9%, and the BoE may need to continue raising rates unless inflation starts to decrease.

Nationwide reported a sharp 3.8% year-on-year drop in house prices for July, the steepest in 14 years, and with today’s rate hike, mortgage rates are expected to rise even higher. This prolonged period of high inflation and interest rates could lead to challenges for homeowners, facing fewer buyers and lower asking prices for their properties.

As expected, the Sterling remained relatively unchanged after the rate hike, aligning the UK with the US in closely monitoring key economic indicators to assess inflation trends and the overall economic performance. The BoE will closely observe these figures before their next meeting in seven weeks to decide whether to continue with additional rate hikes or signal that they have reached their peak.

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