Gold briefly dropped below $1800/oz for the first time since early February 2022 due, most likely, to the strengthening of the US dollar. The strength of the US dollar was coming from this most recent market sell-off and continued bets on the bold pace of Fed tightening, which has weighed heavily on precious metals prices this week.
Fed Chair Jerome Powell’s statements to the Senate suggest that, in the wake of this week’s hotter than forecast Consumer Price Inflation data, the Fed remains committed to getting inflation under control and the need for further rapid monetary tightening.
With the price of gold dropping below the $1800/oz price, many gold bulls believe that this is a tremendous buying opportunity for the yellow metal. One reason for this is that by raising interest rates, the Fed essentially puts an end to soaring asset prices, which were caused by lowering interest rates in the first place.
However, the Fed could very well trigger a new financial and economic crisis by tightening its policy because the Fed does not know what exactly the correct interest rate should be. Setting the interest rates too low would result in continued or even worsening inflation. Setting the rates too high may result in financial markets plummeting and a significant hit to the economy.
Either way, the risks to the financial markets still exist, and relying on the Fed to get things right is not always the best practice. Gold and silver remain great options to help deal with a very strained financial system and the ongoing risks to stability around the globe.
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