Gold and silver have both seen their prices fall this week on news that the Federal Reserve have paused their rate hikes for now, but warned further hikes will likely still be needed.

Yesterday’s rate decision was highly anticipated, with markets unsure whether the Fed would continue to hike for the 11th month in a row, or finally pause. US inflation has been coming down in recent months but is still double the Fed’s target of 2%, leaving uncertainty over the direction they would take.

The FOMC statement reads “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy”. Chairman Jerome Powell made it clear however that further hikes are still expected. “Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time.”

150623 USD Chart

Despite the pause in hiking, the hawkish outlook still saw the dollar rally slightly, pushing both gold and silver down. Gold is down 1% in USD in the past 24 hours, trading at $1,930 per ounce currently, a near 3-month low for the metal. Silver fared worse, down 2.41% to $23.30 per ounce, roughly a two-week low.

Expectations of further hikes at future meetings could see the dollar push higher in the weeks ahead, but if inflation and other US economic figures come in weak in the meantime, the Fed could pivot, choosing to pause longer-term, or even begin to cut rates should inflation fall faster or the US economy head for recession. The next FOMC meeting is at the end of July, leaving six more weeks of data for the Fed to make further decisions.

In the UK, the pound has also been enjoying a rally, with markets firmly expecting the Bank of England to push ahead with more interest rate hikes. UK inflation is still sitting at more than 8% as of the latest figures, double that of the US, and quadruple the 2% target of the BoE. Markets are now pricing UK rates to go as high as 5.75% by next year, driving the pound briefly to $1.27.

The stronger pound helped propel gold and silver to further losses versus the dollar, with each down 1.28% and 2.62% respectively. The outlook for the UK economy looks weak however, despite some growth in April, the extra bank holidays and industrial action of May are expected to push the economy back into a contraction. Gilt yields have risen to levels not seen since the financial crisis, and above even the budget crisis of the Truss-Kwarteng government.

Mortgage rates continue to soar, and the house market is showing signs of cracking under the strain. House prices are already falling, and analysts expect more to come as increasing interest rates and bond yields continue to feed through to higher mortgage rates. While the pound remains relatively strong currently, it is still historically weak, and could fall further in the months ahead if the UK economy does fall into a recession and the house market crashes, all with interest rates rising and inflation high.

If this is as low as the dip in gold and silver goes remains to be seen, the Fed’s meeting in July will likely be the next key mover. When the pivot to rate cuts does happen however, gold and silver should see further gains, and in the case of gold that could easily propel it to new all-time highs.