Gold scores biggest one day rally since March, silver jumps nearly 7% due to Fed-inspired ‘short squeeze’

See: Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

Because of Powell’s comments, “we could see the Fed start to pivot” toward a slower pace of rate hikes, said Daniel Ghali, the director of commodity strategy with TD Securities. This should benefit gold and silver at the expense of the U.S. dollar and Treasury yields.

While Powell’s comments helped spark the initial move in gold and silver, it has been exacerbated by short-covering among money managers, who had recently gone net short on gold for the first time since 2019, according to Ghali, who cited a combination of publicly available positioning data and TD Securities’ in-house metrics.

“Money managers are short covering across gold and silver, but in gold you have another cohort taking the other side, where as in silver, you don’t,” Ghali said.

Gold prices extended their rally after U.S. data released Thursday showed that the domestic economy shrank at an annual 0.9% pace in the second quarter, marking the second decline in a row. Gross domestic product had shrunk at a 1.6% pace in the first three months of the year.

Powell’s perceived lack of commitment on Wednesday to monetary tightening, combined with “today’s confirmation of a recession have investor’s believing that a pivot is likely to come sooner than the previous consensus view,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.

“Gold and silver are in dramatically over-sold territory, so all the ingredients for a price rebound fell neatly into place,” he said.

“Economic growth is throttled, and today’s situation seems harder to resolve, and not without considerably higher wages,” said Lundin. “That adds up to both a deeper and longer recession and continued inflationary pressures, which present quite a quandary for the Fed.”

That also “presents a positive set up for gold, especially from current low price levels,” he said. It’s now “much more likely that the metals have bottomed and, even if we don’t see a strong rally, we should at least see a slow rise off the lows going forward.”

Gold and silver have endured substantial weakness this summer as the strong dollar and higher yields have robbed the precious metal of some of its luster. After falling for five straight weeks, gold hit its lowest level since the first quarter of 2021 earlier this month, while silver briefly traded at a more than 2-year low.

The ICE U.S. Dollar index
DXY,
-0.23%,
a gauge of the greenback’s strength against a basket of rivals, was up by less than 0.1% in Thursday dealings.