Gold and Silver Gain as Strait of Hormuz Reopens

 

Gold and Silver Up as Strait of Hormuz Reopens

(Bullion News Network) – Gold and silver prices increased on Friday after Iran confirmed the reopening of the Strait of Hormuz, a vital oil chokepoint that was closed by Iranian forces in March. Although the U.S. Navy’s blockade of the waterway continued on Friday, optimism that the war could be coming to a close drove a surge on Wall Street that gave Nasdaq its longest winning streak in decades. Precious metals is our focus, and the market certainly jumped on this latest news from the Middle East.

The spot price of gold gained more than $40 per troy ounce, closing on a win after an uncharacteristically calm Thursday. Silver prices also gained to close the week, adding over $2.50 per troy ounce to set a fresh monthly high. The price action favored silver, driving the gold-silver ratio more than 2% lower.

The US-Iran conflict remained a major focal point for traders throughout the week. U.S. President Donald Trump confirmed on Monday that the U.S. had begun its blockade of the Strait of Hormuz in an attempt to force a peace deal with Iran. The blockade remained in effect as of Friday evening, but Iran announced that it had fully opened the Strait to allow ships safe passage.

Gold and silver are still down from their pre-war prices. Both gold and silver lost big as the war continued and oil prices climbed, but today’s price movement helped the metals recover approximately half of their post-war losses. While safe haven assets typically perform well during periods of heightened conflict and uncertainty, chaos and speculation during oil’s hottest run in years seem to have had the opposite effect on gold and silver.

At this point in the month, traders would typically be turning their focus to the Federal Reserve’s upcoming meeting. The FOMC will meet to decide interest rates on April 29th and is largely expected to leave rates unchanged. The ongoing situation in Iran caused the Fed meeting to take a back seat for most of March and April, and this is likely to remain the case heading into the FOMC’s April meeting.

This does not mean that the April Fed meeting will be without drama, however. April was expected to be Jerome Powell’s final meeting as Federal Reserve Chair before his term expires. During an interview earlier this week, Powell told reporters that he would remain Fed Chair temporarily in May if Trump’s nominee, Kevin Warsh, is not yet confirmed by the U.S. Senate.

Trump told reporters earlier this week that he would remove Powell from the position if he does not step down in May, regardless of whether Warsh’s nomination has been confirmed. “I’ll have to fire him,” Trump said during a Fox Business interview, “if he’s not leaving on time.”

The confirmation of Warsh is still far from a guarantee for the Republican Party. Democrats in Congress are expected to delay the confirmation hearing, which is currently scheduled for April 21st, for as long as possible. Perhaps even more troubling for Trump’s nominee, GOP Senator Thom Tillis has threatened to block Warsh’s confirmation until the Department of Justice investigation into Jerome Powell is concluded and settled.

Tillis is a member of the Senate Banking Committee. If he chooses to block Warsh’s confirmation from moving to the larger chamber, Democrats on the committee would likely do the same, effectively preventing the vote from ever proceeding out of committee.

For the precious metals market, this all means that Federal Reserve drama is not out of the question for the two upcoming meetings. While the FOMC is widely expected to leave rates unchanged as it waits to assess the economic impact of the war in Iran, uncertainty could abound as we approach the end of Powell’s tenure as the Chair of the Federal Reserve. This could mean more volatility in the gold and silver markets, especially if the controversy is paired with troubling news on the inflation or U.S. employment fronts.

Next week will be a relatively slow one for economic data. Initial jobless claims will be released on Thursday, followed by a consumer sentiment report on Friday. The April consumer sentiment report is expected to build on March’s numbers, with the median forecast projecting a 1.4 point increase in consumer expectations compared to last month.

For gold and silver, the focus next week will likely still be on the Strait of Hormuz and the Federal Reserve.