Before Federal Reserve Chair Kevin Warsh took the stage at Jackson Hole, gold and silver miners were having the kind of month investors do not easily forget.
The VanEck Gold Miners ETF (NYSE:GDX) was up nearly 40% month-to-date through Friday morning, putting it on track for its strongest monthly performance since 2020.
Then Warsh started talking about inflation. Within 25 minutes of his speech, precious-metals miners had become one of the worst-performing corners of the U.S. market.
According to Benzinga Pro Movers:
- First Majestic Silver Corp. (NYSE:AG) led the decline, down 5.09% to $20.82 by 10:30 a.m. ET.
- Hecla Mining Co. (NYSE:HL) fell 4.42%
- Coeur Mining Inc. (NYSE:CDE) fell 4.24% and
- Pan American Silver Corp. (NASDAQ:PAAS) 3.59%.
Among gold producers:
- AngloGold Ashanti PLC (NYSE:AU) fell 3.31%
- Equinox Gold Corp. (NYSE:EQX) 3.05%, and Eldorado Gold Corp. (NYSE:EGO) and IAMGOLD Corp. (NYSE:IAG) both 3.00%.
- Cameco Corp. (NYSE:CCJ), the uranium producer, dropped 2.74%.
- Agnico Eagle Mines Ltd. (NYSE:AEM) fell 2.34% and
- Barrick Mining Corp. (NYSE:B) 2.10%.
Why Warsh Hit Gold Miners
Warsh delivered a clear message on inflation: The Fed’s 2% PCE objective is a “firm, fixed target.”
More importantly, the latest inflation data have not convinced him that underlying price pressures are improving fast enough.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”
That matters enormously for precious metals. Gold and silver do not pay dividends or interest. Their appeal, therefore, changes when investors can earn more on cash and government bonds.
Warsh’s comments pushed markets toward that reality.
Interest-Rate Expectations Move Higher
The two-year Treasury yield jumped to 4.31%, while the dollar index climbed 0.30% to 99.21. Gold fell 0.94% to $4,559.79 an ounce. Higher yields increase the opportunity cost of holding metals. A stronger dollar can also weigh on dollar-priced commodities.
But there was another message in Warsh’s speech: Financial conditions were not broadly restrictive, and inflation remained above target.
CME FedWatch tool now shows the probability of a hike in September is more likely than not, rising to 55% from 35% a day earlier.
“Chair Warsh’s Jackson Hole speech struck a pragmatic, slightly hawkish tone, spurring investors to price in 53bp of policy tightening over the next 12 months, up from 45bp beforehand,” Pantheon Economics economist Samuel Tombs said in a note.
“Our base case that the FOMC will keep policy unchanged over the remainder of this year is under a little more pressure after Mr. Warsh’s speech,” he added.
Image: Shutterstock
