Metal declined significantly in June as continued economic recovery and rising inflation led the Fed to reevaluate its current and future quantitative easing policies. Gold plunged about 7% in June for its worst monthly performance since 2016. Silver did not perform much better, dropping 6.5%. Platinum dropped 9.3% and palladium fell 1.3%.
Gold’s performance was closely tied to the Fed as investors looked for clues regarding their view on inflation and potential tapering of economic aid. While the Fed in general still believes that current price hikes are transitory, there was some debate on this issue which drastically influenced the price of metals. Over the last 50 years or so, the correlation between gold and inflation has been mostly inverted. But in recent years, the relationship has grown much more obscure in an ever increasingly complicated global economy. So, increasing worries of inflation did not help gold as many would think. In fact, the Fed’s mention of possible rate hikes in 2023, caused gold to plunge nearly 6% during the week of June 14 where it was never able to recover from.
Stocks were mixed in June but performed well overall. The Nasdaq rose over 5.5% for its best performance in 8 months while the S&P 500 gained 2% for its fifth consecutive positive month. The Dow, which outperformed other indices in the final week of the month trying to eke out a win, ultimately fell short, falling 0.3% in June. The S&P 500 and Nasdaq had several record highs throughout June as economic recovery coupled with ongoing Fed intervention helped create a scenario where equities could not lose.
June showed us that inflation isn’t always good for gold and long-held views between inflation and treasury yields are beginning to shift. Negative yields abroad brought an influx of foreign investments into the US bond market. This created a scenario where yields remained low which downplayed the effect and prominence of inflation. It seems likely that the Fed’s view of inflation and talk of interest rate increases will remain pivotal to gold’s performance heading into the second half of 2021.