Gold and Silver Climb Further as Markets Anticipate Rate Cut

 

Gold and Silver Extend Gains Ahead of September Fed Meeting

(Bullion News Network) – Gold and silver prices increased again on Friday ahead of next week’s Federal Reserve meeting. The spot price of gold gained just under $12 per troy ounce as investors continued to price in a likely interest rate cut from the Federal Reserve. Silver prices gained even more, adding nearly $0.70 to the metal’s spot price and crossing $42.25/ozt for the first time since 2011. Friday marked silver’s third consecutive gain. The price action heavily favored silver, driving the gold-silver ratio over one point lower into the 86.20-86.30:1 range. Both precious metals increased in value this week ahead of a pivotal Federal Reserve meeting where the FOMC is widely expected to cut interest rates by either 25 or 50 basis points.

The Federal Reserve will meet next Wednesday to decide whether or not to cut interest rates. A series of weak U.S. job market reports, paired with slightly elevated inflation readings, have led to a resurgence in the odds that the committee will vote to cut rates during its September meeting. Earlier this year, Federal Reserve Chair Jerome Powell suggested that the Fed’s two objectives, to stabilize prices and maximize employment, may be at odds with one another. 

We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close. For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.

Powell’s concerns seem to have become reality after U.S. job creation fell unexpectedly in July. Speaking to reporters at what analysts called an unusually tense Jackson Hole Economic Symposium last month, Powell reaffirmed his belief that the Fed’s two primary objectives may be in tension.

Risks to inflation are tilted to the upside, and risks to employment are to the downside – a challenging situation.

During the same speech, Powell told viewers that the “shifting balance of risks” may cause the Fed to “adjust” its policy stances. Rate cut projections jumped sharply following Powell’s speech. After a fresh August inflation report suggested that job creation continued to cool, the implied probability of a September rate cut climbed further. CME FedWatch now projects a 96.4% probability that the FOMC will vote to cut rates by 25 basis points, as well as a 3.6% chance that the committee will opt for a more aggressive 50-point reduction. 

Excitement surrounding the prospects of another rate cut drove gold and silver to record highs in late August and early September. Gold set multiple all-time highs in the aftermath of the troubling employment data reports, while silver logged a fresh 14-year high. Precious metals like gold and silver are considered safe haven assets, and both assets tend to retain or increase in value during periods of high inflation or uncertainty. Since cutting interest rates is typically an inflationary action, safe haven asset prices often increase during periods characterized by declining rates. 

Heading into next week, traders will likely be paying close attention to the tone and tenor of Jerome Powell’s press conference, which will occur shortly after the FOMC makes its rate cut decision on Wednesday. While Powell usually avoids making any concrete promises about future policy decisions, the economist’s words could have an impact on what investors may expect heading into the final quarter of 2025. As Powell has suggested, the FOMC’s objectives of maximizing employment and stabilizing prices may be difficult to balance, as inflation remains elevated while the labor market cools. Given the difficult situation facing the Fed this month, any hints about where rates may be heading in October could influence markets.

Platinum group metals also gained to round on the week on Friday. Platinum added over $15/ozt to its spot price, while the spot price of palladium gained just a couple dollars. The move marginally extended the price discrepancy between platinum and palladium; platinum currently leads palladium by around $190 per troy ounce.