Gold and Silver Gain on Retreating Rate Hike Fears

A less-than-ideal June U.S. employment report was the major catalyst for today’s gains. The June U.S. employment report came in much softer than expected, with only 57,000 jobs added amid a median forecast of 115,000. May’s numbers were also adjusted downward to 129,000 jobs created. While unemployment fell to 4.2%, the overall participation rate in the labor force fell to 61.5%.

CME FedWatch now projects only a 19.8% probability that the FOMC will vote to cut rates at its July meeting. This is down from 28.9% one day ago and 32.1% last week. The central bank finds itself in a tough position heading into the rest of the year. Inflation remains a persistent problem, with the last major report showing consumer prices increasing at more than double the Fed’s longstanding target of 2%. Rising inflation rates drove speculation that the FOMC may raise rates to curb consumer prices, and an especially strong labor reading in April and May gave the central bank a bit of wiggle room when hiking rates.

But this report could complicate the situation for the Fed. Raising rates can curb inflation but comes with risks for hiring rates due to an increased cost of borrowing. If the employment sector isn’t in a good spot, raising rates injects undue risk into one of the Fed’s two key areas in order to stimulate progress in the other.

Since rate cuts typically bode well for safe haven assets like gold and silver, the precious metals market jumped on Thursday after the less-than-ideal labor market reading. While a rate cut remains unlikely, traders on Wall Street and in the precious metals market seem optimistic that we may avoid a rate hike from the Fed in July.

We aren’t out of the woods yet, though. Analysts still project at least one rate hike by the end of the year. CME FedWatch anticipates a 78.4% probability that the FOMC will raise rates at least once before 2026 is over. Odds have shifted away from larger hikes, with the most likely outcome being a modest 25 basis point rate hike by the end of the Dec. 9 meeting. Interest rate speculation is poised to play an increasingly important role in how safe haven assets move in the coming months.

This was a relatively quiet week for international news, at least compared to the past couple of months. The week opened with a bit of chaos after the U.S. and Iran exchanged strikes near the Strait of Hormuz, and markets fretted after news that Iran refused to meet directly with United States officials during peace talks in Qatar. The gold-silver ratio declined for five days straight to end the trading week.

Qatar officials, U.S. Vice President JD Vance, and U.S. President Donald Trump said yesterday that negotiations proceeded through indirect negotiations. Crude oil futures fell by more than 1.25% on Thursday morning, bringing the total pullback to nearly 16.5% this month.

While further developments in the Middle East could certainly shake things up for the precious metals market, Fed interest rate speculation currently sits at the center of price action for safe haven assets like gold and silver. Next week, expect more interest rate speculation. Traders will likely pay especially close attention to Federal Reserve officials for cues about where rates may be heading.