Gold and Silver Prices Pull Back Amid Rate Cut Uncertainty

 

Gold and Silver Pull Back Amid Rate Cut Uncertainty

(Bullion News Network) – Precious metal prices pulled back on Friday, with both gold and silver retreating for a second consecutive day amid heightened market uncertainty. The U.S. government reopened on Thursday morning, the record-breaking government shutdown ending after President Donald Trump signed a spending bill into law late Wednesday night. Metals pulled back after the government reopened, slipping on both Thursday and Friday as traders fretted over ongoing political and economic uncertainty. The Federal Reserve was in focus on Friday as market expectations for a December rate cut continued to decline heading into the weekend. 

The spot price of gold lost more than $80 per troy ounce on Friday. Combined with Thursday’s retreat, the spot price of gold shed over $100/ozt in the last two days of the week. Silver prices also pulled back, with the precious metal shedding nearly $1.50/ozt Friday to total around $2.40 in losses since market close on Wednesday. The price action favored gold, driving the gold-silver ratio around 0.7 points higher to nearly 80.5:1. Platinum and palladium prices retreated as well, with platinum shedding over $33/ozt as the spot price of palladium dropped just under $20 per troy ounce.

Precious metals thrived during the U.S. government shutdown, which ratcheted up uncertainty and likely drove a flight toward safe haven assets like gold and silver. Both precious metals pulled back following the end of the shutdown, signaling a retraction of uncertainty and safe haven demand. 

Federal Reserve rate cut speculation remained a major market factor on both Thursday and Friday as precious metals retreated. American traders widely expected three consecutive 25 basis-point interest rate cuts to end the year during the FOMC’s September, October, and December meetings. Federal Reserve Chair Powell dampened investor hopes during a press conference following the FOMC’s October meeting, saying that traders should not be overly confident that the Fed will opt for another cut in December.

In the Committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a forgone conclusion—far from it. Policy is not on a preset course.

Gold and silver pulled back during Powell’s October press conference, signaling an ongoing market fixation on interest rates. Precious metal prices recovered shortly after, largely buoyed by uncertainty during the October/November government shutdown, which became the longest in United States history. Silver even climbed to near its all-time high on October 12th, prior to the end of the shutdown later Wednesday night. 

Expectations for a rate cut in December also continued to recede throughout early November. On Friday, CME FedWatch projected a probability of 45.9% that the FOMC will opt to cut rates by 25 basis points when it next meets in December. That figure is down from 66.9% one week ago and 94.4% on October 14th. The pullback in market confidence comes on the heels of Powell’s own statement, as well as potentially hawkish commentary from some other Federal Reserve

Susan Collins, President of the Federal Reserve of Boston, preached caution in a statement to reporters:

Given my baseline outlook, it will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment […] I see several reasons to have a relatively high bar for additional easing in the near term.

Collins’s comments, paired with Powell’s word of caution to markets in October and lingering uncertainty concerns following the record government shutdown last month, seem to have converged to reduce overall market confidence that the FOMC will vote to cut interest rates for a third consecutive time when it meets on December 9th. Demand for safe haven assets like gold and silver tends to increase when rate cuts occur, so this week’s blow to the odds of a December rate reduction may help to explain the pullbacks in gold and silver markets.

Next Thursday, traders will be able to review a fresh U.S. employment report, which could shed some more light on the American economy heading into the holiday season. Further cooling in the labor market could help FOMC members justify another rate cut, especially if inflation rates remain relatively stable. Likewise, a strong labor market report could bolster cautious FOMC voters’ arguments for a more hawkish approach to reducing rates.

Gold and silver ended Friday down, securing a second consecutive day in the red for both markets. The gold-silver ratio increased by over 0.8 points. Platinum lost nearly $40 per troy ounce, and palladium shed over $28/ozt.