Gold and Silver Pull Back After Favorable PCE Report

 

Gold and Silver Prices Pull Back After Cooling August Inflation Report

(Bullion News Network) – Gold is positioned to log its first daily loss since last Wednesday, dropping nearly $20 but retaining a shaky support at $2,650 per ounce. The move comes on the other end of today’s favorable Personal Consumption Expenditures (PCE) report, in which inflation data came in lower-than-expected at 2.2%. Silver followed gold’s dip, losing $.33 and falling below the $32/oz line as traders priced in what appears to be good news for the Federal Reserve and its plans for a soft landing. 

Last Wednesday, the Federal Open Market Committee (FOMC) cut interest rates by 50 basis points – the first rate cut since 2020. The decision was controversial; some analysts felt it signaled that the Fed had waited too long to reduce rates and was attempting to play catch-up. Other experts praised the decision, which Fed Chair Jerome Powell said was appropriate given the falling “upside risks to inflation,” and the increasing “downside risks to employment.” 

Both the stock market and precious metals market reacted with volatility. Gold and silver gained in the immediate aftermath of the decision before ending in the red at market close. Stocks reacted similarly, rallying immediately after the decision was announced before correcting into the negative as the trading day wore on. Since then, precious metals have rallied as traders continue to price in what is likely the first in a series of rate cuts from a newly dovish Federal Reserve. Gold sustained a seven-day run which drove the precious metal to several fresh all-time highs prior to today’s drop. 

Gold and silver prices remain significantly higher than they were last Wednesday before the interest rate cut, but both metals will end today in the red. 

#Gold and #silver prices pulled back today, presumably after the day’s favorable PCE report showed another month of slowing inflation.

Gold still remains elevated above $2,650 but is down nearly $25 since market open. Silver prices dipped half a dollar to the $31.60-70 range.

— Hero Bullion (@HeroBullion) September 27, 2024

This Week In Review: Gold, Silver Rally On Geopolitical Tensions, Rate Cut Bullishness

Optimism following the FOMC’s aggressive 50 bps rate cut was the primary driver of this week’s metal rally, but geopolitical conditions also played a role in the elevated prices we saw leading up to this afternoon’s correction. Last week, Israel executed a series of bombing runs against Hezbollah, an Islamist paramilitary organization and political party based out of Lebanon. The strikes, which reportedly eliminated several key Hezbollah leaders, pose a threat to stability in the entire region. Leaders in the United States and Great Britain urged de-escalation, but Hezbollah responded with their own bombings. 

Gold, along with other precious metals, are safe haven assets that tend to perform well during geopolitically tense climates and conflict. Destabilization in the Middle East also poses a risk to other commodities, including oil, driving more demand to gold and silver when tensions become inflamed. Israel’s war with Palestine is ongoing, and the latest escalation in the Israel-Hezbollah conflict injects a new degree of uncertainty into a contentious geopolitical climate in that region. Gold and silver prices climbed immediately after Israel’s bombing runs, and analysts anticipate that the status of these conflicts will continue to motivate price action for safe haven metals. 

Today’s favorable PCE news puts gold in a strange position. Precious metals tend to perform well during periods of declining rate cuts, and the news that inflation did indeed fall in August should theoretically motivate the Fed to continue cutting rates heading into Q4 2024.

A hot inflation reading for August would have put Powell’s soft landing in jeopardy, as reducing rates by 50 bps is an inflationary policy that could become disastrous for the Fed if inflation is already on its way back up. Instead, the report suggests that the FOMC made the right call. CME Group’s FedWatch now predicts that the Fed will most likely choose to cut rates by another 50 basis points when it meets on November 7th. This seems like good news for gold bulls, but today’s losses suggest that perhaps gold’s price movement had more to do with expectations of increasing inflation rates than with bullishness on the rate cut itself. 

It is worth noting that this market position still gives gold quite a bit of room to grow. If the Fed indeed decides to cut rates by another 50 basis points in November, expect a bump in metal prices as traders bet on the likelihood of inflationary action heading into December. 

Looking Forward: What’s Next For Precious Metal Markets? 

Federal Reserve Chair Jerome Powell is set to speak next Monday. This speech could give traders more insight into where monetary policy is heading, especially as it pertains to the Fed’s meetings in November and December. Later next week, unemployment data and speeches from several Federal Reserve Bank presidents will give analysts quite a bit of information to price into their positions.

For gold and silver, evidence of another jumbo rate cut coming in November should provide at least a temporary boost. Employment numbers released next week will be especially important to Powell’s position heading into a Fed-free October, as the FOMC’s decision to cut rates by 50 bps was largely motivated by a stalling labor market and sustainable progress toward 2 percent inflation. It’ll be too early for the rate cut to impact employment numbers directly, but a small drop in new payrolls would give markets more assurance that the FOMC made the right call last Wednesday. On the other hand, an unexpectedly strong labor market report would cast doubt on the Fed’s decision – and impact the tone and tenor of the committee’s next rate cut in November. 

Developments in the Middle East should also be on Wall Street’s radar heading into October. Signs of escalation, particularly between Hezbollah and Israel, will be short term boons for precious metals as traders seek to hedge their bets against instability.