Gold Sets Fresh All-Time High After Soft CPI Report

 

Gold Sets Another All-Time High Following August Inflation Report

(Bullion News Network) – After a moderate drop yesterday, gold prices have once again reached new heights. The precious metal hit an all-time high earlier this morning, crossing $2,550 per ounce as investors priced in the August Consumer Price Index (CPI) released yesterday. This index, which is one of the core metrics used by the Federal Reserve to gauge inflation, fell in-line with expectations and showed that U.S. consumer prices continue to soften. 

The upward trend in gold prices comes just five days before the Fed’s Federal Open Market Committee (FOMC) is set to meet. At this September 17-18th meeting, the committee will likely decide to adjust the federal interest rate. Analysts say that a 25 basis point cut is probable, although a “jumbo” 50 bps interest rate cut is not entirely out of the question. On Wednesday, gold prices dropped as investors priced in the middling CPI, which came in too average to justify a larger 50 bps rate cut. 

Current Market expectations for Fed Rate Cuts…
-Sep 18, 2024: 25 bps cut to 5.00-5.25%
-Nov 7, 2024: 50 bps cut to 4.50-4.75%
-Dec 18, 2024: 25 bps cut to 4.25-4.50%
-Jan 25, 2025: 50 bps cut to 3.75-4.00%
-Mar 19, 2025: 25 bps cut to 3.50-3.75%

https://t.co/l5IYmkf6Ih pic.twitter.com/Y2wZRHE4r5

— Charlie Bilello (@charliebilello) September 12, 2024

Traders are now looking ahead to a virtually guaranteed rate cut at the Fed’s meeting next Tuesday, adding to the appeal of gold bullion, which generally performs well within low-rate climates. This year, speculation concerning the timing and aggressiveness of interest rate cuts has been behind much of gold’s stellar performance. The metal logged highs in March, April, May, July, and August. September appears to be more of the same, and the news of a long-awaited rate cut in less than one week gives gold an extremely high ceiling. 

Gold prices are up over $40 at midday, hovering in the $2,550-60 range and adding over $20 to the precious metal’s all-time high.

Silver logged even more impressive gains this morning, climbing over 3% and etching closer toward the tricky $30 resistance in the tailwinds of gold’s record-breaking run. This marks the fourth consecutive day of gains for silver prices, a run that began on Monday. The precious metal now sits within 25 cents of its monthly high of $29.97, which was silver’s closing price on the 27th of August. 

Silver’s performance pulled the gold-to-silver ratio below 86:1, the lowest GSR since August 29th. 

What Should Traders Expect From the Next Federal Reserve Meeting? 

Last month, Federal Reserve Chair Jerome Powell confirmed that the “time has come” for the Fed to consider cutting interest rates. Yesterday’s CPI saw inflation hit a three-year low, and a shaky labor market has given the FOMC even more reason to act quickly and reduce the federal interest rate. CME Group’s FedWatch model predicts a 100% chance that interest rates will be lowered at the conclusion of the FOMC’s meeting on the 18th. 

What remains a subject of speculation, however, is how large of a rate cut traders should expect. CME Group finds that a 25 bps cut is most likely, giving it an 85 percent probability. A larger rate cut of 50 bps is also possible, though the FedWatch tool only anticipates a 15% chance that the Fed will opt for such an aggressive approach.

Adding to the controversy surrounding interest rates is the market risk associated with a 50 bps cut. A higher-than-anticipated interest rate cut “could send stocks reeling,” says Josh Schafer of Yahoo Finance, as the aggressive choice would inject volatility into markets and suggest panic from the central bank. This hasn’t stopped gold bulls from hoping – a bold interest rate cut would certainly be a boon for safe haven assets like gold and silver. 

For now, precious metal traders await confirmation from the Fed as the central bank finally makes good on its promise to cut interest rates.