Gold Moves Sideways, Silver Gains As Strong Labor Data Quashes 50 bps Rate Cut Hopes

 

Gold Moves Sideways, Silver Gains After Strong Job Market Reading Limits Rate Cut Expectations

(Bullion News Network) – Gold is set to end the trading week at about the same spot it started on Monday. Prices dropped marginally this morning before recovering close to yesterday’s levels by the late afternoon. The metal’s initial price drop came in the wake of today’s labor market report, which far outpaced expectations. According to today’s report, the U.S. economy added 254,000 new jobs in September, a reassuring sign for a labor market that appeared to be stalling just months ago.

This morning’s optimistic labor market reading dampened investor hopes for a 50 bps rate cut in November. Last month, a larger-than-expected 50 point cut from the FOMC injected new life into precious metal markets, presumably because a large rate cut runs the risk of increasing inflationary pressure. Gold prices dropped last week after an unexpectedly soft inflation reading suggested that the Fed may have a bit of wiggle room heading into its November meeting. Today’s jobs report erased any remaining hope that another jumbo rate cut is on the way, since a strengthening labor market reduces the need for aggressive inflationary policy action from the Committee. 

CME Group’s FedWatch now anticipates a near certain 25 bps rate cut in November – bad news for traders hoping the Fed would double down with another jumbo cut. An unexpectedly strong labor market is the reason for the change. #Gold took minor losses today. #Silver is up big. pic.twitter.com/uK0EhM3aq1

— Hero Bullion (@HeroBullion) October 4, 2024

Geopolitical tensions, particularly in the Middle East, continue to provide at least a bit of support to gold, a safe haven asset that tends to thrive during periods of conflict. Heading into Q4 2024, expect Israel’s ongoing conflicts with Gaza, Hezbollah, and Iran to be a primary price motivator for safe haven assets. 

Unlike gold, silver will end the week in the green. The metal gained over $.20 on the day, rounding out a week of bullish momentum that began on Tuesday. This is the first time silver prices have ended a trading week above $32 per ounce since the beginning of 2024. Silver has certainly benefited from the same geopolitical tension trading that motivated gold’s performance toward the end of September, but supply constraints and record demand have played an even larger role in the metal’s 2024 price action. 

What’s Behind Silver’s Price Surge? 

Today’s price action drove the gold to silver ratio down to 82.26:1, the lowest GSR in over two months. Silver is up over $8 from January 1st of this year, an appreciation rate of over 35%. Soaring industrial demand and a growing supply deficit are two major contributors to the metal’s exceptional 2024 performance. The electric vehicle sector has long been a key demand driver for silver. China’s surging demand for the precious metal in the solar panel industry bears a striking resemblance to the conditions that led to the 2011 silver price spike. 

It is clear that supply-demand fundamentals are helping elevate silver prices while gold stagnates. The metal remained largely correlated with gold for most of September, with the gold-silver ratio hovering in the 84-90:1 range throughout the month. Today’s silver breakout may signal that silver’s value is less motivated by interest rate speculation than gold’s. Optimistic labor market data from today’s jobs report virtually eliminates the possibility of a 50 bps rate cut at November’s meeting, which should put a bit of pressure on gold as traders price in a more modest rate reduction. 

Could Gold Prices Fall Further?

For the time being, geopolitical tensions in the Middle East provide a bit of support to gold prices as bulls fight to keep the metal above that $2,650 line. Today’s favorable labor market report likely hasn’t been fully priced in, though. CME Group still projects only a small (6.6%) probability that the FOMC will forgo a rate cut at its next meeting, which is scheduled for just two days after the election on November 7th. Fluctuations in market futures surrounding the Fed’s next move will continue to be a major market mover for gold prices. 

If the odds of no cut in November begin to increase, traders should anticipate at least a bit of bearish pressure in the gold market. The Fed’s surprise 50 bps rate cut drove gold past several all-time highs late last month, so it’s likely that a more cautious FOMC will take some wind out of gold bulls’ sails. 

Of course, gold is a safe haven asset that tends to perform well during periods of conflict and uncertainty. With a hotly contested presidential election on the line and several economic issues taking center stage, gold’s next move might be anybody’s guess.