Gold and Silver Lose Ground Ahead of U.S. CPI Data

 

Gold and Silver Prices Lose Ground Ahead of U.S. CPI Data

(Bullion News Network) – Precious metal prices dropped again today after bullish momentum drove gold to $2,516.70 and silver to nearly $29 per ounce on Thursday. Silver took the harsher losses between the two metals, dropping $.84 since market open and hovering near the $28 support line. If this price holds, it’ll be silver’s lowest price since August 13th, when the precious metal dipped to a local low of $27.56. Today’s market movement pulled gold down by around $17.50, though the metal remains about a dollar above that pivotal $2,500 support. 

Volatility has characterized precious metal markets this month as traders reckon with an all but confirmed interest rate cut slated for the Federal Reserve’s September 17th meeting. After a string of positive inflation reports and a U.S. job market slowdown, Fed Chair Jerome Powell confirmed on August 23rd that the time has come for the FOMC’s monetary policy to adopt a more dovish tone: 

The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate. The time has come for policy to adjust.

What remains to be seen, however, is just how dovish the Fed will shift at that mid-September meeting. A 25 bps rate cut is the most likely possibility, according to CME Group’s FedWatch prediction model. A larger rate reduction at 50 basis points is not out of the question, though. Speculation concerning the federal interest rate has been the story of precious metals market action this year, and there is little reason to expect that Q4 2024 will be any different. 

Consumer Price Index (CPI) data for August is slated for release next Wednesday (Sept. 11th) and should give the Fed – and traders – a much-needed signal about the tone and tenor of the FOMC’s upcoming meeting. Falling interest rate environments generally bode well for precious metal prices. Heightened bets on a 50 pbs rate cut helped drive gold to a fresh all-time high in late August, and next week’s CPI should have a major affect on precious metal markets. For non-metal markets, a 50 bps cut may be more trouble than it’s worth, according to some strategists.

August CPI: What to Expect For Metal Markets

As Chair Powell reiterated at the annual Jackson Hole Economic Symposium, the Federal Reserve remains committed to its dual mandate to keep prices low and employment high. So far, the official hasn’t given investors any signals on how large of a rate cut to expect at the next FOMC meeting. An unexpected drop in the labor market or large movements in the inflation rate could be two potential triggers for an abrupt rate cut, Powell explained in another press conference on July 31st. 

This background is what makes next week’s CPI so important, both to traditional and precious metal markets. The CPI is one of the two main reports the Federal Reserve uses to gauge inflation in the United States. If inflation falls too quickly, a 50 bps rate cut might become more likely. Analysts are divided on how markets would react to a “jumbo” rate cut, since adopting an aggressively dovish policy might seem like a “panic button” to investors, says Carl Weinberg, chief economist of High Frequency Economics. 

The Fed has to do something about [falling inflation rates], but it doesn’t have to push the panic button and go for a 50 bps cut.

American markets may be skittish about an aggressive rate cut, but precious metal markets would likely thrive in a free-falling interest rate environment. In fact, the sort of panicky stock market that might develop in the wake of a 50 bps rate cut might drive investors toward gold, which has historically functioned as a safe haven investment. 

For now, metal prices are down as investors eagerly await news from the Bureau of Labor Statistics. Expect volatility in gold and silver markets until next Wednesday’s Consumer Price Index gives investors more insight into what to expect from the September 17th Federal Reserve meeting. 

Post NFP #gold comment: This report is not weak enough to warrant a 50 bps cut on September 18, so with that in mind I think the market remains toppish and potentially may struggle to reach a fresh high at this point. If correct, we have some downside risks to 2 yr govn bonds and… https://t.co/AFp6I9hcVE

— Ole S Hansen (@Ole_S_Hansen) September 6, 2024