Precious Metal Markets Dip After Jumbo 50 bps Fed Rate Cut

 

Markets Dip Following Jumbo 50 bps Rate Cut From the Fed

(Bullion News Network) – The Federal Reserve approved a 50 basis point interest rate cut after the FOMC’s September 18th meeting, confirming the first interest rate cut since 2020. Gold and silver prices jumped briefly after the Committee’s decision before a hitting major reversal beginning at 1:20 PM CST. Gold claimed a fresh all-time high of over $2,595/oz before dropping to a daily low of just under $2,550 in the hour following the announcement. Silver peaked above $31/oz immediately following the jumbo rate cut but dipped to $29.81 as a highly volatile market adjusted and readjusted. Metal prices seemed poised for a moderate recovery to round out Wednesday, with gold trending back up toward the $2,560-70 range and silver reclaiming the $30/oz level. 

Today’s precious metal price action mirrors a similarly volatile day in traditional markets. The S&P 500 briefly claimed a new high immediately after the Fed announced its 50 bps rate cut, but these gains were erased within the hour. The Dow Jones closed the day down .25%, and the S&P 500 dropped .29%, affirming concerns expressed by some analysts that a larger-than-expected rate cut could provoke skittishness in the markets. It is still too soon to tell whether the 50 bps rate cut from the Fed will negatively impact markets in the medium or long term. 

Federal Reserve Chair Jerome Powell defended the Fed’s surprise 50 point rate cut in a press conference following the FOMC decision:

The U.S. economy is in a good place, and our decision today is designed to keep it there. Our position is to maintain the strength we currently see in the economy.

There was one dissenter in the majority ruling of the FOMC to cut interest rates by 50 points, Michelle Bowman. Bowman “preferred to lower the target range for the federal funds rate by 1/4 percentage point,” according to the statement from the FOMC. Bowman’s dissent is the first non-unanimous vote logged by the Federal Open Market Committee since 2005. 

Aside from Bowman, the Committee agreed unanimously to cut interest rates by 50 basis points, a move that economists say likely signals the Fed’s intention to begin lowering rates consistently heading into 2025. 

#Gold and #silver markets are volatile in the wake of the Federal Reserve’s jumbo 50 bps interest rate cut. This price drop coincides with a drop in the S&P 500, which closed in the red – despite a 100 point bounce in the immediate aftermath of the Fed announcement. pic.twitter.com/3pFWlKk7MP

— Hero Bullion (@HeroBullion) September 18, 2024

Aggressive Fed Rate Cut Signals More Reductions To Come, Analysts Say

Traditional and precious metal markets trended down after the Fed’s massive 50 point cut, but analysts believe that the decision signals that more declining interest rates may be on the way. Journalist Don Lee of the Los Angeles Times explains:

Based on Fed officials’ latest projections, they are likely to lower rates by a quarter of a point two more times this year and four times next year. Powell cautioned, however, that interest rate policy is not on a pre-set course and that future moves will depend on incoming economic data.

Speaking to the press following the FOMC’s decision, Powell was indeed cautious to commit to any set schedule for interest rate cuts. “There’s nothing in the SEP,” Powell said, “that suggests the committee is in a rush to get this done.” According to the Fed Chair, the process for easing monetary policy “evolves over time.” CME Group’s interest rate predictive model, FedWatch, projects that interest rates will likely decrease at each monthly meeting leading into 2025. 

If this is true, then the drops in metal and stock markets today may not signal that traders will continue to see red throughout Q4 2024. Stocks tend to thrive in low interest rate environments, and gold has historically performed well when interest rate cuts are anticipated. 

What Does Today’s Rate Cut Mean For Precious Metal Prices? 

Gold and silver prices jumped immediately after the Fed meeting before a significant correction drove both metals to daily lows. Since midday, prices recovered to only moderate losses, capping off a volatile day in the precious metals market. The stock market performed similarly, with both the DOW-Jones and the S&P 500 logging early gains following the announcement and closing the day in the red. The volatile price action is likely not a major concern for traders, as markets had only a few hours to lock in trades in response to a larger-than-anticipated rate cut from the Fed. 

Given rallies in gold and silver prices leading up to the Fed’s meeting, it isn’t surprising that a pullback occurred shortly after rumors turned into news. Volatility is likely over the next week as traders fully price in the Fed’s decision and turn toward new economic data – as well as a contentious election in the United States. After that, incoming economic data reports should give investors – and the Fed – a better idea of how the economy might be reacting to the first rate cut in over four years.