Gold and Silver Prices Retreat After Strong USD and Labor Market Readings

 

Gold, Silver Retreat On Strong Labor Market and Diminished Jumbo Rate Cut Bets

(Bullion News Network) – Gold prices are down to start the week, dropping nearly $10 on the day and falling below $2,650 per ounce. The silver market saw a reversal after several days of consecutive gains toward the end of last week. Silver dipped by over $.40 since Monday morning, dropping below $32/oz for the first time since October 3rd. A strong USD and falling bets for a large 50 bps rate cut at the Federal Reserve’s November meeting continue to motivate bearish pressure on both precious metals. 

Throughout the first three quarters of 2024, speculation surrounding interest rates has been the primary driver of precious metal prices. Rumors of a 50 bps rate cut in September drove gold to several all-time highs, and prices jumped further after the FOMC confirmed the “jumbo” rate cut on September 18th. Silver similarly jumped in the lead-up to the Fed’s September surprise but transitioned into a sideways pattern heading into early October. 

Until last week, Federal interest rate futures markets anticipated a high likelihood that the Federal Reserve would move to cut interest rates by 50 bps when it next meets in November. A better-than-expected inflation reading in the August PCE decreased the likelihood of another jumbo rate cut next month. Last week, an exceptionally bullish labor market report virtually guaranteed that rates will either remain the same or drop by 25 basis points when the Federal Reserve’s FOMC meets on November 7th. 

Geopolitical concerns provide at least a bit of a backstop to gold and silver, two assets that historically perform well during tense periods of conflict and uncertainty. Israel’s war with Lebanon-based Islamist paramilitary group Hezbollah continues to escalate, and some analysts believe the conflict could threaten stability in the entire region. So far, these tensions have been enough to prevent gold prices from a larger retreat. It is unclear how long this backstop will be effective, especially as we approach a Fed meeting that is likely to signal a less aggressive approach by Powell’s FOMC. 

U.S. Election, Pivotal FOMC Meeting Loom Over Metal Markets

The U.S. presidential election is less than one month away and should have major implications for precious metal markets. Gold and silver prices tend to correlate inversely with traditionally bullish market signals, including low inflation and low-risk political-economic climates. The hotly contested 2024 presidential election injects a fresh uncertainty into financial markets. With Vice President Kamala Harris and former President Donald Trump locked in a virtual dead heat, it is unclear which candidate will end up securing America’s highest office. 

Regardless of the outcome of this election, expect volatility in all markets – including the precious metals market. Both candidates’ platforms include potentially inflationary policies, and foreign policy regarding the border and conflicts in Ukraine and Gaza have taken center-stage during this election cycle. 

The Federal Reserve will meet to decide the federal interest rate on November 7th, just two days after the U.S. Election Day. With both a contentious election and a pivotal FOMC meeting upcoming, safe haven assets like gold and silver may be in for a bullish Q4.