Precious Metal Markets Brace For Impact Ahead of First Interest Rate Cut In Four Years

 

UPDATE (3:00 PM CST) – Fed Confirms “Jumbo” 50 Point Rate Cut, Metal Prices Dive 

(Bullion News Network) – The FOMC confirmed an aggressive 50 point rate cut at 2 PM ET this afternoon, provoking volatile price action in all markets – including precious metals. Gold and silver prices both climbed in the minutes after the decision was released, with gold surging to an all-time high above $2,595 and silver peaking above $31. These gains were erased just hours later, sending gold close to the $2,550 line and silver plummeting $.78 to below $30.oz. 

Wall Street struck a similar tone of volatility; the S&P etched out a 100 point gain before dipping into the red. Stock traders should expect more of the same back-and-forth heading into the rest of this week as traders adjust to a low-rate environment and bet on what a “jumbo” 50 point rate cut might mean for both the Fed’s outlook and general market confidence. 

This page is no longer being updated. Read our update following the Fed rate cut here.

Metal Markets Brace For Impact Ahead of Pivotal Fed Rate Cut

Federal Reserve Chair Jerome Powell will release the FOMC’s statement at 2 PM ET today following the Committee’s September meeting. The Fed is expected to cut interest rates for the first time since March of 2020 amid a slowing jobs market and steadily decreasing inflation numbers. The decision will provide some much-needed relief for vehicle or home purchasers and could inject more life into a stalling housing market. 

Traders and analysts are divided on exactly how large today’s rate cut will be, which adds a tinge of uncertainty into an otherwise optimistic moment for the central bank. So how much will the Fed cut interest rates by after its September meeting? The FOMC will either cut rates by 25 basis points or by 50, and CME Group’s FedWatch tool predicts nearly even odds between the two options. As of 1 PM ET, the predictive model anticipates a slightly larger chance (55%) of a 50 bps cut than a more modest 25 bps rate cut (45%). 

An aggressive rate cut isn’t without risk, according to some economists. Analysts from Bank of America write that a 50 bps cut may signal “an admission that [the Fed] is behind the curve,” and Morningstar’s Sarah Hansen explains that each 50 basis point cut since 1987 has occurred right before a recession. Bottom line: some experts believe that an aggressive rate cut might suggest that Powell believes the American economy has reason to be concerned amid a slowing labor market. 

Bill Dudley, former President of the Federal Reserve Bank of New York, disagreed in a Bloomberg opinion piece. A large rate cut today would make it easier for the Fed to “align its projections with market expectations,” he said, instead of being forced into “an unpleasant surprise not warranted by the economic outlook” later down the line. 

The Fed decision comes out just over one hour from now. This should be a big day for #gold and #silver as markets finally price in the first rate cut since 2020.

Interest rate speculation has played first chair in gold’s numerous ATHs this year, but the real news is coming! https://t.co/ISZu0rtyG0

— Hero Bullion (@HeroBullion) September 18, 2024

How Will Today’s Rate Cut Impact Precious Metal Prices? 

Speculation regarding interest rate cuts has driven gold to several fresh all-time highs this year, but markets have not yet priced in an actual rate cut. For precious metal traders, today’s Fed decision should be one of the biggest events of 2024. Some economists argue that gold prices are negatively correlated with interest rates, but the claim is hotly contested among analysts. Instead, it seems that market speculation regarding cuts may play a more direct role in gold price action than the rates themselves. 

Still, a rate cut for the first time since 2020 after a year of rabid investor speculation and metal price runs is likely to shake up gold and silver markets. Gold prices steadied this morning, with the metal gaining just $5.71 since market open. Silver dropped but remains barely above the $30.50 line. 

For both markets, expect heavy movement throughout the week as traders digest a highly anticipated rate reduction from the Federal Reserve.